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Your returns on the asset don't really matter for whether you should get a mortgage or not. What matters are what returns you can get with the money from the m
by JamesBarney 8y ago
Your returns on the asset don't really matter for whether you should get a mortgage or not.
What matters are what returns you can get with the money from the mortgage.(Opportunity cost)
Ex. You own an investment property you bought for 200k, it returns 10% per year. The only available investments to you are the stock market which returns 3%. Mortgages are 5% should you get a mortgage? Obviously no.
Same situation but the stock markets are returning 15% per annum. Obviously yes.
- jiveturkey 8y agoTrue but there's an additional factor for a mortgage: leverage on the capital appreciation. You make money 2 ways with a property: income and capital appreciation.
- JamesBarney 8y agoIn this simple model there's not really a difference between appreciation and rent.
- shoo 8y agoA variation of your scenario would be if there were available investments similar to the existing property, then you may wish to get one or more mortgages to acquire multiple such properties.
- zhte415 8y agoAt a super aggregate level, ignoring local disparity: If the stock market is doing 15% per year, then the real economy (or perception of the present value of the future real economy) is doing 15% too, so capital appreciation of real estate, given linking to the real economy, should also be doing 15%. Yield over maintenance on top of that is a bonus and could best be compared to dividends. Property also tends not to be eroded by new entrants (private, VC) unlike the stock market, so could be seen as even more favourable.