Leverage
Leverage in real estate, particularly in commercial real estate, is a powerful tool that savvy investors use to enhance their investment returns and maximize potential profits. It is a strategy that involves using borrowed capital to finance the purchase of a property, with the expectation that the income generated by the property will exceed the cost of the borrowed funds. In other words, investors leverage other people’s money to increase their purchasing power and potential returns.
The concept of leverage in commercial real estate is often associated with the phrase “using OPM,” or “Other People’s Money.” This strategy allows investors to control large, income-producing properties with a relatively small amount of their own capital. By doing so, they are able to amplify the potential return on their investment. When used wisely and responsibly, leverage can significantly boost the profitability of commercial real estate investments. For a more comprehensive guide to leverage in real estate, please view this post.
Leverage in a real estate transaction can encompass senior debt as well as mezzanine debt and other subordinate debt instruments.
Leverage in real estate is a key concept to understand in the CRE asset class. Please reach out to ir@equitymultiple.com with any questions.