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Optimal Leverage in Real Estate Investment

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  • McDonald, John F

Abstract

This article is a theoretical examination of optimal financial leverage for real estate investment in the presence of uncertainty. The main result shows that uncertainty creates the possibility that a borrower will default on a real estate loan and that this possibility is the underlying factor in optimal leverage calculations for both borrower and lender. Copyright 1999 by Kluwer Academic Publishers

Suggested Citation

  • McDonald, John F, 1999. "Optimal Leverage in Real Estate Investment," The Journal of Real Estate Finance and Economics, Springer, vol. 18(2), pages 239-252, March.
    • Handle: RePEc:kap:jrefec:v:18:y:1999:i:2:p:239-52
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    Cited by:

    1. Ghysels, Eric & Plazzi, Alberto & Valkanov, Rossen & Torous, Walter, 2013. "Forecasting Real Estate Prices," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 509-580, Elsevier.
    2. Hung, Chih-Hsing & Chen, Ming-Chi & Lin, Wen-Yuan, 2014. "The relationship with REITs and bank loans: Capital structure perspectives," Finance Research Letters, Elsevier, vol. 11(2), pages 140-152.
    3. Park, Sung Sik & Pyun, Ju Hyun, 2020. "Between two extreme practices of rent-only and deposit-only leases in Korea: Default risk vs. cost of capital," Regional Science and Urban Economics, Elsevier, vol. 85(C).
    4. Seung Dong You, 2014. "The Leveraged City," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(4), pages 1042-1066, December.

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