Contrarians zig while other investors zag.  They hold to the belief that most people receive news too late and act irrationally.  Warren Buffett illustrates the contrarian approach best:

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

Let’s talk about how mortgages can be applied to the Buffett School of Contrarian Economic Theory;  you should probably be maxed out to the hilt on your properties.  “Mortgage Planning" was a sales technique we debt peddlers used, during the boom. We dressed up serial refinances, to the maximum permitted loan-to-value, and called it "home equity harvesting“.  The theory suggested was to make money from arbitrage opportunities by borrowing against your (appreciated) principal residence at x% and investing that money at (1.25) x%.

Financial advisers like Ric Edelman championed this cause by lending credibility to the theory through best-selling books.   Seminars were held by guys in thousand dollar suits, displaying multi-color charts, showing how the incremental benefit of that arbitrage, compounded over time, could result in a king’s ransom for the intelligent “investor”.  They forgot to discuss the key ingredient to the use of leverage…

Can you service all of that debt?

The real estate market tanked, the stock market dove, and junk bonds defaulted, leaving those “investors” with depreciated assets, bought with money they couldn’t afford to repay.  A sad tale of woe, indeed.

Still, I think you should “bet the ranch” today.  Here’s why:

• Mortgage rates are REALLY cheap and they’re going higher; the Federal life support plug is about to be pulled.
• Some properties can service the debt required to buy them at 100% loan-to-value.
• Inflation seems imminent and a commodities boom seems to be the likely result.
• Higher taxes seem more probable than lower taxes, over the next 5-10 years.

There’s a catch, though.  You must be able to afford all of that debt. If you borrow an extra $100,000, to buy $300,000 worth of property, be certain that the income being produced from that $300,000 services ALL of the debt incurred, including the marginal monthly increase from the withdrawn home equity.

The whole world is talking about the great de-leveraging in which governments, businesses, and consumers are engaged.  They’re all zigging so I say you should zag.  If they’re saving and receding,  you start borrowing and buying.

A contrarian opinion.  Caveat Emptor.

Free eBook from BiggerPockets!

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly!

• Actionable Advice for Getting Started,
• Discover the 10 Most Lucrative Real Estate Niches,
• Learn how to get started with or without money,
• Explore Real-Life Strategies for Building Wealth,
• And a LOT more

Sign up below to download the eBook for FREE today!

Click Here to Download the eBook Now!

We hate spam just as much as you