I’d say one of the most famous debates that comes up on this website is the one about paying all cash for a property versus leveraging a property.
And by famous I mean, it gets ugly.
The heart of the debate seems to center around the difference in risk in buying a property using all cash or buying a property using leveraging. Those who leverage their properties boast that the benefit of doing so allows the investor to buy more properties with the same amount of money. Those who pay cash come back against that argument saying how risky leveraging is and that the risk isn’t worth it, even if it does get you more properties. From what I can tell, this point in the debate seems to always be the point of impasse between the sides. Being able to buy more properties by using leverage is an indisputable fact. Leveraging inducing more risk seems indisputable. So then, everyone stops debating at that point and goes about their merry ways.
I think this is the wrong place for the impasse. Being able to buy more properties using leverage, yes, that is correct. But leveraging being riskier?
Is it?
For any newbies out there, “leveraging” refers to using ‘someone else’s money’ to buy something. That can include loans from a bank, loans from an individual, financing on a credit card, borrowing money, etc.
For the purpose of what we are talking about here, I’m going to stick with referring mostly to mortgages. A mortgage isn’t the only way to finance a property but it’s the primary one and a lot easier and more common than other methods. For the purpose of this article, I’m thinking mostly about mortgages because I want to look at long-term loans rather ..