Buying guide
Understanding leverage: a beginner’s guide
Don’t let jargon get in the way.
AI summary
Leverage is borrowing money, like a mortgage, to invest in property. It allows you to buy an asset worth much more than your initial deposit.
This strategy magnifies returns, meaning a small rise in property value can create a large percentage gain on your investment. However, leverage also magnifies losses just as powerfully if the market falls.
These are unrealised (on paper) gains or losses until you sell. Increased equity can be used for renovations or another deposit.
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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