Posted by Ryan on March 24, 2005 at 07:39:46:
I agree that it is very beneficial to be able to offer cash for houses, but I wouldn’t discount debt on assets totally. If you own a $200K property free and clear, but take out $150K - you still have the $150K in cash to convert back to seller financing when you sell. But while you own it the return on equity in the house is a guaranteed 0% return. It just sits there. If you can take that $150K, turn around and invest it elsewhere and get a greater return than you are paying for it then the equity starts to work for you. That’s called arbitrage and it’s how the banks make money on the spread. The tax benefits only come into play to make the borrowed money cheaper.
I also understand that debt is a very personal thing and choice and you have to use a strategy you are comfortable with.