To Leverage or Not to Leverage? Why the Answer Isn’t as Simple as You Think


Leverage: What a sexy word, don’t you agree?

Of course you do, seeing as every other thread I read this week on the Forums was leverage this, leverage that. And what does everyone want to know? The question was first asked by Bill Shakespeare: to be, or not to be?

Answer: yes, no, maybe.

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It’s All About Cycles

The one thing that sets experienced investors apart from everyone else is that we’ve experienced cycles, both in the economy and in ourselves. The question of whether leverage is good or bad, and whether you should play that way or not, is a function of the cycle in which you operate.

Now, I am not breaking any new ground in saying that later in life you should use leverage very sparingly. You’ve heard this before, and you know this intuitively. Nonetheless, let’s spend a few moments on this…

Related: The Power of Appreciation and Leverage: Boost Your Real Estate Returns

A Great Benefit of Real Estate

I am infamous around here for saying that I do very few deals. In other words, I don’t feel like I have to do deals in order to feel accomplished. Indeed, I only want the deals that I want, and there is a very, very, very finite definition as to what I want in a real estate opportunity.

The logic goes like this:

The single greatest advantage of real estate is that it’s an inflation-protected security. Real estate appreciates as currency devaluates (monetary inflation), and it appreciates as the velocity of money increases due to organic economic drivers (economic growth). Naturally, there are cycles in real estate; we are, after all, based on a fractional reserve fiat banking system, lest we forget.

But over a long period of time, because real estate is very much a physical asset and because typically physical assets are denominated in units of currency, real estate grows in price as currency supply increases. (Or so it should, if you’ve bought the right thing – don’t get me started on that ’cause I could teach a course…)

What Does This Mean?

Well, I don’t want to get into the woods too much here ’cause I most definitely don’t get paid enough for that, but:

If you know that the currency will devaluate by 10% in the next 4 years, which will translate into price inflation of 10% in that same time, do you want to be in control of a $100,000 asset base, or $1,000,000, if your goal is to create wealth?

That’s right, the “largeness” of your footprint is crucially important in our economy. The same relatively low percentage change acting upon vastly different amounts of asset base will produce vastly different results. And while there are some in this audience who can handle a $100,000 cash purchase, there are likely very few who could come up with $1,000,000 in cash that wasn’t bridged via debt.

Leverage, my friends, is how we place ourselves in control of an outsized asset base. This is as simple as I can put it.

What About Risk and Age?

Simple — when you are older, you are no longer in the game of wealth creation. In fact, you should be in the game of wealth preservation, and leverage is not only proportionally more dangerous, but also unnecessary.

I am 40 years old, and to tell you the absolute truth, I cannot imagine starting from scratch at this age. It’s a damn good thing that my snowball is rolling, and all I have to do is just give it some momentum here and there.

One of my mentors told me when I was about 32:

By the time you’re 40, you need to have your stuff together; if you don’t, you most likely won’t…

Read that last line again…. ’cause he was right!

So yes, this is why I underwrite the way that I do; I do not lose money, and I don’t like to scramble like my good friend Brandon Turner. I’m 40, while he is a bearded baby… there’s not enough time to right the ship if I mess it up now, nor do I have the energy for all of the nonsense.

I am transitioning cycles in my life, and as much as I love leverage, and as much good as it has done, from here on out, the framework of requirements and limitations for the use of leverage looks quite different than it did 5 year ago.

Having said this, however, I repeat: I am a huge proponent of properly applied 100% financing, when it is appropriate!

Wrapping Up

Recognizing that devaluation of currency resulting in a certain amount of price inflation is a stated goal of our monetary policy, real estate is as well positioned as any asset class to protect and improve your buying power. If all you want is to retire with dignity, perhaps you can do this without leverage. But if you are getting into this sport to create an empire, you will not be able to do it without leverage.

Related: Leveraging vs. Paying Cash for Rental Properties: A Look at the Infamous Debate

In this case, do it while you can, acquire real estate at break-neck speed while you can, because there will come a time when you will necessarily have to back off…

Caveat: Just to make sure that we understand each other – what I described above is true in concept. However, it is important to comprehend that not just any old piece of real estate will accomplish these stated objectives. For many, many reasons — for which this is neither the time or place — PIGS won’t do!

What do you think? Is there a time and a place for leverage — and if so, when is that?

Leave your comments below!

About Author

Ben Leybovich

Ben Leybovich has been investing in multifamily residential real estate since 2006. His area of expertise is creative finance. Ben works extensively with private as well as institutional financing. Ben is a licensed Realtor with YOCUM Realty in Lima, Ohio. He is also the author of Cash Flow Freedom University and creator of a cash flow analysis software CFFU Cash Flow Analyzer.


  1. John Bierly

    Ben – I agree with most of what you wrote: almost all wealth is created is created by leverage; either financial leverage (as you have described for real estate or as George Soros did in his bet against the BOE) or product leverage (Henry Ford mass produces Model T’s or Bill Gates sells millions of copies of DOS). Where I would depart from your view is the part about age – at 62 I find my thinking isn’t impacted as much by risk mitigation based on age as much as by the risk mitigation that flows from sticking to a defined buying model. I’d rather sit on cash for a few years and wait for the right properties at a 6x GRM than jump in now and buy something just because “I’m a real estate investor.’ Having that discipline and knowing I got the right price is what allows me to sleep at night more than doing transactions at a low LTV.
    John Bierly

  2. Joseph Barbaretta

    I generally like your sometimes biting but straightforward approach to life and real estate. However, this article made me wake up from my afternoon nap at the old geezer home and respond. I’m 51 and by your standards, I should throw in the towel, accept whatever fate offers with my few remaining breaths. Sorry, but I’m not s far over the hill as you think.

    • Ben Leybovich

      Joseph – be careful. I’ve seen good friends take a bath at between 50-60, and they are still not recovered. I’m not saying you shouldn’t take action, just that you need to evaluate opportunities differently from when you were 30…

      This business can punish harshly, and you simply have less time to recover than you did 20 years back!

      • Joseph Barbaretta

        HI Ben,
        I had a long term plan for retirement, that was, at one point, entirely based on a highly diversified mix of stocks/bonds/mutual funds from a very reputable financial planner. I didn’t feel it was fair to judge his performance during the economy of the last several years, so I kept a loose eye on it. When the market started hitting new highs, I re-evaluated and found myself 30% behind where I expected to be and almost irrecoverable in a stock/bond plan. So I started looking for plan B. I went looking for a business that my wife and I could run while keeping my day job. I know more about real estate than most other businesses I could jump into.
        I don’t have the luxury of starting at 30, but I have a ton more experience then I did when I was 30. I’m looking at a 15-20 year time horizon for building and transitioning into a passive income stream. A judicious use of leverage can really help me get to where I want to be. You are correct in that I need to evaluate things differently and I need to be a little more cautious. However, I definitely won’t get to where I want to be unless I take action. Thanks for your feedback.

        • Ben Leybovich

          Joseph – leverage is one of the great advantages of RE as an investment vehicle. I am generally known around here as 100% leverage guy – it has served me well. I’ll be the last to tell you not to use leverage. All I’m saying here is that at 40, I am tired. It is a good thing that all I have to do is keep the momentum…I can’t fathom starting from zero.

          However, if that’s the only way, then you do what you need to. Use leverage smartly – notice, I didn’t say sparingly. Indeed, if you’re gonna do it, do it – smartly!

          Good Luck!

  3. Aaron Carter

    Always enjoy your articles Ben, although I have to say that I follow more of a Brandon Turner scramble model of real estate investing… haha

    I will say, one of the toughest things regarding real estate investing is being patient for the right opportunity rather than jumping just because you have not done a deal in a while…

    • Ben Leybovich

      I really think that there has to be some amount of arbitrage. I know what it takes to to run buildings, and at some point the market agenda is different from mine. When this is the case, it’s dangerous times, because the only two options – try to push your agenda onto a non-cooperating marketplace, or adjust your methodology. Neither works well for me…

  4. Matt R.

    Great article Ben. I only use leverage because I have to. I understand all the advantages and negatives but if I never needed to get a loan I would not. My personal pet peeve is owing anyone money. Not exactly realistic for REI or smarter but I just don’t like borrowing money. I might be in the wrong business 🙂

  5. Ronald Perich

    Wow… didn’t realize I should already be looking for adult day care in my mid-forties.

    I get your point, Ben, about making sure you are able to keep the wealth you have acquired, but I’m still on a long journey toward getting there.

    I think instead of age, it’s more about lifestyle and choices you want to make. I’ve made a lot of noise about a 401k versus REI. My calculations show that conservatively leveraged RE will outperform even a 50% match over time.

    Now there is no way I will be 100% invested in RE. It’s just too risky from a diversification perspective (although a huge number of people don’t see the same risk with a 401K for some reason… huh).

    But I will use leverage, and I will use it for a while. I look at my life experiences and see that when I plan to win, I almost always do. When I play to not lose, I end up break-even or losing.

    So it’s about always making forward progress as far as I am concerned. Even when I choose to stop acquiring, I’m still playing to win. Then, it will be about how quickly I can build up complimentary streams of income. How quickly I can leverage cash-flow to into other entities that can burn down or completely pay-off my leveraged assets.

    So I am not saying I disagree with you, because you do what is best for you, your family, your investors, and your personal situation. And what you say makes sense for a number of people who think similarly. But as one who is not in the enviable position of meeting all of their cash-flow needs (even though I am over 40), it just doesn’t work for me.

    Keep on writing these great articles… you have a great sense of reality and a fresh, bold approach I really enjoy!

    • Ben Leybovich

      Haha – I actually agree with everything you say here, Ronald. I have always and still am using leverage extensively, only now a bit differently. I certainly don’t mean to suggest that 40 is time to stop – God forbid. I am just getting started…on the next level. But, levels 1-4 are out of the way for me, and the thing has enough speed so that I am not the only one doing the pushing; inertia is helping!

      This is important. All I am saying is that I cannot imagine not having inertia on my side at this point. Frankly, I don’t feel like a spring chick – that’s cause I am not…

      I’m seasoned. I’m experienced. I’m disillusioned and pragmatic. I know what it feels like to lose, I’ve been there. And at 40, I couldn’t handle it with the same ease I did at 30, if at all…

      I think differently about risk, and bore you with my perspective. I hope to be helpful, at least a little bit 🙂

  6. i was fixing to get a little pissy with you myself and then I thought about it. Long of the short of it, I was offended by the age being called to light but was pulling in my horns about risk already. I have taken an absurd amount of time on a deal I know I’ll do but not before they have plenty of time get a reality check from the sharks of every real estate genius having a seminar this week.I may lose part of this deal and that part though bringing in rent is to much of a pig for even me to see a silk purse. Originally I wanted it ALL even though they had a buyer for what I don’t want. Only my pride and ego wanted to show those kids how the hog eats cabbage.
    I guess my thoughts are running more toward improving what is already good than making a better pig. Ever since I found out that the wolves of Wall Street wasn’t a movie. The whole world looks like a much more sinister place where to go down in front of the herd is not wise nor is it easy to keep from being busted and BROKE !!!

  7. Brian Karlow


    Your posts are always appreciated and thoroughly enjoyed! At 43, I’ve found my most recent SFR acquisition through 100% cash has left me feeling a sense of accomplished a bit different then the previous leveraged SFR properties I own. Don’t get me wrong, I still love the deals I’ve been able to procure with leverage but that’s one of the great points you touch on…..focus on great deals, not good deals!
    Thanks Ben!

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