Real Estate and Leverage Worksheet

In the chapter 14 module on Buying on Margin and Selling Short, we examined how to magnify our returns via buying on margin, borrowing money to invest. This is often referred to as financial leverage. In the world of real estate, financial leverage is normally enormous. The enormous financial leverage in the world of real estate can magnify your investment return many times. However, it also has the potential to wipe out your entire investment quickly, as many folks in 2008 learned the hard way. Note: The calculations will *not* be on the final exam!

Real Estate and Leverage Worksheet

Audio Commentary - Answer Key - Document

When we work through this worksheet, often we will get push back from real estate professionals. "What are you trying to do? Dissuade people from buying real estate?!" That is not what we are trying to do! As we mentioned, real estate can be very, very profitable. As always, what we want is for potential investors to have their eyes wide open and understand the potential pitfalls as well as the potential rewards. We hope by now you have come to realize that no investment is perfect. Every investment has potential advantages and disadvantages. Each investment has a risk versus return profile. We also hope by now that you are more comfortable sorting out the pros and cons of the major investment classes and are ready to make your investment decisions. (Psst! $50 or $100 per month into a high-quality, long-term oriented, global stock growth 'n' income mutual fund won't do ya' wrong, Dear Students ... unless the world ends.)