What is the term for leverage achieved when the investment return exceeds the cost of borrowed funds?

The term for leverage achieved when the investment return exceeds the cost of borrowed funds is positive leverage. This concept is fundamental in real estate and investing, as it describes a situation where the borrowing allows an investor to earn a greater return on their equity than if they had financed the investment entirely with their own funds.

When an investor borrows money at a lower interest rate than the return generated from the investment, they are effectively increasing their potential profit margin. This positive relationship between the return on the investment and the cost of borrowing is what characterizes positive leverage. It enables investors to amplify their potential yield, which can lead to greater overall returns on investment, so long as the investment performs well.

In contrast, terms such as negative leverage refer to scenarios where the cost of borrowed funds exceeds the investment return, thereby decreasing the overall yield, while neutral leverage indicates that the returns equal the borrowing costs, resulting in no net gain or loss in equity. Equity leverage is generally not commonly used to describe this specific relationship, so positive leverage is the most accurate term in this context.