This is a technique used by investors to enhance the return on their equity. They buy the property by investing small portion of their own money and the balance is borrowed. They mortgage the property to secure the capital. In other words it is the effect of borrowed capital upon the rate of return on equity investment. It is also the degree to which an investor or business is utilising borrowed money. For companies, leverage is measured by the debt-to-equity ratio, which is calculated by dividing long-term debt by shareholders’ equity. The more long-term debt there is, the greater the financial leverage and the greater the risk of the company falling on its face. For investors, leverage means buying on margin or using derivatives such as options, to enhance return on value without increasing investment. Leveraged investing can be extremely risky because you can lose not only your money but the money you borrowed as well.
