Advice needed: move into newly purchased flat or rent it out?

[saturnz]

How do you figure that?

Incurring a liability to fund an asset is, by definition, leveraging.

he makes up his own definition and goes with it, prepare for the thread to be derailed

this is the second time I'm pasting a link to the definition of leveraging, and this also happens to be the second source too

In finance, leverage (sometimes referred to as gearing in the United Kingdom and Australia) is any technique involving the use of borrowed funds in the purchase of an asset, with the expectation that the after tax income from the asset and asset price appreciation will exceed the borrowing cost.

https://en.wikipedia.org/wiki/Leverage_(finance)

 

[Splinter]

he makes up his own definition and goes with it, prepare for the thread to be derailed

this is the second time I'm pasting a link to the definition of leveraging, and this also happens to be the second source too

https://en.wikipedia.org/wiki/Leverage_(finance)

Did you actually read what you linked? Let me post some of the more pertinent comments from your source.

"Normally, the finance provider would set a limit on how much risk it is prepared to take and will set a limit on how much leverage it will permit, and would require the acquired asset to be provided as collateral security for the loan. For example, for a residential property the finance provider may lend up to, say, 80% of the property's market value, for a commercial property it may be 70%, while on shares it may lend up to, say, 60% or none at all on some shares.

Leveraging enables gains and losses to be multiplied.[1] On the other hand, there is a risk that leveraging will result in a loss — ie., it actually turns out that financing costs exceed the income from the asset, or because the value of the asset has fallen.


"individuals leverage their savings when buying a home by financing a portion of the purchase price with mortgage debt.

So, saturnz, I trust you will not say I made up my own definition of leverage when I quoted your own link.

 

[Jehosefat]

"Normally, the finance provider would set a limit on how much risk it is prepared to take and will set a limit on how much leverage it will permit, and would require the acquired asset to be provided as collateral security for the loan. For example, for a residential property the finance provider may lend up to, say, 80% of the property's market value, for a commercial property it may be 70%, while on shares it may lend up to, say, 60% or none at all on some shares.

"individuals leverage their savings when buying a home by financing a portion of the purchase price with mortgage debt.

I was actually asking why you defined fully financing a house as "not leveraging" but financing 99.9% of the house would still be seen as leveraging. To me there isn't a distinction. You can finance 100% of an asset and that would still be seen a leveraging as far as I'm concerned and I was wondering why you didn't see it that way?

 

[Splinter]

I was actually asking why you defined fully financing a house as "not leveraging" but financing 99.9% of the house would still be seen as leveraging. To me there isn't a distinction. You can finance 100% of an asset and that would still be seen a leveraging as far as I'm concerned and I was wondering why you didn't see it that way?

Most probably because, when I was getting my degree, leveraging was something taught as being applied to assets earning income in a company.

And your example is trite. ). You consider 0.01% an example of leveraging?

Having said that, a residential house is an asset - but not something earning an income.

And the link saturnz himself supplied would show you why 100% finance is not "leveraging".

I am not quite sure why this is so hard to understand. "Leverage" means using a lever to gain something additional. Not taking a loan to simply get something.

This link, I hope, will explain it.

https://www.accountingcoach.com/blog/what-is-financial-leverage

I hope you will note that there are prior assets involved; as opposed to simply taking a loan to buy an asset.

 

[saturnz]

I was actually asking why you defined fully financing a house as "not leveraging" but financing 99.9% of the house would still be seen as leveraging. To me there isn't a distinction. You can finance 100% of an asset and that would still be seen a leveraging as far as I'm concerned and I was wondering why you didn't see it that way?

he seems to insist on this percentage thing as being a necessary condition in determining whether its leveraging or not, even his source does not place any emphasis on it

he does not seem to realise it is irrelevant, nowhere does it say "in order for it to be leveraging, the asset must be partially financed (by a maximum of 80% debt or some arbitrary number)"

its a point that goes totally over his head

banks do lend people 100% mortgages if they so choose, that is mostly an issue of risk, and not whether its leveraging or not

even if we accept his point, the mortgage is only 100% financed for the first month or so, after the first capital payment it is now partially financed and so it is leveraged for the rest of the term

and the point of this thread is whether one should live in the leveraged property or not, and given after month one the property will be leveraged, the answer is no, one should not live in the property if maximising your wealth is the goal over a ten or twenty year period.