[Nathans_Dad]

Well, as I understand it, it goes like this:

1). Mortgage rates must be low (as they are now).
2). Accept the fact that the value of your house will grow or shrink independant of how much equity you have in it. You stand to gain the same whether you pay cash or mortgage 100% (ignoring interest for now...see later in the post).
3). You must invest the money that you otherwise would have sunk into the house. If you spend it, the whole thing doesn't work.
4). You must gain about 10% in the market on average (which is the average yearly return) to make money once you factor in the interest on your mortgage and inflation.

So, if I buy a house for $200k and pay cash, then sell it in 5 years for $300k I have made $100k on my $200k investment.

If I take the same $200k and invest it in the market for 5 years I will have around $320k from the investment assuming 10% per year. I also buy the same house and finance 100% at 6% interest. Assuming I sell the house the same 5 years later for the same $300k, I will have made $100k on no investment, less the interest and closing costs. Lets say (just for argument) that comes out to $75k. Thus I have made $195k on my $200k investment by mortgaging the house.

The example is a bit simplistic, but you get the idea. It's the same principle as buying stock on margin. You leverage your money in order to make more money and accept the risk that your return will not be greater than the interest rate. Now, if mortgages were 15%, it wouldn't work very well, but since they are 6% it is a viable option.