It’s Mey here on a breezy Wednesday evening, had a nice evening with our financial planner and also worked out at the gym, and now winding down with tonight’s blog Would You Borrow Money To Invest?
…this is a controversial topic…
…and I think it just DEPENDS on the rate of the loan and also what the investment is…
…I recently had a talk with my mentor in Real Estate, and he advised that an investor with CASH wouldn’t go in on a real estate investment unless the return was AT LEAST 8%…
…so that means if you are borrowing to go in, then you need to offset the rate of your loan…
…let’s say that you have access to a credit line at 6%, which is roughly the current going rate…
…well, in order to make your 8%, you need to find something that is a STABLE 14% return…
…so it just depends…
…if you can find an investment like that, then yes, it would make sense to borrow to invest…
My Borrowing-To-Invest Personal Story
…I did borrow from my line of credit to invest in a REIT called ARR, which was at 14% APY at the time in dividend payouts…
…the credit line was at 6% and though the interest from the REIT still pays more than I pay on the line of credit, its value has dropped to less than half of what I bought it for, also the dividends have decreased also by 50%…
…My brother recently shared that the high rate REITs are inherently riskier, so when they go down in value, their rates go down proportionately…
…in the end, I don’t think it was a great investment, as I’m still paying off the line of credit and it’s cramping my cash flow…
…it really depends on what happens to ARR, which just did a reverse 8-1 split (meaning the shares were combined so that if you owned 8 shares, now you own 1 that’s 8 times higher in price)…
…so it could go down again…
…only time will tell, but needless to say I stopped investing and am now just watching…
…so like I said, should you borrow to invest?
IT DEPENDS!
What About a Mortgage on a House? Is it Good To Borrow to Invest?
…a lot of people borrow money in the form of a mortgage and consider that an investment…
…I think it depends…
…maybe the mortgage is just to bring stability to where you live and is more of a necessary expense than it is an investment…
…it’s hard to say…
…so many people are house poor, and they are house poor until death, which makes me wonder about the quality of their investment…
…but then again, some get pretty wealthy from the resale of their home…
IT DEPENDS….
What are your thoughts?
Have you ever borrowed to invest?
How did it turn out for you?
Thanks so much sharing this. I have been thinking of taking out a loan to invest in my business. Your blog has helped put thinks into perspective.
Hi Denise, I’m glad it helped! It’s important to realize that a lot of people who start their own business fail, and the reason most of them do is lack of reserve funds (savings)…I personally have also seen a lot of over extending or borrowing on the promise of a good return without solid research…as long as it makes sense…then it’s ok to borrow to invest…