When Debt Increases Returns — and When It Destroys Them

1. Debt increases returns only when the asset stands on its own

Professionals do not start by asking:

“How much can I borrow?”

They ask:

“Would this asset work without debt?”

Leverage works when:

• the property generates clean, reliable cash flow,

• demand is durable,

• exit liquidity is strong.

In that case, debt:

• reduces equity required,

• boosts return on equity,

• without introducing pressure.

2. When the cost of capital is lower than real return

Leverage works only if returns lead costs.

That means:

• net return (after taxes, expenses, vacancies),

• not headline yields or listing assumptions.

If:

• interest absorbs most of the cash flow,

• returns depend on appreciation optimism,

debt does not increase returns.
It postpones them—with risk.

3. Time is the silent requirement

Debt works when:

• there is no forced timeline,

• the asset can be held comfortably,

• exits are optional, not mandatory.

When:

• debt service tightens cash flow,

• rates rise,

• markets slow,

leverage turns from a tool into a source of stress.

4. When debt destroys returns

Debt becomes destructive when:

• cash flow is marginal,

• returns rely on price growth,

• exit liquidity is weak,

• leverage is aggressive.

In these cases:

• risk concentrates,

• returns exist only on spreadsheets,

• small shocks cause disproportionate damage.

5. The biggest mistake: using debt to “make the deal work”

When debt is used to:

• justify an overpriced asset,

• force acceptable numbers,

• compensate for weak fundamentals,

it does not enhance returns.
It hides structural weakness.

Professionals walk away from these deals—
not because they lack access to debt,
but because they understand what follows.

6. Leverage behaves differently inside a portfolio

In a portfolio:

• leverage is distributed,

• not concentrated in one asset.

Strong portfolios:

• include debt-free assets,

• apply leverage selectively,

• avoid system-wide exposure.

The same loan can be:

• intelligent inside a portfolio,

• dangerous in a standalone investment.

7. Debt never replaces quality

No loan:

• fixes a bad location,

• improves poor liquidity,

• turns a weak asset into a strong one.

Leverage works only on quality.
Never instead of it.

The professional perspective

At Poli Real Estate, debt is treated as a precision instrument, not a default solution.

Every use of leverage is evaluated against:

• downside cash-flow scenarios,

• exit resilience,

• the asset’s role within the portfolio.

Not every property should be leveraged.
And that is not a weakness—it is discipline.

Conclusion

Debt increases returns when:

• the asset is fundamentally strong,

• real returns exceed borrowing costs,

• time and flexibility exist.

Debt destroys returns when:

• it masks weaknesses,

• creates pressure,

• relies on optimism.

In real estate, leverage doesn’t make you smarter. It reveals whether you already are.