Property investment: gearing and the equity rate of return
Journal of Property Investment & Finance
ISSN: 1463-578X
Article publication date: 29 March 2019
Issue publication date: 29 March 2019
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
Citation
French, N. (2019), "Property investment: gearing and the equity rate of return", Journal of Property Investment & Finance, Vol. 37 No. 3, pp. 323-328. https://doi.org/10.1108/JPIF-02-2019-0011
Publisher
:Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited