Leverage
Using borrowed money to buy more property than you could with cash alone. It can raise returns when values and rents rise and magnify losses when they fall.
Also called: OPM, other people's money, financing leverage
Related terms
The loan amount divided by the property's value or price, whichever is lower, as a percentage. Lower LTV means less risk for the lender and often better pricing; above 80% usually triggers mortgage insurance on conventional loans.
Yearly pre-tax cash flow divided by the cash you actually put in, such as the down payment, closing costs and rehab. It shows the return on your own money when using a loan.
A property's net operating income divided by its annual loan payments. A ratio above 1.0 means income covers the debt; lenders usually set a minimum, often around 1.2 to 1.25 for commercial loans.
The part of the purchase price you pay in cash rather than borrow. A larger down payment lowers the loan amount and can remove the need for mortgage insurance on a conventional loan.