Reverse Leverage
Barron's Business Dictionary:
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Reverse Leverage
Situation in which financial benefits from ownership accrue at a lower rate than the interest rate paid for money; also called negative leverage. See also leverage.
| Reverse Imports, Reverse Engineering, Reverse Discrimination | |
| Reverse Split, Reversed, Reversing Entry |
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Reverse Leverage
Barron's Real Estate Dictionary:
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Reverse Leverage
A situation in which financial benefits from ownership accrue at a lower rate than the mortgage interest rate.
See LEVERAGE, NEGATIVE LEVERAGE .
Example: net - leased property is purchased for $100,000 with a $75,000 mortgage at 12% interest and $25,000 of equity. The net rent is $10,000 per year; interest expense is $9,000 per year. The $1,000
difference (cash flow) provides a 4% return to the equity owner. In the absence of debt, the owner would receive a 10% return on the full purchase price.
Reverse leverage works against the property owner because the interest rate exceeds the overall rate of return .
See LEVERAGE, NEGATIVE LEVERAGE .
Example: net - leased property is purchased for $100,000 with a $75,000 mortgage at 12% interest and $25,000 of equity. The net rent is $10,000 per year; interest expense is $9,000 per year. The $1,000
difference (cash flow) provides a 4% return to the equity owner. In the absence of debt, the owner would receive a 10% return on the full purchase price.
Reverse leverage works against the property owner because the interest rate exceeds the overall rate of return .
| Reverse Exchange, Revenue Stamps | |
| Reverse Mortgage, Reverse Radius Clause |
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Barron's Business Dictionary
Dictionary of Business Terms. Copyright © 2007 by Barron's Educational Series, Inc. All rights reserved.
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