Answer to Question #8391 in Finance for king

Question

suppose you invest in a real-estate development deal.The total investment is 100000 dollars.
You invest 20000 dollars of your own money and borrow the other 80000 dollars from the bank.
Who bears the risk of this venture and why?

Answer 1

All risks are on person who takes the loan from bank. If bank give such big sum of money than you could proof your paying capacity. Ration of borrowed money to own 4/1 is highly risky. It means that 80% of deal budget is loaned money. All risks are on investor