You often hear the advice, that you should eliminate all debt, before starting to invest.
However, in the following scenario it seems the opposite to be the right decision:
- In order to be rented out, a real estate needs renovation costing 20k (for example)
- The rent from the real estate can easily cover the mortgage and probably the additional mortgage for the repair.
- We can easily get credit from the bank with the real estate as collateral (lets assume the real estate is worth 200k, is still being paid off, but the monthly rent can handle an additional credit)
- historically low interest rates
- Other opportunities can deliver a better return, than loaning money to yourself (playing bank)
Why pretend to be a bank and try to save 1.5% p.a. credit interest by paying for the repair yourself, when you can get the money from the bank and pay for the repair with the money you get from tenants?
Wouldn't it be better to let the bank handle this, while you invest your money in stocks and get avg. 4% return per year, adjusted for inflation etc.?