What does leverage refer to in real estate?

Leverage in real estate refers specifically to the use of borrowed funds to finance the purchase of an asset. By using leverage, investors can control a larger property with a smaller initial investment. This is common in real estate where investors typically use financing, like a mortgage, to buy properties, allowing them to potentially increase their return on investment. By using other people's money, such as a lender's funds for financing, investors can amplify their purchasing power, enabling them to acquire more expensive properties or additional properties than they could buy outright with their own cash. This strategy is prevalent in real estate because it allows for greater returns on equity when property values increase.

On the other hand, utilizing personal savings to invest, investing in properties with cash, or owning multiple properties without financing does not involve leveraging debt, which is the key component that defines leverage in this context.