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many areas like here are having apartment shortage issues . with a lot of folks burned by the housing down turn and foreclosed on or people no longer interested in getting tied up in something where leverage can work against them, they prefer to rent instead .
demand on the rental market for decent apartments has been very very high .
well if you borrowed 300k and put down 60k and prices fall 20% your entire equity position is minus 72k wiping out 100% of your down payment until and if prices recover , you owe more than it is worth . sound familiar ?.
so the property fell only 20% but my losses were over 100% of my own money . that is reverse leverage .
it happened to me on my first investment property which i closed on 2 weeks before the stock market crash in 1987 .
when the smoke cleared my down payment equity was gone and i was negative . it took quite a few years just to get back to where we were .
Last edited by mathjak107; 09-05-2015 at 03:20 PM..
well if you borrowed 300k and put down 60k and prices fall 20% your entire equity position is minus 72k wiping out 100% of your down payment until and if prices recover , you owe more than it is worth . sound familiar ?.
it happened to me on my first investment property which i closed on 2 weeks before the stock market crash in 1987 .
when the smoke cleared my down payment equity was gone and i was negative . it took quite a few years just to get back to where we were .
Reverse leverage ????????? That does not answer my question. Let's say I was an unsophisticated buyer and didn't understand the positive power of leverage and bought paying $360,000 in cash. Now if the situation was EXACTLY the same and the prices fall 20% then my loss (paper) is EXACTLY the same $72,000!
Of course I have $288,000 sitting in this property that has lost 20% of it's value. Using the POSITIVE POWER OF LEVERAGE I have that $288,000 in my pocket or working for me in possibly a better investment.
Actually I have $300,000 in my pocket since I only used $60,000 of my $360,000.
Seems like there is no negative to using leverage.
if you have an investment that is 360k of your own money less 20% is 72k but you have 80% of your investment left that is still all yours.
but if you have a property that is 360k and you have 60k in that property and you lost 20% you not only lost 100% of your investment but you still owe the bank another 12k .
what if you had 360k in cash and bought 6 property's with 60k in each ? what if they all fell 20% . you owe more than you even own .
if you bought the house with a mortgage because all you could save was 60k well 100% of what you saved up is now gone .
see the difference ?
it is the reverse of buying stocks on margin where you put up 50% and control a large amount of stock . it can go up a little and you can make big bucks based on your 50% investment .
but shorting on margin is the reverse . you can lose far more than your investment amount .
Do you even have a clue what you are talking about? Where did the SIX houses come from? If you bought six houses cash then you'd lost the EXACT same amount of money as me (6 X $72,000) but I have $1,728,000 in my pocket and YOUR $1,728,000 is trapped in these properties that are possibly losing value daily. Sucks to be you.
forget the six houses then . if you saved 60k and put it in the house and the house fell just 20% you lost 100% of what you saved if things do not come back before you have to or want to sell .
what if you put 60k in the house and it went up 20% and sold it ? you got a gain on your 60k of 72,00 . that is more than 100% return .
well reverse leverage is the opposite . the house moves just 20% but you lost 100% of your investment in it and then some .
Last edited by mathjak107; 09-05-2015 at 03:55 PM..
forget the six houses then . if you saved 60k and put it in the house and the house fell just 20% you lost 100% of your savings if things do not come back before you have to or want to sell .
what if you put 60k in the house and it went up 20% and sold it ? you got a gain on your 60k of 72,00 . that is more than 100% return .
well reverse leverage is the opposite . the house moves 20% you lost 100% and then some .
Mathjak107 you are just making up this reverse leverage to try to vilify leverage or whatever. You are trying to argue that someone that has $360,000 compared to someone that has only $60,000 is in a better financial situation. DUH!!!!! But then you are trying to blame it on some made up concept "reverse leverage".
Now in YOUR example we have BOTH lost $72,000. Because you did not use leverage you have $288,000 of your $360,000. I only had $60,000 to start so even though we both LOST EXACTLY THE SAME AMOUNT I could argue that I am still in a better position than you. If I'm in a nonrecourse state I can walk away and ONLY lose $60,000. I could also go to the lender and renegotiate. Guess who is in the better position, you with $288,000 equity or me with ZIP.
There is a "reverse leverage" term but it is not how you are trying to define it.
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