Final answer:
The use of debt to finance a property investment rather than equity is known as leverage. Investors, including early-stage investors seeking financial capital, have options like borrowing through banks or bonds, or selling stock. Each financing method has various trade-offs between retaining control and potential returns or risks.
Step-by-step explanation:
The degree to which an investor is using debt rather than equity to finance a portion of property investment is called leverage. When a firm, or an individual investor such as an early-stage investor, decides to acquire financial capital for investment, they can opt to finance it through several means. These include reinvesting profits, diversification, dividend, borrowing through banks or bonds, and selling stock.
Each method comes with different risks and benefits. For example, borrowing through banks or issuing bonds requires a commitment to scheduled interest payments regardless of the firm's income, but allows the firm to retain control since it is not subject to shareholders. On the other hand, selling stock dilutes ownership and means the firm becomes answerable to the shareholders and a board of directors.
Leverage can amplify the potential returns on an investment but can also increase the risk significantly. This is because while debt can magnify gains in times of favorable market movements, it can also intensify losses when markets turn unfavorably.