Understanding leverage: a beginner’s guide

Leverage is the practice of borrowing money, like a mortgage, to invest in property. It can significantly magnify your financial returns, as any increase in the property's value results in a large percentage gain on your smaller initial deposit.

However, leverage also magnifies losses. A drop in property value can create a substantial percentage loss on your deposit. These are unrealised losses until you sell. As your property's value increases, you can leverage the equity for renovations or another purchase, guided by Loan-to-Value Ratios (LVRs).