Question

The use of financial leverage by real estate investors can be a double-edged sword. All of the following statements regarding the use of financial leverage by real estate investors are true EXCEPT:
A. The use of financial leverage by real estate investors mitigates the impact that limited financial resources would otherwise have on their pursuit of investment opportunities.
B. The use of financial leverage by real estate investors will increase the internal rate of return (IRR) on equity as long as the cost of borrowing is less than the unlevered IRR.
C. The use of financial leverage reduces the real estate investor's exposure to default risk.
D. The use of financial leverage by real estate investors makes the realized return on equity more sensitive to changes in rental rates and resale values.

Answer

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