Commercial real estate has many tools that can be used to maximize one’s return on investment (ROI). Among the many tools to choose from, leverage is one of the most effective ways to limit (or omit) the amount of personal money you put in a deal, and see the highest return possible.
In order to understand leverage in commercial real estate, you must completely understand what it is, and the main factors that determine if leverage is positive or negative. Unfortunately, if not prepared properly, leverage can completely destroy the income producing capabilities of a property and leave the owner’s income in the red.
Using leverage to your advantage can mean more effective investments every time, either allowing you to do less deals per year, or greatly increase your wealth in a short amount of time.
Leverage is magic in commercial real estate.
Leverage is directly related to the amount of money borrowed on a deal, compared to the current value and potential value of an income producing property. Leverage occurs when money is borrowed at a certain interest rate that is less than the rate of return on a commercial property. Let’s look...
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