syke6 writes,
If you think you will get a S&P500-like return out of your home, then it makes sense to leverage the crap out of it.
Not really. If I wouldn’t borrow money to buy an S&P500 index fund, why would I mortgage my home to do the same?
There was a frequent poster on the REHP board by the name of golfwaymore who sold his tech business in 1999 and netted something like $30 million from the transaction.
He invested that windfall in a broadly diversified portfolio of stocks and real estate. And the real estate was only about 30% leveraged, not the 80% a homeowner has after a 20% down payment. Seemed like a very conservative thing to me at the time.
Anyway after the dot.com bust in 2000, his real estate lost a lot of its tenants in the recession while his stock portfolio was suffering major declines at the same time. He got caught in a liquidity crisis when the banks foreclosed on him and ended up losing most of it and returning to the workforce.
If you’re the average homeowner with few assets, and the bank forecloses on you, they just take the house because they realize they won’t get blood from a stone. But if you have other assets they can come after to make good on the loan like with golfwaymore, the bank will surely pursue you.
intercst