Real Properties and businesses are not typically purchased on a cash basis, although that is an option if the cash is available. Borrowing to purchase an asset that is assumed to appreciate is known as leverage. Real Estate and Businesses are also often sold on an installment basis.
Much of the gains, especially in real estate, are due to leverage; when the total return from the asset exceeds the interest paid on the loan. However, leverage is a two-edged sword: it magnifies not only returns, but also risks.
The cost of funds should include the tax impact of their use; for example, a lump sum distribution from an IRA or qualified plan is rarely a good source of funds.
The structuring of the sale of real estate and business interests is especially important when large capital gains or depreciation recapture will be realized upon sale. The sale can be designed so that the proceeds are received in low income tax years, or spread out in installment sales to avoid bracket spiking.