Financial Intel Monthly

Borrowing Options: Benefits and Dangers of Borrowing

Apr 1, 2020 7:23:08 AM / by The Retirement Group (800) 900-5867 posted in CAM Annuity, Chevron, credit, creditscore, ERB, ESRO, ExxonMobil, Financial Planning, Hewitt, In Service Withdrawal, Lump Sum, Northrop Grumman, Option 1 Withdrawal, Pension, Pension Options, Retirement, Retirement Planning, Verizon, 401K, 72t, Age Penalties, Benefit Commencement Date, Workshops, TRG

0 Comments

What are the benefits of borrowing money?

Successful borrowing can help you create a positive credit history

Successfully borrowing and paying off your loans as agreed can help you establish a good credit rating and make obtaining additional credit possible. Even if you do not typically use credit often, it is good to have the ability to do so in the event of an emergency.

Leverage can be used to increase the return on your investments

If you can borrow money, you can use leverage to increase the return on your investments. This is possible because you can own and control more property with less of your own money. The following illustrates how you can increase the return on your investment using leverage:

Hal had $50,000 that he wanted to invest in real estate. He found a house that cost $150,000. He convinced Frank and Bob to invest $50,000 each in the same house. They purchased the house and each owned one-third. The value of the house increased to $180,000 and was sold. Frank, Hal, and Bob shared a $30,000 profit. Each realized a $10,000 gain, or a 20 percent return, on their investment.

Hal, decided to invest in more real estate. However, this time he decided to use leverage to increase the return on his investment. He made a $50,000 down payment on a $150,000 house and took out a mortgage for $100,000. By borrowing in this manner, he was able to own and control the entire asset, rather than just one-third. When the house increased in value to $180,000, he sold it, paid off the mortgage, and realized a $30,000 gain, or a 60 percent return, on his investment.

The example is simplified and does not take into consideration taxes, interest, or rental income, but it illustrates the notion that by using leverage, you can control more assets using less of your own money.

The problem with leverage is that it can work both ways. Assume that the two parcels of real estate in the previous example dropped in value to $120,000. In the first transaction, Hal would have lost $10,000, for a 20 percent loss on his investment. In the leveraged transaction, Hal would have lost $30,000, for a 60 percent loss on his investment.

Read More

Credit Traps for the Unwary

Feb 28, 2020 7:18:48 AM / by The Retirement Group (800) 900-5867 posted in CAM Annuity, Chevron, credit, creditscore, ERB, ESRO, ExxonMobil, Financial Planning, Hewitt, In Service Withdrawal, Lump Sum, Northrop Grumman, Option 1 Withdrawal, Pension, Pension Options, Retirement, Retirement Planning, Verizon, 401K, 72t, Age Penalties, Benefit Commencement Date, Workshops, TRG, traps, fear

0 Comments

 
Read More

Understanding Your Credit Report

Jan 26, 2019 9:25:21 AM / by The Retirement Group (800) 900-5867 posted in credit, creditscore, Early Retirement, Economic Report, Economy, Financial Planning, In Service Withdrawal, income, invest, Money, priorities, Retirement Planning, retirement planning, savings, stocks, The Retirement Group, 401k, 401K.com, 72T, access.att, Age Penalties, ATT

0 Comments


Read More

Check the background of this investment professional on FINRA BrokerCheck

TRG Guide

Subscribe to Email Updates

Lists by Topic

see all

Posts by Topic

See all

Recent Posts