Geared vs Ungeared Calculator
Compare returns on a property bought outright against one bought with a mortgage, and see what both do if prices fall instead.
💼 Are you a real estate agent or broker? Send this calculator to your buyers on your own branded listing page — every enquiry comes straight to your WhatsApp. Create free agent page →Leverage is the structural advantage of property: you can borrow most of the purchase price against the asset itself, so growth applies to the whole building while the return is measured against your own smaller stake.
The same mechanism works in reverse and is rarely modelled. This runs both a cash purchase and a mortgaged one at your growth assumption, and again at a stressed one, so the downside is on the table alongside the upside.
How leverage works
Growth applies to the whole property value regardless of how much you borrowed, but the return is measured against your own cash. Borrowing three quarters of the price means a four-fold multiplier on every percentage point of growth — and on every point of decline.
Worked example
A 400,000 property growing 4% a year for ten years reaches 592,098. Bought outright with a 4% net yield, the total return on 400,000 is about 88%. Bought with a 100,000 deposit and a 300,000 loan at 6%, the interest exceeds the rent by 2,000 a year, but the equity gain is the same 192,098 on a quarter of the cash — a return of roughly 172%.
Now look at the stressed case
At minus 2% a year the property falls to 326,829. The cash buyer still shows about 22%, carried by the rent. The geared buyer has 26,829 of equity left against 100,000 invested, and after ten years of negative cash flow is down over 90%. Leverage is not a free upgrade; it is a magnifier in both directions.
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Create your free property pageFrequently asked questions
Is leverage always better?
Only while growth exceeds the cost of the debt. Below that the borrowing costs more than it earns, and in a falling market it destroys equity several times faster than the market falls.
How much should I borrow?
Enough that the rent comfortably covers the payments at a stressed interest rate, and little enough that a plausible price fall does not eliminate your equity. Those two tests usually land somewhere well below the maximum available.
Does negative cash flow matter if the property is growing?
Very much, because it has to be funded from elsewhere every month for years. A strategy that depends on subsidising a property from salary fails the moment that salary changes.