Moved from another thread. Take the following situation
Salary: €90k
Family home - no mortgage
Two buy to lets worth €150k each - no borrowing
Should he buy another buy to let for €150k with a yield of 10% with a mortgage of say 5%?
Risk arising from borrowing for property investment, where the investment is to be held for the long term is not like borrowing for other investments.
Borrowing for investments is usually short term or can be withdrawn at will by the bank. There are even (shudder) borrowings subject to margin calls. Borrowing for property is different and usually involves a 25 year contract.
If the borrower is able to cashflow the borrowing then there is no risk that he will be forced to sell at a loss. This is one of the many things that makes property investment for the long term different.
Salary: €90k
Family home - no mortgage
Two buy to lets worth €150k each - no borrowing
Should he buy another buy to let for €150k with a yield of 10% with a mortgage of say 5%?
He is not by any means overborrowed. So the risk is small. But the risk is still increased by borrowing.
Risk arising from borrowing for property investment, where the investment is to be held for the long term is not like borrowing for other investments.
Borrowing for investments is usually short term or can be withdrawn at will by the bank. There are even (shudder) borrowings subject to margin calls. Borrowing for property is different and usually involves a 25 year contract.
If the borrower is able to cashflow the borrowing then there is no risk that he will be forced to sell at a loss. This is one of the many things that makes property investment for the long term different.
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