Yes, you can margin securities, but only 2-1, unlike real estate which can be levered 10-1 (or more, with 0% down). Also, mortgage rates for a “standard” loan (i.e., not subprime or funky) will almost always be at least 200 bps below broker’s call rate which is what you’ll have to pay to use margin.
CONCHO,
Remember, I said “fairly valued” real estate, not freakishly overpriced as we see today. I’ll give you an example. I bought a condo in Carlsbad back in 1999 that I lived in, but for argument’s sake, let’s say I was going to rent it out forever. When I bought it, it would have been slightly cashflow positive from a rental standpoint, after a 20% down payment and including HOA, taxes, etc. Now, prices happened to skyrocket and I sold a few years later, but lets assume I hadn’t sold. 3% annual appreciation in the home would have led to AT LEAST a 15% annualized return before considering rental increases. There’s no magic – it’s just math. The trick is that you can’t buy when prices are through the roof as they are right now. But, make no mistake, there are LOTS of wealthy folk who have used this approach and logic for years. The author of the article is NOT a clown because he can’t earn 15% per year on his investments; he is a clown because he didn’t take into account one of the single most important considerations where real estate returns are concerned: leverage.
“Sounds like you’ve invented the financial perpetual motion machine. Why are you wasting your time posting here on Piggington when you should be frolicking in the Mediterranean on your 100ft yacht?” – CONCHO
I’m not into sailing. But, otherwise, I do often ask myself similar questions. My answer: I’m just trying to help out; deep down I’m a philanthropist.
