Definition - What does Leverage mean?

Leverage is a financing strategy in which a party funds an investment with little money down. The remaining funds needed to make the investment come from borrowed money. In the context of the law, the investor gradually builds up more equity or legal ownership or control of the investment as he or she pays down the debt owed.

Justipedia explains Leverage

Leverage is commonly used in real estate investing. For example, a real estate investor may buy a new $10,000,000 hotel with only $1,000,000 down. He may finance the rest with bank loans. In these circumstances, the bank loans help him afford the property that he would otherwise not be able to afford. Over time, the investor can use the cash flow from the hotel to pay off the debt. The more debt he pays off, the more of the property he will actually own.

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