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Which is great in a rising market, but will ruin him when the market falls (which it looks like it's about to do). Leverage works both ways, it will amplify bo
by marcus_holmes 7y ago
Which is great in a rising market, but will ruin him when the market falls (which it looks like it's about to do).
Leverage works both ways, it will amplify both gains and losses.
- pba 7y agoThe market falling as a whole does not mean that every single individual investment one could have a position in during that time loses value.
- gnopgnip 7y agoLeverage does not work the same way for real estate. There is no margin call like there is with stock. Even if you are upside down on the mortgage in many cases you are still cashflow positive and can ride it out. And if you are not, even in recourse states in practice the losses are not amplified and a strategic default, deed in lieu, or short sale are still possible.
- marcus_holmes 7y agoUtterly not true outside the US. I've seen lots of people in negative equity, unable to afford the mortgage and unable to sell (the mortgage liability doesn't go away if you sell the property. If the mortgage is bigger than the current house price, selling doesn't help). People with multiple properties and multiple mortgages are in worse trouble. It's very easy to go bankrupt in this situation, I've seen it happen.