Measuring the effects of borrowing on property investments
Abstract
Investors commonly use debt finance in the purchase of incomeāproducing properties with the aim of enhancing their return on equity. Describes how the past effects of borrowing can be assessed from property returns and loan interest rates in recent years. Methods for measuring the past consequences of financial leverage are considered and tested. Based on data from the residential property market in Perth, Western Australia between 1982 and 1994, borrowing at a variable interest rate would have shown a modest increase in return and added considerably to the volatility or risk. The impact of inflation and taxation on the benefits and risks of financial leverage is also assessed.
Keywords
Citation
Rowland, P. (1996), "Measuring the effects of borrowing on property investments", Journal of Property Finance, Vol. 7 No. 4, pp. 98-110. https://doi.org/10.1108/09588689610152417
Publisher
:MCB UP Ltd
Copyright © 1996, MCB UP Limited