Buying guide
Understanding leverage: a beginner’s guide
Don’t let jargon get in the way.
AI summary
Leverage is borrowing money to invest, such as using a mortgage to buy property. It significantly magnifies your financial outcomes.
A small rise in property value can create a large return on your deposit. However, leverage also amplifies risk, as a price drop can cause a substantial loss on your equity. These are unrealised (on paper) until you sell.
As your property's value grows, you can leverage the increased equity for renovations or another investment property.
Image source: www.reinz.co.nz New Zealand House Price Index - June 2024
Example #1: No leverage
Example #2: With leverage + property prices RISE
Example #3: With leverage + property prices FALL
Realised vs. unrealised leverage
The attractiveness of leverage
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