The Value of Money

Here's an interesting concept from the real estate sector on why one loans to buy a house or "Why Amortize at an Interest?"

What they basically say is this:
Money devalues every year
Interest rate is almost equal to devaluation rate
So the interest you pay only covers the devaluation of your money

Why is this concept important if it applies to ones situation? Because if your investment earns at least 50% more than the devaluation rate then its wise to borrow to invest. Seasoned real estate brokers and developers observe this all the time. They borrow money at 5% to 10% per year rate to buy a property that doubles in value in three to four years.

Simplified:
Borrow P1,000,000.00 to buy a P1,000,000.00 property
Interest at 10%
Year 0: P1,000,000.00
Year 1: P1,100,000.00
Year 2: P1,200,000.00
Year 3: P1,300,000.00
Year 4: P1,400,000.00
Year 5: P1,500,000.00

Year 3: property valued at P1,500,000.00
Year 4: property valued at P1,750,000.00
Year 5: property valued at P2,000,000.00

This normally happens when one buys into a property that will be developed in a few years, like buying condominium units or townhouses at pre-selling price, and liquidating them upon turn-over in three to four years.

Here's one property that's pre-selling now: Gilmore Tower.