I have a 18 yr old small face value policy that has about 40% cash
value vs the face coverage.  I'd like to take the build up in value
and put it into real estate. I have no need for the small policy..does
it make sense to borrow out the money or cancel the policies? What are
the pros & cons of either action.

It is simpler to just cash it out, but you could borrow it out, buy
the real estate, and then borrow against the real estate if necessary
to repay the insurance policy.  Factors to consider would be the sum
of money, your tax bracket, cost of the two loans, time spent dealing
with the more complex arrangement, etc.  But I'm just guessing. 
Consulting a tax professional would be best.

http://www.ehow.com/how_4063_borrow-life-insurance.html

http://www.wamu.com/wmfinancial/planningeducation/educationalarticles/estateplanning/TaxAdvantagesLifeInsurance

http://www.newyorklife.com/cda/0,3254,11751,00.html

By borrowing money from such a life ins policy you pay 2ce for the money.  

First: You pay interest on the amount borrowed (which is unfair since
it's supposed to be your money in the first place).
Second: You no longer receive the small amount of interest that they
were giving you within the policy

Added together these 2 costs they usually add to a larger amount of
interest that you pay then you would pay to borrow the money from a
bank.

Since you no longer need the policy, I highly suggest cancelling it
and taking whatever cash you can get now.  Having more insurance than
you need (unless you know something about your likelyhood of death
that the ins company doesn't know) is rarely worth it.

The money in the policy is the reserve and is offset the risk.    As
one gets older mortality increases.  If you want to pay a level amount
for the life of a life insurance policy then there has to be some way
to offset the present value of the future payment.  (this is the
reserve)

The reserve or cash value is = (present value of future payment with
consideration of mortality) - (present value of future premiums)

If you want to keep the policy in force then I would borrow the money.
 Often the interest rate is very low.(some are fixed, and some are
adjustable, usually 85% of the Moodys bond rate, adjusted monthly)  If
the sum of money is pretty small and you don't need the insurance (and
you are still insurable) then cash out the policy.  The reason I
mention that you make sure you are insurable is that if you are not
then keeping the policy is a good idea.

IF you have other responsiblities - eg spouse, children, elderly
parent - and you want the value of the property covered in the event
of your death and if you are in good health.  Then I would look at 1
year term guarenteed renewable and non-cancallable life insurance
equal to about the mortgage amount.(not 5 year reentry term, where you
requalify every 5 years; if you get sick you are screwed in terms of
cost.)  At your age it is cheap. Yes, the odds that you are going to
die are small, but that is why it is cheap.