http://www.investopedia.com/article s/personal-finance/07111

BTW, let me point out the problems with this BS:
>When you buy an asset with borrowed money, your potential return is higher – assuming the asset increases in value.
>assuming the asset increases in value.
Yeah. You can make money by playing poker, too.. No one assures you anything, though.

And, more aggravating:
>suppose you bought a $300,000 home that has since risen in value by $100,000 and is now worth $400,000. If you had paid cash for the home, your return would be 33% (a $100,000 gain on your $300,000). But if you had put 20% down and borrowed the remaining 80%, your return would be 166% (a $100,000 gain on your $60,000 down payment).
Nice!
>This oversimplified example ignores mortgage payments
Wait, what? ...

>>1875110
>Wait, what? ...

The only thing I can think of is that interest paid on a mortgage is tax deductible.

>>1875096
>looking at a home as an asset
Ayy lmao

Also
Economists are just people who couldn't be real math majors.

>>1875126
> interest paid on a mortgage is tax deductible

Unless your tax rate is close to or over 100% AND you can meaningfully itemize your return, this is insignificant.


Overall their analysis isn't wrong though. They're trying to briefly describe how a mortgage lets you gain leverage over the underlying asset.

> ignores mortgage payments, tax deductions, and other factors

That's still retarded to do.

A mortgage still gives you leverage if the asset, on a net inflation adjusted basis, rises faster than your mortgage rate.

You have to consider - assume you pay in cash and as described the value increases by 100k on the next day, and you sell it right away. Your ROI is 33% since you still had to put in 300k.

However if you buy the house using a mortgage, you only have to put down 60k. If it still appreciates by 100k the next day and you sell it right away, you still have your 40k, you make a 100k gain, you get your 60k back, and you paid off the 240k mortgage with the gains. You made more money with borrowed money. Thats the logic behind leverage.

>>1875149
No, I agree

Buying is clearly better than renting - but better than buying cash? I don't buy it.

>>1875096
While this shit is true, it's based on a ridiculous premise. The price of your house is not going to rise so dramatically in a short amount of time. The bankers always want to actually own the stuff. Of course you owning it would be a bad thing! If your house went up some insane amount in a short period of time, your ROI (using your house as an investment anyways ayy lmao) will be low if you just paid for it outright you silly goy!

OP here, posting from other device

I'm not a retard so I (think I) understand:
What they meant to Say is: ir the house were to rise its price overnight, you'd have a *temporary*, *instantáneos* profit of 166%... Of course, you'd have to be really lucky to be able to recover that profit, I Guess the bank would have to disappear ir something...

My point is, this clearly shows how far from reality these people are, they don't even consider that, most of the time their assumptions don't hold true. And yer they still teach random people this, without even warning them... Because they forgot the premises themselves.

>>1875096

It can be right depending on how you apply the rest of your money. So if you actually do the second scenario, you will have 200k left, and say you can make 33% over that 200k, you will have made 66k + The original 100k, except the initial investment value will be dilluted into monthly payments.

It's a retarded ass logic, but that's how some idiots think.

>>1875271
>Of course, you'd have to be really lucky to be able to recover that profit, I Guess the bank would have to disappear ir something...
... So you could just not pay the mortgage itself (I don't even know if this could happen), and you'd have gotten your 166%

Aldo, they should have said 166% *at most*

>>1875135
If you're buying it an as investment as opposed to residence, they are right, it is an asset. Imagine that the example used a commercial estate instead, it'd be an asset.

This is worded very badly, but the gist is this:

Leverage is a great idea as long as your annual return is above the interest rate of the loan.

This principle is a general one, not restricted to houses and mortgages.

You have $10,000 to invest with a 4% yield for one year.
You can either invest $10k and make $400.
Or you can take a $10k loan for 3%, invest $20k for a return of $800, deduct $300 in interest payments and come out of this with a profit of $500 - $100 more than if you hadn't leveraged.

In a real world settings there is a hefty dose of uncertainty (but honestly - every investment has that since nobody can predict the future). So if you expect a house to appreciate at a rate greater than your mortgage interest rate, it is financially sound to leverage the fuck out of your money to buy it.

The decision becomes a little more dodgy when you already have all the money. Back to our example:

You have $20,000 to invest with a 4% yield for one year. The investment is capped at $20k.
You can either invest $20k and make $800.
Or you can take a $10k loan for 3%, invest $20k for a return of $800, deduct $300 in interest payments and come out of this with a profit of $500. If this is a sound decision now obviously depends on what you do with the $10k in cash you still have left over. If you find a second investment with a yield in excess of your loan rate of 3%, it is more profitable to take out the loan. If you can't find such an investment, you should invest your $20k and not leverage them.

tl;dr: The idea is correct, but it doesn't show the assumptions it is based on.

>>1875135
list all of donald trump's non-building and real estate assets.

If you look at the entire article, you'll see that they are listing pros and cons.

Leverage is a common financial tool, and it isn't retarded of them to point this out as a consideration for people.

>>1875300
To add to this: Leverage is even more important with rental properties.

Say any property you rent out pays for itself in roughly 20 years. You have the price of one unit in cash.
If you don't leverage you buy 1 unit. After 20 years you have enough cash to buy a second unit.
If you leverage your cash 3:1, you buy 4 units. After 20 years you have zero cash, but the mortgage is paid off.

Having 4 units and zero debt is obviously better than having 2 units and zero debt.

In case you are wondering: The interest on the mortage makes things more expensive, but as compensation you buy at current prices. In the cash-only scenario you'll have to buy your second unit after 20 years of inflation - so at a much more expensive price. As a simplification (which is actually a decent rought estimate) I assumed that the mortage interest rate is roughly eqivalent to inflation/appreciation.

>>1875110
Putting that aside, just imagine if your property appreciated 5000%. Wow wouldn't that be great!!! After all, a few years ago that was the logic these ass holes kept selling people, namely, that real estate will always go up in value. What fucking dog shit reality do these clowns live in?

>>1875300
>>1875321
OR you could say you paid one unit with cash, and took mortgages/loans foro the rest.. which would literally be the same damn shit

Fucking economists, fuck their mental gimnastics and their fucking euphemisms

>>1875334
a 200% gain isn't unthinkable if you aren't a stupid faggot who doesn't know anything and buys any mchouse you see on a mcstreet in a mcsuburb

>>1875343
Then again

I probably look at things differently from pantywaste faggot wannabe developers who think flipping a house is as easy as having a beaner come splash some paint on a soffit, the type of people who can't do any actual remodeling so they ask a woman and a nigger architectual engineer to draw them some plans to make it avant-garde and chic


I fucking hate the housing industry, but thanks to retards abound there's incredible deals everywhere since womyn and niggers unironically buy all the overpriced shit from white guys who know what they're doing.

>>1875341
But that's not what happens. The units are independent real estate. No bank will give you 100% credit on three units while you kick back and fully own the fourth. You have to pay 25% in equity and 75% in debt and take the bank on with a mortgage on evey unit. Otherwise the deal falls through. This is not mental gymnastics. This is literally how this sort of deal is conducted.

>>1875135
someone read rich dad poor dad

>>1875351
Does the opinion of the bank or some random economist even matter?

The fact is, you spent all your cash plus some money you loaned to buy one property plus some other stuff. The money doesn't have a conscience, it doesn't fucking know what you did with it, you distributed it however you wanted to, after saving some and asking the bank for more.

The bank(s) could still have made sure that you weren't spending more than you could, it's their fucking problem (and yours too, obviously) if you fuck up

>>1875301
I think that poster meant something I agree with; your own personal home does not necessarily have to make money on sale as people assumed back before the housing bubble. People used to unnecessarily purchase larger homes about every four years because they were sold that it was an amazing investment and the only way to not take a loss.

>>1875396
>People used to unnecessarily purchase larger homes about every four years because they were sold that it was an amazing investment and the only way to not take a loss.

And at a certain price it is, like any other asset.

Just because some people buy at a high and sell at a low doesn't make apple a bad stock.

>>1875380
>The money doesn't have a conscience, it doesn't fucking know what you did with it, you distributed it however you wanted to, after saving some and asking the bank for more.
No, that's not how it works. They don't give you the money and you can do with it what you want. You have to present the bank with the documents ready to sign and the bank puts the loans directly into escrow for each unit. The escrow is only released once the bank's mortgage is safe.

In these cases the money is very specifically tied to each individual unit and you as the loan taker never actually see it.

>The bank(s) could still have made sure that you weren't spending more than you could, it's their fucking problem (and yours too, obviously) if you fuck up
They did. By requiring you to come up with at least 25% of equity if you want a loan from them (in our example at least - the percentage obviously varies in the real world). They want you to share the risk to alleviate the problem of moral hazard. If you stand to lose nothing from your investment, you won't particuarly take care with it. Also, they want a safety margin when they have to sell your unit. It's easier to get 75% of the original price than 100% if the mortage taker flakes on them.

>>1875343
Come again, 200%? Where, FL, AZ, CO? Maybe if you bought a 100k bonafide POS in a McMansion neighborhood and even then the realtor is going to price it a little under the local demographics. Or you could buy a POS crack house for 25k in an area of 60k houses. Even so 200% return...Bull!