How real estate leverage works and how to calculate it

The real estate leverage effect is based on three pillars:

1. Immediate acquisition: You immediately buy a property that will increase in value, without waiting for the total amount.
2. The rate differential: As long as the return on your home exceeds the cost of your credit, you are getting rich with other people's money.
3. Passive reimbursement: It is your tenants who, through the rents, repay your credit each month for you.

To fully understand, let's compare two situations with the same sum of €30,000 over 20 years:

1. Classic placement: You put your €30,000 into an account that earns 4 % per year. After 20 years you will have approximately €65,000. It's simple growth in your savings.
2. The real estate lever: You use this €30,000 as a deposit to buy an apartment of €200,000. If this property also earns 4 %, this return no longer applies only to €30,000 but to €200,000. After 20 years, once the credit has been repaid by the rents, you have a wealth of €200,000 (and that's without taking into account the increase in the value of the property).

In this second scenario, you created three times as much wealth with the same bet at the start, thanks to the power of banking leverage. At Maison Kyka, we can help you buy and renovate a property in order to reveal all its potential and attractiveness on the real estate market.

”We went through Maison Kyka for our first investment! We are super happy with the result, our apartment is perfect, we were very well supported by Céline and Anton who were attentive and very responsive.
Big plus: the timing was respected almost to the day. We highly recommend!” Jeanne Sergent

Economic profitability and financial profitability

To assess the relevance of a real estate project, an investor must juggle two indicators:

• The economic profitability (R_eco) measures the “gross” performance of real estate,
• The financial profitability (R_fi) calculates the effectiveness of the money you actually took out of your pocket.

Focusing only on the return of the property (rent in relation to price) is a classic mistake that hides a central question: does your personal contribution work better here than on a traditional financial investment?

The solution is to use credit while ensuring that the financial profitability of the project is always greater than its economic profitability. The aim is to ensure that every euro contributed “raises” bank capital that works effectively for you.

For example, if a property earns 5 %, your profitability without credit is logically 5 %. On the other hand, with a loan covering 90 % of the purchase, the financial return on your contribution can increase to 15 %. You cash in the gains generated by the total value of the apartment by having only mobilized 10 % of the capital.

The internal rate of return: looking beyond cash flow

A classic mistake is to judge an investment solely on its cash flow (what is left each month after paying the credit). However, the true indicator of your enrichment is the internal rate of return. A real estate project can have zero cash flow (it is just self-financing) and be an excellent asset management operation.

In fact, the internal rate of return takes into account:

1. Net cash flow generated every month.
2. The capital repaid by your tenants (each month, you own a larger part of your home without having paid one euro more).
3. The potential added value upon resale.

This is where the real estate leverage effect is most visible: even with zero cash flow, the tenant buys the property for you. At the end of the loan, you have net capital that you never really saved but that the bank allowed you to build on stone (one of the safest investments in the long term).

The mathematical formula for real estate leverage

The real estate leverage effect is an equation based on the difference between what you get for the property and what the money costs you.

The formula for real estate leverage is as follows:

In summary: the lower your contribution compared to debt, the more powerful the wealth multiplier is, provided that the return (R_eco) exceeds the interest rate (I).

Example

Let’s imagine that your property generates a 5 % return and that your loan costs 3 %. The difference is 2 %. If you have nine times more debt than equity, you add 18 % (2 % × 9) to your initial 5 % return. Your personal money is then working at a rate of 23 %.

Beware of the club effect

The leverage effect realty is a double-edged sword that must be handled with care. If the conditions are not met on the market, the mechanism is reversed and becomes what experts call the club effect (or boomerang effect).

In times of high interest rates or if rental returns are too low, borrowing can cost more than what housing actually pays for. Debt then becomes a burden that destroys your capital instead of building it.

To avoid this trap, it is imperative to ensure that the net return, after charges and taxes, remains greater than the total cost of credit (APR).

If you buy a property yielding 3 % net with a 4 % credit, each euro borrowed generates a 1 % net loss. In this scenario, your personal input is eroded every month to make up the difference.

Even if your real estate project seems solid on paper, take the time to put it through a “stress test”. The objective is to simulate the viability of your investment in the face of certain difficulties, for example:

• Rental vacancy: Does your project still hold water with 1 or 2 months of missing rent per year?
• Increase in expenses: Can you absorb an unexpected 15 % increase in condo fees?

Despite an interest rate of over 3 %, investing in real estate in 2026 remains a good strategy if the project is carried out intelligently from A to Z.

Maximizing real estate leverage through renovation

The climate and resilience law imposes a gradual withdrawal of “thermal strainers” (classified G, F, then E at the DPE) for rent. While many see it as a constraint, it is also an opportunity to create value through credit.

The idea is to use banking leverage not only to buy buildings but to finance energy transformation. Buying a property that already meets standards (A or B) is expensive and offers a lower return. Conversely, the value of a property with a poor DPE is discounted.

Buying a property with work to be carried out offers several advantages:

• Discounted acquisition: you are buying a cheaper property because it requires work.
• Total funding: the bank finances the property and the work.
• Tax shield: renovation expenses create a “land deficit” that cancels the tax on your rents for several years.
• Immediate added value: bringing the property up to standard instantly increases the resale value of the property.

To illustrate this mechanism, let's take the example of a classified apartment E. You buy it at a discount linked to its condition and you borrow €30,000 additional for its renovation. Thanks to this work, housing is being transformed into etiquette C.

Result: not only do you increase the rent of 15 % compared to the initial condition and the value of the apartment on the real estate market increases by €50,000.

By using bank money to finance the work, you generated €20,000 in net assets additional at the end of the construction site. And for decades to come, you can take advantage of an attractive property on the real estate market.

Do you want to maximize the real estate leverage effect of your project? Call on Maison Kyka! We identify these properties with high potential for you and manage their renovation to transform yours into a real estate nugget.

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“Maison Kyka is an incredible experience and team! I am the happy new owner of a property entirely sourced and renovated thanks to Maison Kyka! A first purchase is complicated and scary, so being accompanied under these conditions is simply the best possible experience!” Jordan Lorho

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