In 2006 a well dressed thirty-something guy showed up at my office to talk real estate investing. I always enjoy hearing others’ opinions.
We start talking about debt. He would leverage the entire purchase or even more if the bank would give it to him. “In the long term, the market only goes up.” he boldly proclaimed. My opinion is that while debt is necessary, particularly at the beginning of your career, too much debt is deadly.
He pulls out his laptop and opens Excel and shows me how terrible my cash on cash yield was. His return was infinite, as he was 100% or more financed. I jokingly said, “Soon you’ll be richer than Bill Gates” to which he replied seriously, not that rich, but very wealthy. He also tried to sell me a copy of his Excel spreadsheet so I too could be leveraged rich.
By late 2008 the sharp-dressed kid was busted out. Yet, despite my “terrible” yield, I’m still here. Sometimes fancy Excel spreadsheets can get you into trouble.
