No matter what spin one puts on it, every part of life has its own set of ‘physics’. There are certain truths, which when violated, will exact predictable consequences. Jump of a three foot high doghouse onto the lawn, and you’ll be fine. Take a fall from 100 feet up? Not so fine. Gravity works every time it’s tried. Engineers make it our friend whenever possible. Get water hot enough and it turns into steam. Pretty soon it’s gone. Works every time.
Negative leverage — Thou shalt not
If the cost of money borrowed in the process of acquisition cost more, in terms of interest rate than the subject property ‘returns’? You’ve entered the land of negative leverage. It’s akin to the guy whose intention was to fill the hole up, only to discover he’s been diggin’ it deeper and deeper. In the end, it never works.
Law: An investment property shall generate a yield greater than the cost of money it took to acquire it.
Appreciation in value [Read more...]
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