A guide to borrowing for investing

A set of points to look into if you are considering borrowing to invest

12:57 13 July 2014

Borrowing money to fund an investment is a risky affair, but that is what an investment is all about. You either smooth sail when the market tides are convenient or wreck in huge debts and losses if you come across a volatile market. 

 

Consider the following points before you engage in the weighty matter of borrowing to invest.

 

Is borrowing to invest the right thing for your situation?

 

Borrowing to invest is for seasoned risk takers who appreciate the risks of unpredictable markets. You should not depend on your investment to repay the borrowed funds if it doesn’t go as planned. Instead, borrow if 

 

 

• You have a few stable sources of income or a huge coffer to help you top up in case the investment fails to take off. 
• You fall under a high income tax bracket so you can maximise on the tax benefits
• You completely understand the risks behind investing in markets that are highly volatile and unpredictable

 

 

Do you know the risks?

 

If you decide to borrow to invest, you must be prepared for the worst outcome- if the investment hits a snag; that you can lose the whole venture and owe your creditor a substantial amount. It is very risky if you borrow against principal assets such as your home because you may lose it if the worst happens.

 

What is the cost of loan reimbursement?

 

Payment rates can increase to a certain percentage yearly. Deliberate whether you will be able to repay if rates are revised upwards by 3% or higher. You may be required to hastily sell some of your prime assets if the paying interest rate gets too high. 

 

Borrowing to fund an investment is both risky and rewarding. Ensure that you are aware of how you are going to be affected and what you can lose if the investment doesn’t come up to scratch. Discuss the risks and benefits of the undertaking to ascertain that borrowing to invest is a rightful step for your situation.