When debt is an asset

[Findingnemo]

Call me a traditionalist ... but if you want a roof over your head... and you cannot afford it... then you have a choice, namely :

Rent a house : Give money to a landlord (someone else) and never own property.
Borrow the Money : Take out the mortgage and pay the interest and own your own property. (Asset)

I own my house... I paid it off way earlier than what I should have, because I paid much more than what was required from the mortgage payments.  (Best decision I have ever made)  

It depends on the location as well, nowadays most people ended up with long term loan while the actual value of the property is very less. Even I support the buy house over the rent but the user should consider the location, interest rate and their potential of bringing income until the mortgage ends and much more.

[1715001007]

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[1715001007]

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[el kaka22]

This is exactly what me and my friend considered recently. We considered a few crypto operations there, mainly 2 things ; crypto mining and crypto ATM as well in few places, along with a few non-crypto stuff as well, such as Laundromats and vending machines, if you own the land yourself (like a few Laundromats) then you can put in bitcoin ATM machines and vending machines (and maybe even some coin pusher like arcade stuff) in front or inside of your business as well, and one warehouse for the mining operations.

We calculated we wanted 5 places total, 1 warehouse, 4 Laundromats, two in Toronto, one in Montreal and one in Ottawa, the Ottawa one looked like the least profitable business among them all.

We both have cars, and we both own our own houses, so if we sold 2 cars and 2 houses, we could afford to buy half of these right away, and the other half would be 20 year loan, everything ready and confirmed for us as well, bank was willing to give us the loan. Only thing that kept us from doing this was: fear. Debt is not an easy task, if you fail to pay it, you lose what you have on top of what you already sold. It is really not easy stuff. One bad year and you are done, own zero, nothing.

[sapnu]

It may soon change due to inflation, but as of now we live in a crazy world with the Euro - it is called the wonderland of negative interest rates. For those who are not in the loop, it works like this: You lend me 100 euros and I promise to repay you 99 euros. My first question, how much would you like borrow under these conditions?

I was speaking with a friend that wants to buy a house, mostly on credit as it is usual in many places. He was saying that he wanted a 25 year mortgage because he would like to have the house paid as early as he could. However, my take on this is that given the ridiculous interest rates, I would rather do like Europe or US and have that debt ... forever

Your friend who decided to bury himself to debt did not commit to a smart move at all. Borrowing, regardless of the value, is not an ideal thing to do when entering crypto investment not unless the timing is in his favor. If all of a sudden a bull run consecutively occurs right after you took the risk snd borrowed monet. Maybe in central banks, it is more likely to happen, wherein there's a great possibility that your profit is guaranteed yet not that much. You should always choose to invest only with the money you can afford to less and not with the money that you just borrowed.

[ChrisPop]

Wait a minute.. as far as I know negative interest rates apply only to retail clients on DEPOSITS. I don't think you can get an actual credit/mortgage and essentially earn money for carrying the credit. That would ruin the bank's business model. Debt is a good thing when it is well covered by your income and the benefits produced by it overweigh the interest rate.

[Silberman]

Around 10 years ago, former comptroller of the US government accountability office did a nationwide publicity tour. Where he tried to warn americans of the dangers posed by unfunded national debt reaching upwards of $400,000 per household. Of course, at the time he was completely ignored. No one took him seriously except for "conspiracy theorists".

https://www.youtube.com/watch?v=xjmCiDB_72g
Former U.S. Comptroller General David Walker on The Federal Fiscal Crisis

I don't support the idea of debt being an entirely evil thing. It can be useful and fair in buying a car, a house and things on credit.

The issue with debt is the lenders are usually much more educated, motivated and informed than the borrowing demographic. Over time the scale slowly dips in the favor of lenders. The trend accumulates into growing inequality and systemic unfairness. Until we reach a crisis point, where it is no longer sustainable.

I also subscribe to this mentality, after all not everyone is going to have the money to buy a house or a car with cash and if they are willing to pay a little bit more for it on the form of credit then they should be able to do it, the problem comes when everything can be purchased on credit, because now people have more chances of making mistakes and to destroy their financial future while having nothing to show for it, so predatory tactics become widespread and even accepted and this creates precisely the scenario we are going through which is not going to have a happy ending for a lot of people.

[Renampun]

It may soon change due to inflation, but as of now we live in a crazy world with the Euro - it is called the wonderland of negative interest rates. For those who are not in the loop, it works like this: You lend me 100 euros and I promise to repay you 99 euros. My first question, how much would you like borrow under these conditions?

I was speaking with a friend that wants to buy a house, mostly on credit as it is usual in many places. He was saying that he wanted a 25 year mortgage because he would like to have the house paid as early as he could. However, my take on this is that given the ridiculous interest rates, I would rather do like Europe or US and have that debt ... forever

here in my country home loans are very helpful for those who are just starting a family...

each country has different interest rates on property loans and fortunately in my country the interest rates are quite low so it really helps young people who want to own a house. I also follow the home loan program held by my government and this is one of my long-term assets.

[paxmao]

This is exactly what me and my friend considered recently. We considered a few crypto operations there, mainly 2 things ; crypto mining and crypto ATM as well in few places, along with a few non-crypto stuff as well, such as Laundromats and vending machines, if you own the land yourself (like a few Laundromats) then you can put in bitcoin ATM machines and vending machines (and maybe even some coin pusher like arcade stuff) in front or inside of your business as well, and one warehouse for the mining operations.

We calculated we wanted 5 places total, 1 warehouse, 4 Laundromats, two in Toronto, one in Montreal and one in Ottawa, the Ottawa one looked like the least profitable business among them all.

We both have cars, and we both own our own houses, so if we sold 2 cars and 2 houses, we could afford to buy half of these right away, and the other half would be 20 year loan, everything ready and confirmed for us as well, bank was willing to give us the loan. Only thing that kept us from doing this was: fear. Debt is not an easy task, if you fail to pay it, you lose what you have on top of what you already sold. It is really not easy stuff. One bad year and you are done, own zero, nothing.

I would not call it fear, I would called being cautious. Debt is normally used for business that require large "CAPEX", that is, large spending on physical assets that usually preserve their value for a long time - like houses or offices buildings. Buying they assets your have described with a 50% leverage is perhaps a bit of a risk - so your have been prudent on your decision. They key question you should ask yourself is "how much could the drop in price of assets could be in the future" and then decide on leverage ratio.

[Charot12345]

Call me a traditionalist ... but if you want a roof over your head... and you cannot afford it... then you have a choice, namely :

Rent a house : Give money to a landlord (someone else) and never own property.
Borrow the Money : Take out the mortgage and pay the interest and own your own property. (Asset)

I own my house... I paid it off way earlier than what I should have, because I paid much more than what was required from the mortgage payments.  (Best decision I have ever made)  

well you have a point  and you did great decision on paying it earlier than expected. but not all people can pay more than the decided amount.

But the choices you stated is also good but IMO you can add another choice that is to rent a house while building your own home. Though it sounds like you have to pay double but still you can decide to rent a house with a small rental fee while building your house. If you build your own house you can decide its design and plans. And also you can have it for at least 2 years than the other one that you will pay for 25 years. Well it can still be your asset without being in debt.

[oHnK]

If you build your own house you can decide its design and plans. And also you can have it for at least 2 years than the other one that you will pay for 25 years. Well it can still be your asset without being in debt.

If your consideration in investing such as buying a house on credit or building a house while renting it is because you can design your own choice of home, this doesn't seem like a pretty basic consideration.  If you take a good look at the debt schemes that were taken over 25 years ago, renting a house and spending all of your savings on building it, doesn't this sound like good investment management.  You've paid double and you've wasted the opportunity to allocate your savings to something more productive.  A house is a basic need and its value is always increasing, why don't you choose a loan for the house you want according to your design.

[Gyfts]

What's the purpose of the negative interest rate.? Is it deliberate to encourage borrowing and stimulate growth? And who lends the money, government, banks, regular people etc? I assume typical profit oriented lender would lend in anticipation of profit.Or does the lender profit in another way?

It's bad for interest rates to be approaching zero, let alone negative interest rates. It encourages banks and private entities to hold their fiat instead of circulating it into the economy. Less money supply and less circulation is bad for the economy. The centralized banks shoot for at least a 2-3 percent inflation rate, it encourages spending. If interest rates are too, central banks will fire up the printer or start taking on debt in securities in order to inject new money into the supply.

[paxmao]

Call me a traditionalist ... but if you want a roof over your head... and you cannot afford it... then you have a choice, namely :

Rent a house : Give money to a landlord (someone else) and never own property.
Borrow the Money : Take out the mortgage and pay the interest and own your own property. (Asset)

I own my house... I paid it off way earlier than what I should have, because I paid much more than what was required from the mortgage payments.  (Best decision I have ever made)  

It depends on the location as well, nowadays most people ended up with long term loan while the actual value of the property is very less. Even I support the buy house over the rent but the user should consider the location, interest rate and their potential of bringing income until the mortgage ends and much more.

That is quite a common thinking: I made my mortgage payments quicker so I got the house paid earlier. Good, that will certainly give you a degree of assurance on your living, however, if you consider what other things you could have done with your money during the last decades, you may change your view.

You saw your debt as a problem and a burden, even if it was collateralised, instead you could have bought stocks of google, microsoft and others and you would have multiplied you money. You could have used that debt as an asset.

[bocyaj]

Call me a traditionalist ... but if you want a roof over your head... and you cannot afford it... then you have a choice, namely :

Rent a house : Give money to a landlord (someone else) and never own property.
Borrow the Money : Take out the mortgage and pay the interest and own your own property. (Asset)

I own my house... I paid it off way earlier than what I should have, because I paid much more than what was required from the mortgage payments.  (Best decision I have ever made)  

It depends on the location as well, nowadays most people ended up with long term loan while the actual value of the property is very less. Even I support the buy house over the rent but the user should consider the location, interest rate and their potential of bringing income until the mortgage ends and much more.

That is quite a common thinking: I made my mortgage payments quicker so I got the house paid earlier. Good, that will certainly give you a degree of assurance on your living, however, if you consider what other things you could have done with your money during the last decades, you may change your view.

You saw your debt as a problem and a burden, even if it was collateralised, instead you could have bought stocks of google, microsoft and others and you would have multiplied you money. You could have used that debt as an asset.

Even one use the mortgage to get some immediate money.But the thing is we need to get back the assets in a short period or else. Our gold or assets was get into mortgager. Mostly it's a loss, if we keep them and skipped to get back. Most people will skip to get back the assets. At the final, the mortgager will win.

[LUCKMCFLY]

This is an issue where those who are in countries where the credit model is the boss, when you can acquire a house, or any real estate, the calculation based for the payment is extracted from the payment capacity that the person has, can sound very friendly, but if you fail in the payments, it can turn into a nightmare, so bad that it could be left in the street.

Interest-based debt here is usually disguised as a sheep when it is a wolf, and that is where the success of credit systems is, although they can offer you the security and stability that people deserve, it forces them to be slaves of a payment, that is, Interest + capital = Slavery.

I do not know which is better, if this system or that of countries like the one I am in, that you must have the payment in effect to be able to acquire your house, since it is impossible through credit systems or through a loan in a bank due to the galloping high rate of inflation.

Wherever it is seen, for banks, debt will always be their greatest asset, only that in the countries of Europe, the USA and those that use this credit system they will never lose.

[NathanielParker]

I don't know where the profit of negative interest rates is, and I haven't heard of it, but I think the more debt you accumulate, some unplanned things or accidents may happen, because no one can predict what will happen in the next 25 years. Imagine that 25 years ago, compared with the present, the value of the goods in the past may not be half of the value of the present.
I think that when the economic situation allows, you can choose to complete the debt as soon as possible. I think that the accumulated debt will only increase the pressure of daily life. I don't like the feeling of burden.

[wahyu wida]

I don't know where the profit of negative interest rates is, and I haven't heard of it, but I think the more debt you accumulate, some unplanned things or accidents may happen, because no one can predict what will happen in the next 25 years. Imagine that 25 years ago, compared with the present, the value of the goods in the past may not be half of the value of the present.
I think that when the economic situation allows, you can choose to complete the debt as soon as possible. I think that the accumulated debt will only increase the pressure of daily life. I don't like the feeling of burden.

but there are also collaterals that have long since stopped, and assets are not immediately auctioned off. and in the end we can negotiate with the bank, so that we get relief, sometimes even only the principal debt. but are we going to be like that, I don't think anyone wants to add to the burden

[Fortify]

It may soon change due to inflation, but as of now we live in a crazy world with the Euro - it is called the wonderland of negative interest rates. For those who are not in the loop, it works like this: You lend me 100 euros and I promise to repay you 99 euros. My first question, how much would you like borrow under these conditions?

I was speaking with a friend that wants to buy a house, mostly on credit as it is usual in many places. He was saying that he wanted a 25 year mortgage because he would like to have the house paid as early as he could. However, my take on this is that given the ridiculous interest rates, I would rather do like Europe or US and have that debt ... forever

Negative interest rates cause headaches for all sorts of banking infrastructure and are not a natural state of affairs - central banks would rather not have such a situation. It effectively means that people are hoarding money and the central banks are trying to force it to be spent on assets. That's why in Europe you'll only see negative rates applied to people with over a million euros in the bank, which is not the case for many people at all. Banks are also companies that are trying to make a profit, so you are unlikely to ever see negative rates applied to any credit product offered to the average consumer, as that would be part of the margin that they will take. Mortgages are already one of the cheapest products out there due to the large sums involved and long timescales, they have created a lot of equity as inflation causes the underlying asset (the house) to rise much faster.

[caryoscar]

If I borrowed 500,000 U.S. dollars 20 years ago, my salary was only 1,600 U.S. dollars at that time, and it will take 30 years to pay off. Now I have repaid about 600,000 U.S. dollars, but my salary is already 16,000 U.S. dollars. If so, I will borrow. A lot to invest. There are some unofficial loan companies whose customers have not paid off their loans, but the loan company has gone bankrupt.

[jaysabi]

One thing I know is that debt is not always a bad thing as has been portrayed by the society. The right kind of debt has its advantages, of course when used by the right person. I read somewhere that, “net worth and debt are positively correlated: the more debt a household has, the more likely they are to have substantial financial assets.” However, this applies to good debts only. Good debts are assets for example durable investments in a house, a business, or a college degree which in turn make the individual profitable in the long run while on the other hand, bad debts drags the soul of the debtor to the ruins of extreme poverty.

Unfortunately it is not that simple in a society in which everything can be purchased on credit, I agree that credit can have its place but not in the way it is used by people, after all even if you ask for credit for things that seem to be worth it like a house, a business or a college degree as you say this does not mean that it is a good idea, if you ask for a credit to buy a house you could be buying at the top of the market and then lose your house when the prices of houses crash, like what happened during the 2008 crisis, not all college degree are created equal which is why there is a time bomb on the US with those loans and a business can fail before it even begins as it happened to a lot of people during this pandemic.

2008 was an anomaly.  In just about every other case, people who took a 30 year mortgage were better off in the long term for having done so and building equity in the property over time.  Real estate has been a central force in creating the American middle class over time.

[perfect999]

You lend me 100 euros and I promise to repay you 99 euros. My first question, how much would you like borrow under these conditions?

Then why should I lend you for a loss? Solely for your welfare?
I guess governments are doing the same in my country as well but banks are not.

In my country, banks are also into a practice of discounting something after some repayment but that never will impact the whole business in negative but some 1% or 2% discount in total interest revenue. For tier-1 and tier-2 countries, debit may remain as part of asset but for the rest of world, it would never be an option when considering against populations.