Real estate leverage was once a legitimate tool for getting rich quickly, but unfortunately, times have changed.
During the golden age of real estate, many people became wealthy, with a representative figure being the property speculator Ou Shen, who transitioned from a regular office worker to leveraging real estate for investment, ultimately achieving financial freedom at a rapid pace.
His leverage strategy involved pushing to the limit, such as borrowing all available funds to buy properties, then mortgaging them to continue making down payments on several more.
In the process, he used various properties to obtain credit cards, applying for dozens of them, and then finding ways to maximize their limits, all while using them to pay each other off.
In the end, some estimates suggest his leverage reached over a hundred times. This approach was indeed aggressive during the upward market, allowing him to go from a nobody to a billionaire in just a few years.
However, during the downturn, it became disastrous; not only could he not extract cash from credit cards, but he also faced the risk of foreclosure if he couldn't repay his mortgage. In fact, during a downturn, properties often require early repayment (for mortgage loans), among other issues.
Today, he still talks about real estate on Douyin, and his career remains focused on property research. However, both the speed of making money and the difficulty of earning it are completely different from the past, and his reputation has suffered due to some questionable practices.
This also provides a lesson: trends and opportunities are key to turning things around. When trends and opportunities are gone, the harder you work, the more unfortunate you become; when trends and opportunities arise, taking risks can lead to success…
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Returning to the topic of real estate leverage, in hindsight, this was the only high leverage allowed by the state. It was accessible to everyone, never leading to liquidation, and the fees were not high. This was indeed an unbeatable tool.
Imagine if years ago in Shenzhen, you saved 2 million yuan from your job, bought a property worth 10 million yuan with a loan, and eventually sold it for 30 million yuan, making a 15-fold profit, which is better than anything else. The key here is that the 2 million yuan of capital leveraged 10 million yuan of assets.
However, there are many points to consider:
Do you understand and dare to use leverage? For example, can you predict a real estate boom?
Do you have cash flow to maintain the leverage?
After prices rise to a certain level, are you willing to close positions and secure profits, then rent to live?
Do you know which areas have properties that are not expensive but have potential for growth?
Unfortunately, it seems that there is no longer such good leverage available worldwide as there was with mortgage loans. For instance, with a mortgage, even if property prices drop, you don't need to supplement funds; you can just continue to pay it off slowly, and the concept of liquidation doesn't even apply.
With a 30-year loan, considering the issuance of fiat currency, one could argue that the interest paid over 30 years is negligible, but the ideal scenario is that property prices must rise, and you need the property as a hedge against asset types.
Currently, the trend in domestic real estate is not favorable, and the only uncertainty is when the core CBD areas in Shanghai and Shenzhen will hit bottom. Will there still be opportunities for them in the future?
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