I buy a house that costs $100,000. My down payment (cash out of pocket) is $20,000.
I pay 3.5% interest on $80,000 as I'm paying down the loan, plus property taxes and insurance, and it comes to $546.74/month [1]. The rent comes in at $550/month, pretty much canceling out the mortgage.
Am I making 4% per year on my investment, then, because that's the amount the real estate appreciates?
No, I'm making 4% of $100,000 per year, or $4,000, on my $20,000 investment. That's 20% per year. [2][3]
Leverage properly applied can raise your net profit.
You're welcome.
[1] http://www.mortgagecalculator.org/
[2] The numbers can realistically be much better than this, given the right circumstances. I am personally using this as an investment strategy, and yes, it doesn't just work this way "in theory."
[3] I'm ignoring repairs and vacancy rate for simplicity. Those obviously hurt profitability. But as I mentioned in [2] above, if you pick your investment property strategically, your margins are much higher, so that's your cushion.
This is how a $100 initial cash investment in inventory can produce $17 worth of cash at the end. You use your leverage with lots of small suppliers to force them into offering generous credit.
Note: this ignores the fact that these numbers are based on net profit instead of gross profit which would be the actual relevant number here. And the gross profit in groceries is a lot higher than 1.7%.