Homemade Leverage

Homemade everything is better...pesto, cream...and leverage.

Homemade leverage happens when an investor takes out personal loans to synthetically change the financial leverage of the firm they’re invested in. It’s like the investor is a middleman of leverage, keeping the firm technically as it was (which makes the firm appear less risky with less leverage), but with the benefits of loans (the potential to make more money via the leverage).

While homemade leverage can be a nice-sounding idea for the right investors in the right circumstances, how individuals and firms are taxed differently, as well as the risk it puts on the investor, should be taken into account before jumping on a homemade leverage plan.