Why real estate values decline with leverage: a Modigliani-Miller example

This article shows that, because real estate investors borrow at an interest rate that is greater than the rate at which they can lend, the reservation value of real estate investments declines with the amount borrowed. The proof is a modified version of the home-made leverage examples introduced by Modigliani and Miller (1958). Market value is established as the reservation value of the marginal investor.

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Year of publication:	2011
Authors:	McDonald, John
Published in:	Applied Economics Letters. - Taylor & Francis Journals, ISSN 1350-4851. - Vol. 18.2011, 15, p. 1507-1510
Publisher:	Taylor & Francis Journals

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10009278015