Because you could just liquidate the low yielding asset, use the proceeds to partly finance the property purchase and therefore borrow less money at the higher rate. The rent will be the same regardless.But I still don’t get the yielding point: If you cover the monthly payments with the rent (ideally), what’s the relevance of the borrowing interest?
Welcome to 2006!Have any of you done this before?
What you're doing is magnifying your risk. Say you buy 3 properties, with down payment secured against existing portfolio. A 20% fall in property values, and 20% drop in shares, you've completely wiped out your entire savings. So yes, on a good run you'll quickly grow your net worth, but you've taken on all the risk of things going wrong.Of course you could buy 3 properties like that with your 300k in the first place, but the point is: when the loan is fully paid (perhaps in 25 years), you basically have created 90K in assets out of thin air while getting 9% annual return from your ETF during the process.
Let’s say you have 300K in an ETF that replicates the S&P500, so you roughly expect to get around 9% annual return in the long run (on average).
Gabriel.
Some of your language suggested you might not be based here, which would mean the CBI rules wouldn't apply.Yes, I’m based in Ireland even though I come from Spain. Why?
When you leverage your investment you are always magnifying your risk and potential gains, those are the rules of the game. I think real estate investors (which I am not) are used to deal with leveraged investments and never really think about a 20% fall in the value of their properties (or long vacant periods, big repairs, etc). When they get a regular mortgage they are facing the same risk: a 10% drop means a 100% loss of their initial investment, but that’s fine because the property is still there, physically. It feels less risky.
I love time travel!Welcome to 2006!
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