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leverage

1) 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. 2) 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.




The People's Law Dictionary by Gerald and Kathleen Hill Publisher Fine Communications