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Professional investors use debt to increase potential returns on their real estate investments. Private individuals use mortgages to buy their dream homes. In both cases, these loans amplify potential gains (and losses) and, therefore, provide leverage to the investors.
Imagine your home's value increases by 10%. If the home was initially worth 100% and financed with 70% mortgage and 30% your own funds, its new value is 110%. After repaying the 70% mortgage, your equity share would increase from 30% to 40% of the home's value, marking a 33% increase in your home equity vs 10% growth in home value.
The example above shows how financing changes the return on a single property. The table below lines up levered and unlevered returns side by side on the points this article covers: what each measures, how debt changes the outcome in both directions, and where the 8FIGURES app tracks each one.
| Dimension | Unlevered Return | Levered Return |
|---|---|---|
| What it measures | The return on the property itself, based on the investor's own funds with no mortgage or other debt in the deal. | The return on the investor's equity slice after debt (a mortgage, for example) is used to fund part of the purchase. |
| Role of debt | None — 100% of the purchase is the investor's own funds. | Debt (e.g., a 70% mortgage against 30% investor funds) covers part of the purchase; this is what "provides leverage" to the investor. |
| Effect on gains | Equity grows at the same rate the property value grows — a 1:1 relationship. | Debt amplifies the equity-side change, so a given rise in property value can produce a larger percentage change in the investor's equity, as in the illustrative example above. |
| Effect on losses | A decline in property value reduces equity by the same percentage — no amplification either way. | The article is explicit that debt "amplifies potential gains (and losses)" — the same mechanism that can increase equity growth on the way up can reduce equity, or eliminate it, on the way down. Leverage is a two-directional risk, not a one-way benefit. |
| Typical use case | A common lens for comparing the raw performance of a property or deal without financing choices in the picture. | How most real estate is actually bought — professional investors financing deals, and private individuals financing a home purchase with a mortgage. |
| Tracked in the 8FIGURES app | Calculated automatically as one of the real estate metrics the app reports. | Calculated automatically alongside unlevered return, including IRR, home equity, and outstanding mortgage balance. |
Definitions summarized from this article's discussion of levered and unlevered real estate returns. The 30%-to-40% equity example above is an illustrative example, not a projection of any specific property's future performance. See your Portfolio Analyzer to view levered and unlevered returns calculated automatically for your properties.
8FIGURES app enables you to better understand your real estate exposures by automatically calculating all the important metrics including:
Additionally, you can link your US real estate via Zillow to get up-to-date home value estimates (Zestimate).
Take control of your real estate investments like never before. Download the 8FIGURES app today and start optimizing your portfolio.
Managing your investments has never been easier!
