Why Real Estate Investors Borrow Instead of Using Their Own Cash

Why Real Estate Investors Borrow Instead of Using Their Own Cash

When it comes to building wealth in real estate, many newcomers assume the fastest way to financial freedom is to pay cash and own everything outright. In reality, most of the world’s biggest real estate fortunes were built by using other people’s money—through borrowing, creative financing, and strategic leverage.

Borrowing allows investors to scale faster, spread risk, and multiply their returns on the cash they do put into a deal. Here’s why leveraging borrowed funds is often the smarter move—and some real-world examples of investors who turned this approach into multi-million or even billion-dollar fortunes.

1. Multiplying Purchasing Power

Leverage allows you to control more assets with less personal cash. For example, a 20% down payment gives you full ownership of a property, allowing the remaining 80% to be financed. That means your capital stretches much further, enabling you to invest in multiple properties instead of just one.

2. Accelerating Portfolio Growth

Instead of saving for years to buy one property outright, you can use financing to acquire multiple properties now, using rental income and appreciation to grow equity. Many seasoned investors recycle equity from one property to fund the next, compounding their portfolio growth.

3. Amplified Returns on Equity

When your property appreciates or rental income increases, your return on the cash you invested is multiplied. This “return on equity” effect is much more powerful when you’re leveraged than when you pay cash.

4. Tax Advantages and Strategic Financing

Borrowed capital often comes with tax benefits—such as deductible interest—and keeps you liquid for other opportunities. Smart investors balance debt strategically to minimize taxes and maximize available capital.

5. Avoiding Opportunity Cost

Tying up all your cash in one deal limits your ability to jump on new opportunities. Leverage ensures you have capital ready for the next great investment.

Real-World Examples: Borrowed Funds Building Fortunes

Jeremy Barker

A former firefighter making $1,600 a month, Barker bought a $3 million property with only $30,000 of his own money by structuring a pre-lease to secure investor funds and bank financing. In two years, he paid back his investors and expanded to more than 30 properties generating $2.5 million annually.

Eddie Dilleen

Starting with just AU$40,000 in retirement savings, Dilleen leveraged bank loans and a self-managed super fund to build a portfolio of over 100 properties worth approximately AU$65 million.

David Lichtenstein

In 1986, he used $89,000 in credit card debt to buy a multifamily building. Reinvesting profits and leveraging more debt, he grew The Lightstone Group into a national powerhouse with billions in assets.

Sam Zell

After law school, Zell financed his first building with investor funding. During downturns, he used debt to buy distressed assets, eventually leading multi-billion-dollar acquisitions, including the $36 billion sale of EQ Office to Blackstone.

Key Takeaways

Benefit of Borrowing Why It Matters
Scales faster More acquisitions with less personal cash
Higher returns on equity Appreciation is magnified
Maintains liquidity Cash stays available for new deals
Tax advantages Interest deductions and strategic structures

Leveraging borrowed funds is not without risk. Rising interest rates, market downturns, or overextension can cause serious problems. But for disciplined investors with a solid plan, it’s the tool that can turn a modest starting point into generational wealth.