use borrowed funds to increase purchasing power and, ideally, to increase the rate of return of an investment. eg: A property costs $10,000 and produces an income of $1,000 per year, Sean wishes to invest in it. If he buys with all cash, he will get a annual rate of return of 10%($1,000/$10,000), if he leverages the investment by borrowing $6,000 and the debt cost is 5%($300) annually, the leverage will results in a higher rate of return of 17.5%($1,000-300/4,000), this is called positive leverage; if the debt cost is 15%($900), then the leverage will results in a even lower rate of return of 2.5%($1,000-900/4,000), which is called reverse leverage.
