136

How do you buy 1 house a year? You save up the money you make from the rent for a down payment on the next house. Then you save up the money from those two houses and buy two more the next year (or one bigger one). Rinse, repeat. what bank would be willing to give you that loan? You'd be surprised... This is essentially a major cause of the 2008 ...


55

Answer: Due diligence by the lender. It occasionally happens, and sometimes the lending officer is in on a scam, but banks do not tend to loan money where there is a large chance that they will not be paid back. It's been my experience that an LLC that borrows money will have to have some assets, or have the assets of the owner stand for the money that ...


35

No, it's not a good idea. You started by saying you'd like to invest, but then mentioned something that's not an investment, it's a speculation. Both Forex and CFDs are not really investments. They are a zero sum game where over time, it's a pool of your money, the other trader's money, and the broker, redistributed over time. If you truly wish to invest, ...


32

Leverage can be good to increase gains, but it amplifies movements of a stock. Also downward movements. Paired with the increased gains is also an increased risk, and that changes the investment vehicle. The goal of an index fund is to passively follow an index as closely as possible. Leverage could reduce tracking error on upward movement, but would ...


27

Alright, so the bank would still, then, agree to lend 10K against the 10K in equity, right? That still significantly increases profits (24% vs 15%) and would afford the same loophole. As a general rule, no. The bank will loan the LLC money if the LLC has a proven income record. Banks will generally not loan money secured by stocks for this exact reason. ...


24

20 years, or near that age. Buy 1 house a year. As you probably know this is near impossible to do. Have around 20 years and be able to get loan for buying house. You are on right track that you would need a rather large amount of money to start. For example this "fool proof" method don't mention time when you're spending money on property (paying rates) ...


21

Risk is the problem, as others have pointed out. Your fixed mortgage interest rate is for a set period of time only. Let's say your 3% might be good for five years, because that's typical of fixed-rate mortages in Canada. So, what happens in five years if your investment has dropped 50% due to a prolonged bear market, and interest rates have since moved up ...


21

Now the question: is advisable for a beginner to speculate in CfDs? No. If not, is there a better way to invest with a small amount of money? In the US, and I'm sure this carries to the UK, most (if not all) big brokerages (Schwab, TD Ameritrade, Fidelity, Vanguard, etc) have a set of funds that are zero load and zero commission though the fund will ...


18

Whenever I learn about some scheme for making money, I always ask myself: Why aren't they doing this themselves? Why are they teaching this? It's likely they're teaching it, and spoiling it, instead of doing it themselves (or founding a business) because the scheme does not work and they make more money teaching than doing. I always think from this angle ...


17

There are two obvious cases in which your return is lower with a heavily leveraged investment. When the interest payments on the loan outweigh the return. If a $100,000 investment of your own cash yields $1000 that's a 1% return. If you put in $50,000 of your own money and borrow $50,000 at 2%, you get a 0% return Whenever returns are negative (After ...


17

It's possible. But a lot of layers of swiss cheese have to align at once (or rather, be aligned by a person with mad skillz). First, you must make reasonably good money - i.e. a highly skilled technical job, or a manager. Can't do this on Walmart income. You must already be content to live a lifestyle well below your income, meaning you are already ...


17

First, you're probably not going to get 5:1 leverage in the stock market. In the US, if you're holding the position overnight, you're limited to 2:1 leverage by Reg T. If you are a pattern day trader, you can get intraday leverage of 4:1 but that assumes that you're closing your position at the end of every day. Other countries may will have different ...


16

Where your scheme fails is the bankruptcy. It wouldn't work. You'd be personally liable: the shield wouldn't hold You get the loan. When you default on the payments, and certainly the moment they are served notice of your bankruptcy filing, the lender will go "Hold on there!" And use discovery to uncover the LLC's activities and the nature of your ...


12

I think you simply need to understand credit risk. A newly formed Corporation with zero operational history and a $10,000 bank account is, from a default risk perspective, a suicidal toddler with $10,000. The simple fact that you own 100% of the stock of the corporation doesn't mean your assets and credit history get to be a factor in a corporation's ...


10

Leverage means you can make more investments with the same amount of money. In the case of rental properties, it means you can own more properties and generate more rents. You exchange a higher cost of doing business (higher interest fees) and a higher risk of total failure, for a larger number of rents and thus higher potential earnings. As with any ...


10

If you have little investing experience, you shouldn't involve yourself in leveraged investments or short-term speculation at all. You will probably just lose money. If not, is there a better way to invest with a small amount of money? If you have little investing experience, you should not attempt to make a lot of money on a small investment at all. ...


9

a video on youtube which has thousands of views Wow, thousands of views! On a site with 1 billion users! He must really know what he's talking about! There is rarely a way to make tons of money with no risk. If there was, the market will often arbitrage it until it's back to lower levels. Of course real estate can be profitable, many fortunes have been ...


9

Member mhoran's comment was an answer. why not just invest with any of the dozens of mutual fund companies that have an S&P 500 index fund or ETF? The ETFs are more commonly not leveraged. Of course, some are, so you'll avoid those. But the ticker SPY is the most popular one and it reflects no leverage at all. You get the return of the S&P ...


7

I'm not entirely sure about some of the details in your question, since I think you meant to use $10,000 as the value of the futures contract and $3 as the value of the underlying stock. Those numbers would make more sense. That being said, I can give you a simple example of how to calculate the profit and loss from a leveraged futures contract. For the ...


7

A CFD broker will let you open a trade on margin as long as your account balance is more than the margin required on all your open trades. If the required margin increases within a certain percentage of your account balance, you will get a margin call. If you then don't deposit more funds or close losing trades out, the broker will close all your trades. ...


7

Why cannot LLCs be used to negate increased risks when doing leveraged investments? If the investment performs poorly and in fact loses 50% in value, I end up with 50 - 95.4 = -45.4K in debt, after which I file for bankruptcy and in fact lose just the 10K equity initially invested, thereby substantially limiting the risk. You really answer your own question;...


6

CFDs should not be used as a buy and hold strategy (which is risky enough doing with shares directly). However, with proper money and risk management and the proper use of stop losses, a medium term strategy is very plausible. I was using CFDs in the past over a short time period of usually between a couple of days to a couple is weeks, trying to catch ...


5

Yes it is viable but uncommon. As with everything to do with investment, you have to know what you are doing and must have a plan. I have been successful with long term trading of CFDs for several years. It is true that the cost of financing to hold positions long term cuts into profits but so do the spreads and comissions when you trade frequently. You need ...


5

I just compared UPRO and SPY from the time this question was originally posted on October 19th, 2011 through today (September 7th, 2016). See the chart here. The return for SPY was 78.7% and the return for UPRO was 427.57%. I looked at nearly every 12 month segment over those 5-ish years and about 25% of the time SPY outperformed UPRO, and the other 75% of ...


5

Well for a start funds don't pay interest. If you pick an income-paying fund (as opposed to one that automatically reinvests any income for you) you will receive periodic income based on the dividends paid by the underlying stocks, but it won't be the steady predictable interest payment you might get from a savings account or fixed-rate security. This ...


5

It's really a matter of your tolerance for risk. It sounds like your local market is very strong, but I'm twice as old as you, and I've seen decades long strong markets fall apart and leave friends and family underwater. Eventually the markets recovered, but as the saying goes "The market can remain irrational longer than you can remain solvent." The ...


5

I wonder which quantity would you think could be reasonable in my situation. How about zero? You are borrowing at a fixed rate of interest in order to invest and get a risky variable rate. I don't know what markets are like in your country, but in the US, we've had a great run as of late, but historically returns in the broad equity market have fluctuated ...


5

When the index goes down, leverage will exacerbate the losses instead of offsetting them.


5

If the price goes up 1% and you cash out, you get $10100. You repay the $9000 loan and you now have $1100, you started with $1000 so your profit is $100. You may or may not be charged interest.


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