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>or up to their ears in debt See this depends. If the following are true: 1) The interest rate on your debt is below inflation 2) The cost to service the deb
by zionic 4y ago
>or up to their ears in debt
See this depends. If the following are true:
1) The interest rate on your debt is below inflation
2) The cost to service the debt is a sufficiently low percentage of your monthly take home
Then taking a loan is often MUCH smarter than buying it cash, because your cash can earn interest in excess of the loan interest in most scenarios. I know people with ten houses on 30-year 2.5% notes. They could pay them all off tomorrow but it wouldn't make sense financially.
- ivanche 4y agoLeverage is excellent in good times but horrible in bad ones. As they say, after an ebb you see who was swimming naked.
- bombcar 4y agoThe risk that you may lose your job has to be considered in the equation, taking into account how "rare" your situation is (if you're work-from-home at $250k, will you be able to find that again, or will you have to move to get a similar income?) and how much savings you have. Remember, when you take a loan you have extremely large banks on the other side of your "great idea" so either they're incredibly stupid, or they can take into account more factors.
- zionic 4y agoSure, but you can always sell assets to cover expenses. Say you have $250k in diversified assets and a $500k note. In scenario A you put $250k and have no earning power, owing $250k. If you lose your job and foreclose that downpayment is lost. In scenario B you lose your job but you still have $250k on assets, you can draw on that to pay the $500k note as it comes due. You have options.
- deleted 4y ago[deleted]