If the cost of borrowing is greater than the return, the leverage is referred to as what?

When the cost of borrowing exceeds the return on investment, the situation is termed "negative leverage." This occurs because the money borrowed is not generating sufficient returns to cover the costs associated with that borrowing, such as interest rates and other related expenses. As a result, the overall return on the investment diminishes, often leading to financial losses.

In scenarios of negative leverage, the investor is effectively losing money because the investment financed by debt is not yielding enough profit to justify the cost of the debt. This kind of leverage can erode equity and may pose significant risks to the investor’s financial stability, making it a critical concept in real estate and finance.

Positive leverage, on the other hand, would suggest that the returns exceed the borrowing costs, while neutral leverage would imply that the returns and costs are equal. Zero leverage would mean no debt is used in the investment. Understanding these distinctions is essential for making informed investment decisions.