Question

Many investors use mortgage debt to help finance capital investment for income-producing real estate. In doing so, the owner will receive income as long as the property produces enough income to cover all operating and capital expenditures, the mortgage payment, and all state and federal income taxes. Therefore, the owner's claim is commonly referred to as a

Answer 1

levered cash flows

Step-by-step explanation:

Levered cash flows refer to the net cash flows generated by a financed project after all the expenses, interests and taxes are covered. Free (or unlevered) cash flows refer to the cash flows generated by a project without considering financial expenses (interests). Generally projects and investments are valuated depending on their free cash flows because the project's ability to generate cash should be separate from who provided the initial investment.

Levered projects that generate levered cash flows are more risky, but also generate higher return on investments (ROI).