Property investment: gearing and the equity rate of return

Nick French

Journal of Property Investment & Finance, 2019, vol. 37, issue 3, 323-328

Abstract: Purpose - The purpose of this paper is to comment upon the relatively straightforward but often misunderstood role of gearing (or leverage) on the potential equity return of a property investment. Design/methodology/approach - This education briefing is an explanation of the upside and downside risk of borrowing (at different levels) to successful investment. Findings - The use of gearing can greatly enhance equity returns but at an increased risk. Practical implications - The process of borrowing at a bank rate below the return rate on an investment project can increase the equity return of the project as long as all incomes and discount rate remain at appropriate levels. Originality/value - This is a review of existing models.

Keywords: Leverage; Bank debt; Equity rate of return; Gearing; Investment risk; Project rate of return (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jpifpp:jpif-02-2019-0011

DOI: 10.1108/JPIF-02-2019-0011

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