Leverage

I was reminded today of the power of leverage. I was shooting breeze with a couple of friends, and one of them mentioned the following (true) anecdote.

This buddy of mine is a banker, and was talking about the bad old days of '03, when bankers were lucky to hold on to their jobs, and no bonus in sight. During such desperate times, with liabilities in the form of student loans, this canny dude bought a house in South Delhi worth 1.25 crores with just 15 lacs of equity, the rest leveraged as debt. The house is today worth 4 crores, and there is still Rs 80lacs outstanding on the loan.

To work out a simple equation, 15l has grown to 3.2cr in 4 years, or 21 times return. This is an annual return of 114%!!

Harnessing the power of 1) leverage and 2) real estate seems like a quick way to untold riches!!