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1
FortWayne
2011 May 20, 8:44am
FortWayne
2011 May 20, 8:44am
debt by itself is not an asset. you are conflating some terms here. Verbal exercises just to say "debt = asset" is incorrect. debt is just a risk and often with bad consequences. world hasn't changed, it's still risk vs reward.
It's one thing to borrow to get something with guaranteed income, it's completely different to buy a wooden box that will cost you money and may return nothing which is why housing is not good to go debt on... especially when interest rates are low.
2
ssri
2011 May 25, 7:12am
If its working out for ya, then why not do it 10 x larger?
Works till it doesn`t.
debt is a borrowed asset. not yours :-)
It's going to sound counterintuitive, but it's not. You hear certain people in the forum saying they would not buy unless it is all cash, which in my opinion is really not smart.
Consider Google, they have about 40B in cash and investment and no debt yet looking the raise 10B. In the end, it's all about borrowing cost and return of the borrowing cost. The bonds are around 2% and Google have traditionally returned about 12% on their assets. Assuming they put their cash into good use and return 10% in their business, we are looking at 200M interest expense and 1B in returns. Heck of a deal.
Same individually, net of tax, my borowing cost is 3%, but my return on asset is 15%. I have 1M in debt outstanding, but those debt are generating 120K in cash after interest. Debt = assets.