Question: What is meant by the word “leverage” when used in conjunction with investing in real estate?
Answer: Leverage arises because ALL of the appreciation belongs to the property holder regardless of the amount of the loan. To illustrate, assume a $100,000 property was purchased for only $10,000 cash and a $90,000 mortgage, the investor would realize, not a 5% gain, but rather a 50% gain on his initial cash investment because he only invested $10,000 for the property. That is leverage.
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