Leverage
The use of borrowed money to control a larger investment, which can magnify both returns and risk.
Quick flashcard
What does Leverage mean on the Texas real estate exam?
Answer: The use of borrowed money to control a larger investment, which can magnify both returns and risk.
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Leverage definition
Leverage is using borrowed funds so that a smaller amount of an investor's own cash controls a larger asset. When the property performs well, leverage magnifies the return on the cash invested. This is positive leverage.
Leverage also increases risk. If the property underperforms or values fall, the same borrowing magnifies the loss, which is negative leverage.
Source basis
Definition checked against the official sources below on .
On the exam
Exam trap
Tested in
Value & Appraisal (11 of 80 National)
From definition to recall
See this term inside a real exam question.
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