What is meant by the term "leverage" in real estate?

In real estate, "leverage" refers to the use of borrowed funds to amplify the potential return on investment. Essentially, investors use other people's money, typically in the form of a mortgage, to purchase property, allowing them to control a larger asset without having to commit all their own capital upfront. This practice can significantly increase returns on investment, especially if the property appreciates in value or generates income that exceeds the cost of borrowing.

Utilizing leverage can lead to higher profitability, as the investor benefits from the full value of the property while only having invested a fraction of that amount. For instance, if an investor buys a property worth $500,000 using a $100,000 down payment and a $400,000 mortgage, any increase in property value effectively raises the return on the initial $100,000 investment.

The other options mentioned do not relate to the concept of leverage in real estate. Investing in bonds for stability, holding cash reserves, or focusing only on low-risk real estate does not describe the strategic use of borrowed money to maximize investment outcomes. These strategies might be used in conservative investment practices but do not convey the essence of leveraging in real estate.