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Please explain leverage to me (lemmy.ml)

submitted 5 months ago* (last edited 5 months ago) by dingdongitsabear@lemmy.ml to c/personalfinance@lemmy.ml

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can someone explain leverage to me as practised by those RE ~~bullshitters~~ finfluencers. I feel their whole spiel is just bullshit but I don't know enough to be sure about it.

according to them, you "buy" a home - you put X% down and pay your first monthly (and then post on r/firsttimehomebuyer). then you go to (another?) bank and say "look I got this house I wanna use as collateral" and they go "wow you own a house! sure, have this bag of money"... repeat until you "own" like a city block.

like, how does that not crash and burn at the first step, just a cursory glance at the asset's status? how are they not "lol you ain't got no house dumbass come back in 20 years when you actually own it"?

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[–] Tar_alcaran@sh.itjust.works 12 points 5 months ago* (last edited 5 months ago)

You're mostly on point. You get a loan to buy a property, and then sell it later. This is already using leverage, since you're taking in the full appreciation of the property, while only using a fraction of your own money.

But this is peanuts, what you want is more leverage. But you're not going to get it from personal mortgages and houses with easily determined value.

So you take you money and you buy, say, a run down theme park on the cheap. You draft some amazing development plans, and then you have the whole thing evaluated by your buddy, who is of course a famous theme park expert (or claims to be anyway). Turns out your park is worth potentially hundreds of millions! Now, since you own potentially hundreds of millions, it's easy to get more loans.