Dear Friends,
The effect of mechanical levers was well understood throughout time and cultures. They were used from 3000 B.C. in Mesopotamia, the Chinese described them as early as 4th century B.C. and called it Jiegao (桔槔), while the Greek mathematician Archimedes when he realised their power famously said in 250 B.C. “Give me a place to stand and I will move the world”.
If mechanical levers are strong, why do we care? In our case we are interested more in the financial version of leverage, which in Real Estate are known as mortgages. Like with all tools, leverage at the hand of an experience investor can boost returns significantly and speed up the process of wealth accumulation. However, in the hands of inexperienced or foolhardy investors it can hurt the bottom line and diminish wealth.
At Artemis Assets we are well aware of the power of leverage. But we have also discovered one more benefit. We think that it’s a tool that allows Time Travel. A bit crazy, right? Let us explain. When an investor borrows from the bank and agrees to a mortgage, they receive a lumpsum of money in the present. In exchange they agree to repay that money to the bank, with interest, across a period of several years. In essence, they borrow in the present from their future self, and they promise to repay him (via the bank) gradually. It’s like entering a time machine, travelling in the future, taking all the savings from your future self and bringing them back to present time.
The added bonus is that your future self will thank you for taking their money! Why? Because in that (not so distant) future they will find themselves with a property, fully paid, generating cashflows, and which has appreciated in value equally or more than inflation. That is the beauty of the Time Travel called Mortgage.
We have attached a presentation about mortgages in Spain, and you can find the link here. In the future we will revisit the subject of mortgages, where we will highlight what is important and what is not important when negotiating one. When talking to investors we are frequently surprised to find out that most of them are negotiating the wrong items.
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Until the next one!
