Leverage Effect Analyzer
Analyze how leverage affects returns in real estate investing. Compare levered vs unlevered cash-on-cash returns.
How it works
Compares returns with and without leverage. Positive leverage occurs when property return exceeds borrowing cost.
Example
8% property yield, 5% loan rate = positive leverage amplifies returns through borrowed capital.
FAQ
What is positive vs negative leverage?
Positive leverage occurs when property yield exceeds loan rate, amplifying returns. Negative leverage happens when loan rate exceeds property yield, reducing returns.
How much leverage should I use?
Depends on risk tolerance and market conditions. Higher leverage amplifies both gains and losses. Consider debt service coverage and cash flow stability.
What's the break-even leverage point?
When the property's unlevered yield equals the loan interest rate. Above this rate, leverage helps; below it, leverage hurts returns.
Should I maximize leverage if it's positive?
Not necessarily. Consider cash flow coverage, market risk, interest rate changes, and your overall portfolio diversification and risk tolerance.
How do I calculate levered vs unlevered returns?
Unlevered: NOI ÷ Property Value. Levered: (NOI - Debt Service) ÷ Down Payment. Compare the two to see leverage impact.