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Please explain leverage to me (lemmy.ml)

submitted 5 months ago* (last edited 5 months ago) by [email protected] to c/[email protected]

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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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[–] tburkhol 14 points 5 months ago

You can't use house #1 as the collateral for both the mortgage on house #1 and house #2, because the bank is smart enough to know that you don't actually own house #1. If house #1 has appreciated significantly from the purchase price, or you have paid off a good chunk of the mortgage, you may have enough equity to take a loan (eg home equity line of credit / HELOC) on that equity to get down-payment money for a second house. That's generally a slow process, unless you happen to own property in a market bubble.