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 significantly magnifies your financial outcomes.
A small increase in property value can create a large return on your deposit. However, leverage also amplifies risk, as a price drop can cause a major loss on your investment. These are unrealised (on-paper) changes until you sell. As property values rise, you can use the equity for renovations or other investments, respecting LVR limits.
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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