The biggest 'ah-ha' moment in real-estate investing for me was when I realised that banks were happy to lend you a lot more money than you were capable of paying off.
In other words, the limiting factor was not the amount of money you could borrow, it was the amount of debt you were capable of servicing.
Many times you read in the newspaper of the young couple who have built up a real-estate portfolio worth millions in just a year or two. And everybody is envious. Except when a little while later, some minor upset causes that whole house of cards to collapse, because their suddenly reduced cash-flow just couldn't cope with the cost of servicing all their debt commitments.
2 comments
[ 3.0 ms ] story [ 18.5 ms ] threadIn other words, the limiting factor was not the amount of money you could borrow, it was the amount of debt you were capable of servicing.
Many times you read in the newspaper of the young couple who have built up a real-estate portfolio worth millions in just a year or two. And everybody is envious. Except when a little while later, some minor upset causes that whole house of cards to collapse, because their suddenly reduced cash-flow just couldn't cope with the cost of servicing all their debt commitments.