Many people have asked me this question based on my advice not to borrow! Well I am not against borrowing at all! After all I hold shares in India’s biggest mortgage company, and some banks. So please go ahead and borrow, I have to get my dividends, do I not?

However, on a serious note, I am not too much of a fan of leveraging unless you are a disciplined borrower. In case you do leverage and buy, your income levels should be enough to pay the EMI immaterial of whether your property has appreciated or not.

This allows you the ability to take a negative cash flow.

In case the market goes down, you will still pay the EMI and ride out the tough times. Once the market recovers, you can think what to do!

Simple, when borrowing, follow the old rule “the emi should be less than 30% of your take home pay”. It is a good law, and still works

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  1. Mercifully, so far I have not borrowed to buy stock.

    The 30 percent limit of take home pay, which you advocate here, seems reasonable.

    ‘A negative cash flow’ and ‘a disciplined borrower’ need some explanation.

  2. negative cash flow – the gap between the rent you receive and the emi that you pay. The hiigher the gap, the greater the pressure. It depends on whether you can afford this.

    Disciplined borrower who sticks to rules created BEFORE starting any transaction

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