Leverage In Real Estate Investing
Use of other people's money (OPM) in an attempt to maximize the return but at high risk. The use of leverage in real estate investing is a way to maximize yield on a small down payment. When building real estate wealth, leverage helps one grow fast without extreme risk. High-leveraged investing in real estate is particularly beneficial in a highly inflationary environment. The best scenario is when property values increase on their borrowed fund. Property values can also decrease such as that which occurred in California in the early 1990s. A risk is negative cash flow in which income from highly leveraged property may be inadequate to pay operating expenses, interest, and principal.
Popular Real Estate Terms
Current cost to replace property with an identical property after allowing for the depreciated value of the property. ...
(1) Cash revenue from product sales or services rendered less cash expenses. It is different from accrual earnings. (2) The money available after deducting operating expenses and mortgage ...
Provision permitting a lender to charge the borrower a penalty for repaying a loan before its due date. ...
Written agreement in which the lessee pays rent to the lessor for the use of real property for a stated time period. An example is the tenant's rental of an apartment or office space. ...
Last installment payment, substantially greater than the previous installment payments. The unpaid balance of a long-term loan is paid off in a lump sum at the end of the loan term. ...
In an electrical system, the connection box where all the circuit systems are installed with a series of electrical breakers. The major distribution or collection duct in an ...
Tank placed beneath the ground to accumulate sewage. ...
Borrower's right to redeem his property by immediately paying off the loan balance and any related costs. ...
Ratio of annual mortgage payments divided by the initial principal of the mortgage. This only applies to loans involving constant payment. For example, a $500,000 loan with an annual ...
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