Leverage in Real Estate in 2026

Leverage: the pros and cons of using it

Leverage: the pros and cons of using it is especially important to examine not in theory, but in connection with the real Czech market, where housing prices, mortgage lending conditions, and tax rules directly affect the buyer’s final benefit. According to estimates by the CNB, housing affordability for most households remains limited, and in 2025 and 2026 the regulator expects further growth in residential real estate prices, albeit with gradually more moderate dynamics. At the same time, the problem is felt most strongly in Prague and Brno, where the gap between the market price and the “safely attainable” price for the median household remains high.

At Get Home, we believe that leverage in itself is neither a good nor a bad tool. It amplifies the result. If the market moves in your favor, capital can grow noticeably faster than with ordinary saving. If the calculation was too optimistic, the same mechanism amplifies the loss. That is exactly why the question should be framed not as “is it worth taking out a mortgage at all,” but as “under what conditions does leverage help bring the purchase of a dream apartment closer, and under what conditions does it create unnecessary risk.”

What leverage in real estate is

Leverage, also known as borrowing leverage – is simply a multiplier of the return on equity when the price of an asset changes. It arises when borrowed capital is used to finance a purchase, and its effect is greater the less of your own money had to be invested in the purchase. . If an investor put in only 10% of the price of the asset and the bank financed the rest, and the property increased in price by only 5%, then the investor’s equity will increase one and a half times. That is exactly where the power of leverage lies.

CNB defines LTV as the ratio of the loan amount to the value of the collateral. The current standard limit is 80%, and for borrowers under 36 who are financing their own housing, the limit is 90%.

For the buyer, this means the following. If an apartment costs 5 million Kč and you have 1 million Kč of your own funds, then you control an asset worth the full 5 million Kč. If after several years you sell this property for 5.7 million Kč, you will have 1.7 mil left in your hands (plus part of the amount of principal repayment on the loan, but that can be neglected for simplicity). Your capital will increase by 70% without your active participation. . In this sense, a mortgage really can accelerate capital accumulation, especially when the market grows faster than you can set money aside in an account.

But there is another side. If the value of the apartment falls, the loss is also calculated from the full price of the property, not only from your down payment. In our example with a 10-percent down payment, if the asset falls in price by 10%, the investor will lose all the money invested and remain with a large debt to the bank. In addition, a mortgage is not just debt, but debt with interest, regular payments, bank requirements, and obligations even if rent temporarily does not cover the expenses. Therefore, leverage – is a tool of acceleration, not a way to remove market risk.

How to save up for a down payment on an apartment faster than with ordinary saving

One of the main reasons for interest in leverage is clear. To save up for the down payment on a truly good apartment, many people have to save for years, while the pace of price growth during that time outstrips the growth of their savings. CNB writes directly that housing affordability for most households remains limited. In practice, this means an unpleasant situation for the buyer: a person is setting money aside in a disciplined way, but the dream apartment is moving further away faster than their capital is growing.

This is exactly where the logic of an intermediate step comes from. Instead of waiting for many years, some buyers consider a more affordable first property – most often a small one-room apartment or a studio in a liquid location. The idea is simple: enter the market before it becomes possible to collect the full down payment for the desired home, lock in the entry price, cover part of the expenses with rent, and then after several years use the accumulated capital and possible price growth as the basis for the next purchase. In a rising market, this model really works very well. CNB points out in its reports that after the market revived, the number of transactions grew again, and the price forecast for 2026 remains positive.

But here it is important not to oversimplify the strategy into a slogan. An apartment that “the tenant will pay off” is almost never paid off by the tenant fully and without risk. First, at the current loan rates and achievable rental yield in Prague, rent will fully cover the mortgage payment only at LTV70 or below. In addition, it is necessary to take into account:

• vacancy periods,
• repair costs,
• commissions,
• taxes,
• insurance,
• the risk of a rate increase upon refixation.

And here it is important to take into account the structure of the mortgage payment itself. It consists of two parts: interest on the loan and repayment of the principal. Interest is the expense part, while payments toward the principal form the savings part and increase the owner’s equity in the apartment. Therefore, such a strategy can remain rational even not when the tenant fully covers the entire monthly payment, but already when the rental income covers at least the expense part, that is, the interest on the loan.

The amounts that the investor directs toward repaying the principal in this case can be viewed as money that, in another scenario, they would still have been setting aside in a savings account for a future down payment or for improving housing conditions.

Rental yield in the Czech Republic is not unlimited: according to fresh market estimates, the average gross yield of an investment apartment remains at a moderate level, which means that the mortgage rate, the quality of the property, and the entry price are of decisive importance.

A scenario in which leverage really works

Leverage works most reasonably where three conditions are met.

First – the property is liquid. This is not about “the cheapest apartment at any cost,” but about the best apartment among the inexpensive ones, one that is easy to rent out and then just as easy to sell.

Second – the monthly financial model can withstand not only the ideal scenario, but also a stress scenario.

Third – the buyer understands in advance under what rule they will exit the deal: sell it or use the property as additional collateral instead of their own funds through the growth in appraised value.

For the Czech Republic, it is especially important to take location into account. The market is heterogeneous. CNB separately emphasizes that the level of risk and affordability differs greatly by region, and median households in Prague and Brno face the highest barriers to entry. This means that the same strategy may be entirely workable in one city and too aggressive in another.

That is why at Get Home we always look not only at the price of the property, but also at real liquidity, the depth of demand, competition in the rental market, and resale prospects.

If you do this before the age of 36, are 10% of your own funds enough

A very careful answer is needed here. Yes, CNB does indeed preserve the possibility of financing with LTV of up to 90% for borrowers under 36. But this rule applies to loans for their own housing, not to a classic investment purchase. In other words, the phrase “before the age of 36, 10% is enough” is true not for just any apartment, but only for a situation in which the loan is taken out for the purchase of housing for your own residence. For investment properties, banks and the regulatory approach are stricter.

This is one of the most important practical points in the whole topic of leverage. Many buyers hear about 10% and automatically transfer this rule to the model “buy a small apartment, rent it out, then sell it.” Formally, this is incorrect. If the property is purchased as an investment, you should not count on the standard youth LTV benefit. Therefore, the strategy must be built on the bank’s real conditions and on the correct qualification of the purpose of the loan, not on the desired scenario.

At the same time, in practice it also matters that in the current explanations of the CNB the emphasis is placed not on the borrower’s actual residence in the property, but on the number of residential properties already owned by the borrower. Therefore, when assessing the transaction, it is fundamentally important whether such an apartment is the only one or one of several residential properties of the borrower

How to use leverage without unnecessary romanticization

In practice, we advise looking at leverage as a consistent system, not as a quick trick.

The first step – is to choose a property with clear liquidity and transparent legal status. To verify the actual data on a property in the Czech Republic, information from the land registry is fundamentally important, where you can check data on the unit, rights, restrictions, and the status of the registration proceedings. This is a basic part of any safe transaction.

The second step – is to calculate the model not only under the current rate, but also under a less comfortable scenario. CNB regularly indicates in its financial stability materials that risk arises when households try to finance unaffordable housing with excessive debt. If the payment is comfortable only with full occupancy of the apartment and an ideal rate, the strategy is already too fragile. Although the recommendations on the DTI and DSTI parameters for non-investment mortgages are suspended, they are very sensible as a guide for rational investors.

The third step – is to understand the moment of exit in advance. If the property is being bought as an intermediate step before the dream apartment, it is important to answer the following questions already at entry: after how many years are you ready to sell, what should happen to the capital, what will you do if the price falls,, and how the transition to the next property will be organized. The mistake of many investors is that they enter the deal with the idea “we’ll figure it out later.” Leverage does not work that way. It requires discipline at entry, not just hope for market growth.

How not to pay income tax when selling an apartment in the Czech Republic

The tax part of this topic is critical, because it is often what determines whether the strategy was really successful. Under the current law on income tax in the Czech Republic, exemption is possible if the seller actually lived in the house or apartment being sold for at least two years immediately before the sale. The law also provides for an exemption if the period of ownership exceeds 10 years. A separate option is provided when the proceeds from the sale are used to satisfy one’s own housing need.

An important conclusion follows from this. If a buyer takes a small apartment solely as an investment property, rents it out to a tenant, and sells it after a couple of years, an automatic tax exemption solely because of the fact of ownership for two or three years usually does not arise. For the classic investment model, the key becomes either the criterion of one’s own residence, or the use of the funds for one’s own housing need, or a longer period of ownership. This is exactly where many everyday tips about “bought quickly, sold quickly, and earned money tax-free” diverge from the actual law.

Therefore, in practice it is necessary to distinguish not two, but three different models.

1. The first – is a property for one’s own residence, where tax conditions for a subsequent sale may be substantially softer.
2. The second – is an investment apartment, where it is impossible to count on the same exemption without meeting specific conditions.
3. And the third – is the purchase of an intermediate, first, and only property with the purpose of its subsequent sale and directing the funds received toward solving one’s own housing need.

It is precisely the third scenario that may be especially important if the sale of such an apartment becomes a stage on the way to the purchase of one’s own home, and the proceeds are действительно used for one’s own housing need in compliance with the conditions established by law, such a case may fall under the tax exemption. At the same time, it is important to remember that in the case of partial use of the funds, the exemption applies only to the corresponding part, and the receipt of the funds itself must be reported in due time in the prescribed manner.

At Get Home, we always recommend checking this part before the purchase, not after profit appears on paper. A tax mistake is capable of “eating up” a noticeable part of the result and completely changing the assessment of the effectiveness of leverage.

What is especially important not to confuse

You should not mix the rules on income tax from a sale with general talk about the market. The fact that many consider the probability of a long price decline to be low does not relieve you of the need to build the exit from the deal correctly. Even if the market is generally rising, an individual property may sell worse because of the condition of the building, poor layout, weak location, or legal restrictions. Tax efficiency works only together with the liquidity of the property and compliance with the legal conditions for exemption.

Risks of leverage: what can go wrong

The main risk of leverage is that it increases not only returns, but also vulnerability. If housing prices fall for a long time, and the property was bought at the peak and with high borrowed leverage, you can be left with a debt that exceeds the actual market value of the apartment. In such a case, a sale does not solve the problem completely, but locks in the loss. This is exactly the main argument against excessively aggressive use of a mortgage.

The second risk – is a cash gap. On paper, the model may look beautiful, but real life makes adjustments: vacant months without a tenant, repairs, building maintenance, insurance, an increase in the monthly payment after the rate fixation ends. If the buyer has no liquidity reserve, even a good property turns into a source of stress. Leverage is especially dangerous for those entering a deal without a financial cushion.

The third risk – is an incorrect legal, tax, or organizational setup of the deal. Problems usually arise not because the strategy itself is unacceptable, but because the buyer structures it incorrectly in practice: does not take into account the conditions of the specific bank, does not think through the exit scenario from the property in advance, does not plan the correct further use of the proceeds, and checks the tax consequences too late. In high-leverage transactions, such miscalculations often turn out to be the most expensive.

Why the scenario of a long decline in prices in the Czech Republic looks unlikely, but not impossible

It would be wrong to say that a long decline in prices in the Czech Republic is impossible. The real estate market does not move only upward. But there are also no grounds to say that this scenario is the base one today. CNB in its spring and autumn financial stability assessment points to continued price growth in 2025 and 2026, albeit with gradually weaker dynamics. At the same time, ČSÚ continues to record supply-side constraints and publishes fresh data on residential construction, which confirms that the structural shortage of new housing has not disappeared.

This is exactly the reason why many market participants assess a long-term bearish scenario as less likely. Demand is supported by demography, migration to economically strong cities, limited supply, and a return of activity to the mortgage market. But low probability does not equal zero. Therefore, the correct conclusion is not that “you can take on the maximum debt without looking back,” but that leverage is acceptable only where the buyer can withstand even a less comfortable scenario.

That is exactly why at Get Home we separately highlight one more important topic, to which we will return in one of our next articles: investment property in distressed regions with a low entry threshold. At first glance, such locations look especially attractive because the starting budget there is noticeably lower, and the estimated rental yield often seems higher than in Prague. But in such deals the risks are often underestimated:

• the local economy is weaker,
• demographic dynamics are worse,
• there is narrower demand from end buyers and tenants,
• and price growth may be supported not by stable fundamental factors, but also by increased activity from investors themselves.

It is in such regions that leverage requires even greater caution, because when market conditions worsen, it is usually more difficult to exit the property quickly and without losses than in large economically strong cities.

When we consider leverage justified

Leverage is justified when the buyer understands why they are entering the deal, does not build the model on a maximum debt burden, and chooses a property that can not only be bought, but also held properly. In Czech realities, this is especially important because of differences between regions, tax details, and mortgage financing requirements. Leverage is good not when “there is almost no money, but you really want it,” but when there is a strategy, a reserve, and a realistic horizon.

To summarize in тезис form, the idea “buy an affordable one-room apartment, rent it out, sell it after a few years, and use the increase in value as a step toward the dream apartment” can work in the Czech Republic. But only with three reservations.

First, the property must be liquid and must not destroy the monthly budget.

Second, the rule about a 10% down payment before the age of 36 applies to one’s own housing, not to every investment purchase.

Third, the tax result must be calculated in advance and strictly according to the law. It is precisely in this form that leverage ceases to be a beautiful legend and becomes a working, though demanding, tool.