Definitions 
Leverage is the use of borrowed funds in order to potentially improve the returns the investor or institution is able to make. However, by doing this the investor takes on more risk.
Let us consider two scenarios involving the leveraged purchase of real estate.
Non-Leveraged Scenario (A)
If a business A purchases real estate for $100,000 with cash and the same piece of real estate is worth $200,000 in 5 years time, the business has made $100,000. This equates to a return on investment (ROI) of 100% over 5 years.
Leveraged Scenario (B)
However let us consider what happens if the same company borrows 100,000 at a 5% interest rate to purchase the same piece of real estate for $200,000. As before the property doubles in value over 5 years.
The investment (over 5 years) is 100,000 + ((100,000 x 0.05) X 5) = $125,000. The business sells the property for $400,000 from which it repays the borrowed funds leaving it with $300,000. The company has made $300,000 - $125,000 = $175,000. The ROI is now 300,000 / 125,000 = 240% over 5 years.
Leverage means Additional Risk
So scenario B makes the business more money and results in a better return on investment. However it is very important to note that the scenario B involves more risk. Were the value of the real estate in question to fall, the businesses losses would be amplified if it had borrowed money to fund its purchase.
