What is positive financial leverage?
Most real estate investors understand that real estate is an investment medium that permits the use of significant financial leverage. For the uninitiated, financial leverage is the use of borrowed funds to purchase an investment. The amount of financial leverage increases as the amount of the borrowed funds increases. For most real estate investments, the amount of leverage will range from 50% to 90% of the purchase price. In order to be a successful real estate investor, you need to thoroughly understand the concept of financial leverage. The right type of financial leverage can significantly increase your yield from an investment. What kind of financial leverage can so increase your yield? It’s known as positive financial leverage. But what is positive financial leverage? Positive financial leverage occurs when borrowed funds are invested at a rate of return that is GREATER than the cost of the investor’s borrowed funds. Simply put, positive leverage is putting money to work to earn