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Originally Posted by Reef_Geek
Thanks.
I think it's about using leverage (debt) with good business sense. Leverage is a very powerful tool. There's bad debt and good debt.
For example, I can't afford to buy my home out right, so I have a mortgage. I buy a property valued appropriately and at the right time/price. I'm not stretching to buy more than what I need, so my mortgage is affordable, and I have enough savings/investments that can handle a rate hike at refinancing. It is forced savings compared to rent.
Another example, I need a car, I could buy it out right... or, I could take advantage of low interest rates. At 2.5% APR... (sometimes zero for other brands), well, I could make more return on investment than 2.5% by keeping my investments rather than cashing them out to pay off the car.
Taking out a line of credit against a property's equity to wisely re-invest... for example to add a bathroom or finish a basement... not to build a pool or buy a Jacuzzi... so long as it can be justified in increase in property value, or additional loan payments and interest is recoverable proportionately (cap rate) in rental income. (and no, in wall aquariums do not increase property value)
Of course, I stay away from bad debt... carrying a credit card balance is a horrendous waste of money. I don't think there's value in leasing vehicles unless it can be a tax write off item for a business... etc.
But yes, I am looking forward to a day long into the future when 40% of my monthly cash flow doesn't get sucked into mortgage payments! It's far far away, but it's a heaven I've heard of!
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Yes, for sure using debt (as with a secured line of credit) for investment can be good, and I have done that, too. But just don't get yourself in a position where if the markets fall, you are forced to sell low. Or your house/condo goes underwater (as what happened in the US to so many). Remember the ultimate objective, buy low, sell high, not the other way around.
Real estate is generally a good asset (does go up and down), but you have to live somewhere, and rent is for sure wasted. I have bought and sold many homes over the years. Some for less than what I bought them for (80's was a tough time), too. But I did learn that with real estate, you don't get ahead with your sells, but with your buys. It is much easier to get a good buy (with good market research) than a good sell (not up to you, but the buyers). And of course it is all about location, location, location.
But I do draw the line with borrowing money for a car. I can say that I never did that. Although, to be fair, interest rates were much higher many years ago. Problem with a car, as with boats, LED lights, etc, is they depreciate rapidly, and when you are ready to buy another one, you are no further ahead. Instead, I initially bought junkers, and amazingly, I actually sold some for what I bought them for and more. Later, when I finally had some money, I did buy new, but more because of vanity, and not smart personal finance.
Low interest rates are not a good thing, IMO. Sort of like taking drugs and hope that you don't get addicted.
Being in finance, I'm sure you know that cash is king. When the markets or real estate fall (and they always do), have cash available to take advantage of the low price opportunities. That's one way that I have got ahead.
And don't run with the herd...