Why do I bother… look, the issue of whether or not “it is far better to collect interest than to pay it” is DEPENDENT ON THE SITUATION. That was my point. I thought I made that clear…
I believe that 85% of the assets on this planet – whether stocks, commodities, bonds, real estate, etc. – are either fairly or over-valued. Having said that, there are plenty of situations out there in which an investor can earn a return substantially above the cost of servicing the cost of borrowing associated with making such an investment. The problem, of course, is that such opportunities are few relative to the total set of investment opportunities. In other words, it’s hard work to find these opportunities. But, I will guarantee you that in 10 years you will be able to look back and with 20/20 hindsight find investments that returned well in excess of the borrowing costs associated with these investments.
I invest principally in private companies. Unfortunately, it’s very difficult to borrow against equity interests in private companies. Bank regulators more than frown on banks that try to lend against private equity as collateral, and for good reason. Nevertheless, I have several investments that, if possible, I would be happy to borrow against at 8% floating (and increase my equity investment in these companies with the debt) because I’m highly confident that these companies’ ultimate IRR will exceed that 8% rate by a multiple. So, it would make all kinds of sense for me to borrow right now, despite the fact that I’m very bearish on the economy, real estate, stocks, etc… but it’s very difficult to do.
As to your specific question, for the most part, no, I don’t see much benefit to an individual taking on mortgage debt right now. But, again, IT DEPENDS ON THE SITUATION. This forum focuses on San Diego and California where leverage will likely be hazardous to investors’ financial health over the next several years. But the world is a large real estate market. (I know people who are active buying properties in such far flung places as Peru and Russia.) I’m sure there are plenty of CRE and MFR properties in the midwest (and other places) that yield positive cash flow after debt service and will show modest appreciation over the next several years. And for people that have the patience and skill to find such properties, then they should borrow as they see fit. It’s not necessarily stupid to do so, and may in fact be quite smart given the circumstances.
The problem with adages, platitudes and pithy pronouncements that people read in the financial press is that often they are just plain wrong. For example, the idea that “it is far better to collect interest than to pay it” is COMPLETELY RIDICULOUS absent any corresponding context.
