Financial Leverage & Risk Analysis

Diversification Benefits

Advantages from investing less equity, buying more properties

Unleveraged BTIRR

Before Tax IRR without debt, 100% equity funded return

Liquidity Risk

Challenges in selling property quickly

Mortgage Covenants

Conditions like lease approval, updates, and property appraisal

Interest Rate Risk

Effect of variable rates on property value

Debt Coverage Ratio

Ensures timely mortgage payments to cover debt

Positive Financial Leverage

Higher returns with debt when property return exceeds debt cost

Inflation Risk

Impact of unexpected inflation on income

Environmental Risk

Liability for environmental issues in property chain of title

Debt Yield

NOI/Loan Amount - lender's annual return if property is taken back

Loan To Value Ratio

Protects lender if property value drops, ratio of loan to property value

Legislative Risk

Risk from regulatory changes affecting property

Mortgage Interest Tax Benefit

Tax advantage on mortgage interest payments

Financial Leverage

Using borrowed funds to increase investment returns