Unlevered returns measure a property's investment performance based purely on its own cash flow and value, with no debt financing involved, essentially treating the deal as if it were purchased entirely with cash. Levered returns, by contrast, reflect what an investor actually earns after accounting for debt service, showing how borrowed capital changes the outcome once loan payments are subtracted from property-level cash flow.
The relationship between the two depends heavily on the cost of debt relative to the property's yield. When a property's return exceeds its borrowing cost, leverage amplifies the equity investor's return above the unlevered figure, a dynamic known as positive leverage. When borrowing costs exceed the property's return, leverage works in reverse and drags equity returns below the unlevered baseline. Comparing levered and unlevered projections side by side helps investors understand how much of a deal's projected return depends on financing rather than the underlying asset's operating performance.
Further reading: Do Interest Rates Really Drive Cap Rates? What Investors Need to Know
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