Leverage, plain and simple, is debt; it's using other people's money to buy what you want, which actually allows you to use less of your own money to get more property. In real estate investing, leverage can make or break your portfolio. With the right amount of debt taken out on the right lucrative properties, you can make a killing in real estate using very little of your own money. But there's a downside: too much debt or unaffordable debt coupled with shrinking property values can spell financial disaster. There's a pretty fine line between the two, and as long as you stand firmly on the profitable side, real estate investing can provide solid returns — but it will take a lot of legwork on your part to pull this off.

Here's the key to success: You have to be smart about your borrowing. Never borrow more than you can afford to pay back. Always understand all the terms of your loan contract, particularly if you take on an adjustable interest rate (also called a variable interest rate). Don't let anyone talk you into a loan that doesn't make sense.

When you borrow wisely, you can use the bank's money to acquire and improve investment properties. At the same time, you can invest your own money in other ways. This means more money is going to work for you, which increases your portfolio's profit potential. When everything goes your way — you quickly flip a property for a profit or immediately land a golden tenant who always pays the rent on time — you can pay back the loan with your investment cash flow and keep a tidy profit for yourself.

Of course, there's a downside. When circumstances are less favorable, as they usually are, you may end up struggling to pay the investment property loan. That's why it's critically important to only get a loan you can afford to pay back even if you don't get a tenant or can't sell the property right away.