Leverage

Dictionary Definition

• n. the use of borrowed money to purchase real estate or business assets, usually involving money equaling a high percentage of the value of the purchased property.
• v. to borrow most of the funds necessary as a loan against real estate to buy other real estate or business assets. The dangers of high leverage are over-appraisal of the property to satisfy a lender, a decline in the value of the property (which may have been purchased during a period of high inflation), high carrying costs (interest, insurance, taxes, maintenance) which exceed income, vacancies and/or inability to finance improvements to increase profits. Too often the result is the collapse of “paper” real estate empires which have been created by risky leveraging.

1. A force compounded by means of a lever rotating around a pivot; see torque.
2. By extension, any influence which is compounded or used to gain an advantage.
3. finance The use of borrowed funds with a contractually determined return to increase the ability of a business to invest and earn an expected higher return, but usually at high risk.