Investment: A $100,000 real estate investment

Option 1. Pay cash for everything. You earn a 5% cash on cash return annually and over 5 years you get $25,000 of income, plus you get $20,000 in appreciation. Total return: $45,000; total return on investment 45% ($45,000 divided by 100,000)

Option 2. You put 20% down on five houses. Same $100,000 investment. All of your cash return pays for interest and you get the same $20,000 in appreciation for each house. Total return: $100,000; total return on investment 100% (100/100)

This is a very simple example, but it shows how leverage can dramatically increase your returns both in % and dollars ($55,000 more). It also augments your risk when it goes bad (accelerating it in similar fashion).