Comments on: Builders Corner: Negative Leverage http://www.astudentoftherealestategame.com/2009/03/23/builders-corner-negative-leverage/ a foum for real estate education Mon, 30 Jan 2012 11:07:19 +0000 hourly 1 By: lorenzo http://www.astudentoftherealestategame.com/2009/03/23/builders-corner-negative-leverage/comment-page-1/#comment-1517 lorenzo Thu, 17 Dec 2009 23:56:29 +0000 http://www.astudentoftherealestategame.com/?p=682#comment-1517 I think you chose not the easiest way to explain the idea of negative leverage. It would be much easier to compare RoA/Cap Rate (10% and 8,5% in your two scenarios) with the effective interest rate paid over the period. In the first case is 8,48% (which is lower than 10%, so the levarage is positive) while in the second case the int rate paid is 8,67%, which is higher than return on asset, then the negative leverage. The formula is <br>RoE = RoA +(RoA-interest rate)*(Debt/Equity)<br><br>To calculate the effective interest rate you just need the usual interest amortization tables or calculate the total annual debt payment. Hope this helps. I think you chose not the easiest way to explain the idea of negative leverage. It would be much easier to compare RoA/Cap Rate (10% and 8,5% in your two scenarios) with the effective interest rate paid over the period. In the first case is 8,48% (which is lower than 10%, so the levarage is positive) while in the second case the int rate paid is 8,67%, which is higher than return on asset, then the negative leverage. The formula is
RoE = RoA +(RoA-interest rate)*(Debt/Equity)

To calculate the effective interest rate you just need the usual interest amortization tables or calculate the total annual debt payment. Hope this helps.

]]> By: lorenzo http://www.astudentoftherealestategame.com/2009/03/23/builders-corner-negative-leverage/comment-page-1/#comment-1449 lorenzo Thu, 17 Dec 2009 17:56:29 +0000 http://www.astudentoftherealestategame.com/?p=682#comment-1449 I think you chose not the easiest way to explain the idea of negative leverage. It would be much easier to compare RoA/Cap Rate (10% and 8,5% in your two scenarios) with the effective interest rate paid over the period. In the first case is 8,48% (which is lower than 10%, so the levarage is positive) while in the second case the int rate paid is 8,67%, which is higher than return on asset, then the negative leverage. The formula is <br>RoE = RoA +(RoA-interest rate)*(Debt/Equity)<br><br>To calculate the effective interest rate you just need the usual interest amortization tables or calculate the total annual debt payment. Hope this helps. I think you chose not the easiest way to explain the idea of negative leverage. It would be much easier to compare RoA/Cap Rate (10% and 8,5% in your two scenarios) with the effective interest rate paid over the period. In the first case is 8,48% (which is lower than 10%, so the levarage is positive) while in the second case the int rate paid is 8,67%, which is higher than return on asset, then the negative leverage. The formula is
RoE = RoA +(RoA-interest rate)*(Debt/Equity)

To calculate the effective interest rate you just need the usual interest amortization tables or calculate the total annual debt payment. Hope this helps.

]]> By: john http://www.astudentoftherealestategame.com/2009/03/23/builders-corner-negative-leverage/comment-page-1/#comment-54 john Tue, 24 Mar 2009 04:49:06 +0000 http://www.astudentoftherealestategame.com/?p=682#comment-54 I like ur leveraged bits. One would never think of a reason not to be so leveraged. I like ur leveraged bits. One would never think of a reason not to be so leveraged.

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