Real estate leverage is a financial concept that allows investors to multiply their purchasing power through the use of a loan. In other words, real estate leverage allows an investor to buy real estate by financing only part of its value, with the rest being financed by a bank loan.
Let's take a concrete example: if you want to buy a property worth 200,000 euros and you have a personal contribution of 50,000 euros, you can borrow 150,000 euros from a bank to finance the rest of the procurement. If the interest rate of the loan is 2%, you will have to repay 150,000 x 2% = 3,000 euros per year during the term of the loan. If you rent the property to a tenant for a rent of 1,000 euros per month, you can therefore expect to generate a net rental income of 1,000 x 12 – 3,000 = 9,000 euros per year.
Real estate leverage can therefore be an effective way to invest in real estate by multiplying your purchasing power, but it also involves risks. In particular, if the interest rate on the loan increases, monthly repayments may become more difficult to meet, which may jeopardize your investment. It is therefore important to carefully assess the advantages and disadvantages of real estate leverage before embarking on this form of investment.
