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You are forgetting that you don't only get the leverage of the $1M, you also have to pay the loan for the full sum of $1M. There is a section in the article ab
by misja111 9y ago
You are forgetting that you don't only get the leverage of the $1M, you also have to pay the loan for the full sum of $1M.
There is a section in the article about 'opportunity cost' which covers this.
- nojvek 9y agoYou don’t have to pay full. When you’re done, you can sell. Buy for $500k, put down 100k as downpayment. Suppose it’s an interest only loan and you pay $1500 a month for all house costs. In 5 years you’ve paid 90k. If the house price doubles, you’re walking away with 410k. Renting you’d be putting at least 2k a month, so total 120k. 190-120=70k. For 70k in stock market to become 410k , that’s a 5.8X growth. Really hard. In a booming market, with low interest rates, buying makes sense because of leverage. Obviously you have to do the numbers for rent/buy scenarios and make a decision yourself. There is no right answer.
- misja111 9y agoYes that would be a nice profit, but to hope that your house price wil double in 5 years is pure speculation. True, you'll have a nice leverage, but when speculating the leverage goes both ways; if your house price drops 50% you'll see the other side of the leverage. The article is not about short term speculation, it is about long term expected returns. Which tend to follow the inflation and the interest rate.
- alien_at_work 9y agoCan you get an interest only loan on a home in the USA?