Let us begin our discussion of real estate finance by demonstrating the general finance concept of leverage in a real estate finance context.Consider a fellow named Lou Lever.Lou is a wannabe real estate investor with $100,000 to invest.He has met with a real estate broker who has shown him a small house that Lou believes he could buy and renovate for $100,000 then "flip" to an owner/user in one year $108,000.If Lou uses all of his cash to buy the property and his forecast is accurate, his rate of return would be 8%.But, the real estate broker has also introduced Lou to a mortgage broker who is willing to give him a loan for 90% of the $100,000 purchase price and renovation costs at 5% interest with no payments until the end of one year.Lou would get $90,000 from the lender, spend $10,000 of his own money, then pay back the loan plus interest of $4,500.What is Lou's rate of return on his equity if he uses leverage in this deal?Also Quick thinking question:does leverage affect the return on the property or the return on equity?