Debate about leverage....(long) - Posted by Ben (NJ)

Posted by Hope (Fl) on March 05, 2001 at 10:49:53:

Ben, I really dont think there is any correct answer. Alot depends on your age and circumstances and what type of risk you feel comfortable with. My father-in-law sounds very much like yours. He has always bought everything cash, both in his business and personal life. I remember years ago when his one son started to invest heavily in real estate and was trying to get his father to take a mortg. on his house and buy 10 more homes. My father-in-law’s response was why do I want 10 more homes; I have everything I want and need now,it is all paid for and I can sleep at night. I thought he was pretty foolish at the time, but years later my brother in law who was very highly leveraged in N.J. real estate came down real hard in the late 80’s early 90’s when the market dropped and dropped.
So I guess what I am saying is what do you want with your life? Do you want a million, two , three or twenty? My father in law was content to know he owned what he had, that nobody could take it away from him. As I get older, I can understand this point of view more. I used to want to own everything (leveraged to the hilt) now that no longer appeals to me. I just want to own my home, have decent income coming in and be able to sleep at night. I no longer believe that money will make me happy, or should I say that more money will make me happier. Their is lots of work invloved when you own lots of stuff(at least that is my experience) and you can go through years of hard times when you are very leveraged. Just look at the stock market now. Many of those leveraged dot com millionaires will end up with nothing. Sorry to ramble on so much, but basically just wanted to say there is no right or wrong answer, but I would prefer to be in your father in laws shoes, not yours.

Debate about leverage…(long) - Posted by Ben (NJ)

Posted by Ben (NJ) on March 04, 2001 at 18:26:16:

I have just signed off on a commitment for a multi-million
dollar credit line with a large bank. I was also able to avoid signing a personal guarantee which was my highest priority. Feeling kind of proud of myself, I mentioned it
to my father-in-law. To my surprise, he lectured me on the dangers of leverage etc. and we had an interesting debate. Let me state that my father in-law is VERY successful but in more of an old-school style. He has no debt, (personal or business) and is not a big believer in utilizing banks, (I don’t even think he has an ATM card, he complains about the fees). I once read an adage “the difference between the wealthy and the super-wealthy is the intelligent use of leverage”. I was very impressed by this concept and have used it in the past to grow my business (tax liens) exponentially. In fact when you are dealing with an illiquid instrument such as this, you either have to borrow against it or wait for it to get paid off before you can reinvest the funds in more certificates. To achieve any kind of growth at all, you require financing. How do you
pros weigh in on this topic? I would be interested in all responses.