This was the thinking of many of my DH's colleagues who were moved often by the company. They would buy the biggest house they could find and mortgage it to the hilt.
Some stretched so thin they would try the old "unsigned check" trick to gain a few days float between payment of mortgage, utilities, etc. and deposit of paycheck. Mostly, this worked -- financially. It was a pretty stressful way of life, though.

The premise is correct. They paid mortgage with ever-depreciating dollars and sold an appreciated asset after a few years, which they rolled over to the next heavily mortgaged house. Works fine unless there is a crash (real estate or stock market).

chisue,

That can sometimes be called one of them, " ... crashing in flames ... " deals, can't it.

If you get laid off, can't make payments on the $250,000. mortgage of the house that you bought for $300,000. ...

... and after the mortgage company forecloses, the house is sold for $250,000., but there were foreclosure, sale, and a raft of other costs that ate up $35,000. ...

... guess who still owes the mortgage company $35,000.???

Don't forget to keep your powder dry.

ole joyful

Many young couples like to buy a "nice" (sometimes [almost] new) home.

And carry a large mortgage.

With both of them working and saving mightily in order to meet the mortgage payments.

Sometimes having very little furniture in the home.

If there's a recession, including downsizing, and one gets laid off and can't find work ...

... what do they do?

Lose it, almost certainly.

If they have building skills, wouldn't it be wiser to buy a modest home that needed repairs, with a much lower mortgage, use the savings on the mortgage cost they'd have been paying on the other house to buy building materials to fix the , then sell it for a higher price?

That would give them a much larger down payment on a larger home - so they'd be less at risk in case of loss of employment which persisted for a time.

Have a great week, everyone.

ole joyful

This concept may be of interest to several who haven't seen it, for it was buried at about p. 18.

And I'm embarrassed that I wasn't more careful in making a link to where I thought it to be, when it was buried fairly deep in this forum, all along.

Sorry to have led you on something of a wild goose chase, folks.

I'd appreciate your comments on the various ideas presented.

ole joyful

I think your premise is interesting and I will try to remember it when making financial decisions.
So....its better to take a loan out on a car even if you have cash if you can get more investing the money than the interest on the loan? Is that the basic concept? I guess getting more on the investment is becoming the hard part.

When you take it to the large house, small house part, while the financial concept still works, so many other choices get involved. Many people simply refuse to compromise on school districts for their children and will stretch their financial picture enormously to get there. I.e. bigger house in the "right" neighborhood. You can't blame them really. Not sure where the idea went to downsize to one income and actually do some of the things that people rely on schools to do now went but times change.

Marys 1000,

Around here, when employees buy a car, interest on the loan is not deductible ... if they operate a business, in most cases it is.

If they borrow to invest in a tax-deferred retirement account, the interest is not deductible, either.

However, if they borrow to invest in an asset that is expected to produce taxable income, the interest is deductible.

A while ago some people, mainly seniors, rather chortled over their apparent good fortune as they told me how they earned 19% on their Canada Savings Bonds about 1981.

I suggested that if they were in 20% income tax bracket, that would reduce the pre-tax 19% to after-tax income of about 15%.

And did they know what the rate of inflation was that year? About 12%.

As the number of dollars of their underlying asset can't shrink, it can't grow, either ... and the value of each dollar was eroded by more or less the value of inflation (or more) each year, going back to about 1935 during that Great Depression.

So the investor in guaranteed-number-of-dollars must put a good portion of the annual after-tax earnings with the principal in order to maintain purchasing power, since the value of each of those dollars of asset shrank every year of the last 70.

Ordinary folks put their money into the bank.

Rich folks buy the bank.

Because they know that, in most cases, owning is better than loaning (your money to the bank).

Good wishes for increasing knowledge of how money - and taxes - work.

ole joyful

Some people pay cash for a car - well, if a fairly new car, maybe for a portion of it, financing the rest.

As its usage isn't deductible, for most people, so interest on the loan to buy it isn't, either.

And buy stocks or other investments after saving for a while, for cash.

However, for many of us, when we borrow to invest, the interest is deductible (though, for Canadians, not if they do so to invest in a tax-deferred retirement system, i.e. RRSP).

Since interest on my loan to buy a car isn't deductible, and interest on a loan to buy non-retirement fund investments is deductible, I prefer to pay cash for the car, as much as I can, and borrow to invest.

Also, if I have some of the certificates issued for mutual funds that I own (usually at no fee) or individual stocks (usually at a fee of $35. - 50. per transaction), if I take them to the lender to use as collateral, I'll achieve a reduced interest rate on my loan.

Especially if the loan is to buy a car, for it's much easier t sell the stocks/mutual funds, than to repossess and sell the car ... therefore, cheaper.

Good wishes for increasingly skillful managment of both income and assets.

ole joyful

ole joyful