Borrowing money to re-invest it is normally not a good idea. This is especially true when it comes to the equity you have in your home. If you were to borrow money and lose it in a risky investment, it could lead to a loss of financial security.

With that disclaimer firmly in place, let’s proceed with what may be one of the best investment opportunities available. With any form of investing, timing is critical. You can have a great strategy, but if the timing is wrong, you may fail miserably. Consider the following examples:

1. If you bought Real Estate in 2005 at the height of the market, you may have lost money.
2. If you purchased Stocks in 2007, when the DJIA was at its peak, you may have lost money.

 

But, depending on when you purchased, the reverse may also be true. For example;

1. If you purchase Real Estate now, at the bottom of the market, you could have a healthy return.
2. If you purchased stocks in 2009, when the DJIA was at 6,500, you have most likely enjoyed a healthy return.

Per the above examples, it becomes obvious that a great investment strategy depends on timing. The timing also holds true for borrowing money. Let’s say you own your home free and clear and you’re presently earning a 7% return on fairly safe investments. If you’re confident the returns will continue to yield at least 7%, why not consider using the bank’s money to turn a profit by borrowing at 3.5% against the equity in your real estate holdings?  If you manage your risk properly, the earnings can be significant.

As an example, if you were to secure a mortgage for $100,000 against the equity you have in your home and re-invested it at 7%, over the course of 10 years the income could be significant.  Consider the chart below:

 

YEAR	ORIGINAL AMMOUNT BORROWED	ANNUAL COST TO BORROW MONEY (yearly payments)	7% ANNUAL RATE OF RETURN ON INVESTMENT	ANNUAL NET GAIN	TOTAL ASSETS REINVESTED ANNUALLY
2012	$100,000	$5,400	$7,000	$1,600	$101,600
2013	$100,000	$5,400	$7,112	$1,712	$103,312
2014	$100,000	$5,400	$7,321	$1,831	$105,144
2015	$100,000	$5,400	$7,360	$1,960	$107,104
2016	$100,000	$5,400	$7,497	$2,097	$109,201
2017	$100,000	$5,400	$7,644	$2,244	$111,445
2018	$100,000	$5,400	$7,801	$2,401	$113,846
2019	$100,000	$5,400	$7,969	$2,569	$116,415
2020	$100,000	$5,400	$8,149	$2,749	$119,164
2021	$100,000	$5,400	$8,341	$2,941	$122,105
10 YEAR TOTALS	$100,000	$54,000	$76,104	$22,104 (total annual return – total yearly payments)	$122,104 (original amount invested + total annual net gains)