Optimal Leverage in Real Estate Investment |
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| Authors: | Mcdonald John F |
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| Institution: | (1) Departments of Economics and Finance, University of Illinois at Chicago, 601 South Morgan Street, Chicago, IL, 60607 |
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| 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. |
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| Keywords: | leverage default risk |
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