Why might a commercial real estate investor borrow to help finance an investment even if she could afford to pay 100 percent cash? (which is most correct) Group of answer choices Keep leverage low thus reduce risk. increase the rate of return investors earn on their invested equity. Mattress feels better with cash inside Want to keep my money for a rainy day

Question

21-04-2020
Business

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Why might a commercial real estate investor borrow to help finance an investment even if she could afford to pay 100 percent cash? (which is most correct) Group of answer choices Keep leverage low thus reduce risk. increase the rate of return investors earn on their invested equity. Mattress feels better with cash inside Want to keep my money for a rainy day

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Answer:

The answer is B. Increase the rate of return investors earn on their invested equity

Explanation:

The correct answer is Option B. Increase the rate of return investors earn on their invested equity

Borrowing refers to the use of financial leverage. If the overall return on the commercial real estate exceeds the cost of debt, the use of borrowed fund can increase the rate of return investors earn.

Portfolio diversification is also one of the benefits to be derived from this.