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be for seventy-two thousand—or about five hundred and twenty-five dollars a month at an eight-percent interest rate, since mortgage rates are a little lower than personal loan rates. You then rent the house out for that amount plus utilities and upkeep.
"The end result is that the rental income covers your mortgage. Your expenses are covered by your tenant. Your only cost is your monthly personal loan payment of four hundred bucks.
"Five years later, you sell the house for a hundred and twenty-five thousand dollars, a realistic figure representing an average annual compound return of less than seven percent. Your personal loan of eighteen thousand is no longer around . . . You've paid it off. The outstanding principal on your mortgage is around sixty-eight thousand, as most of your monthly payment has been applied to the interest on the mortgage balance. One hundred and twenty-five minus sixty-eight is fifty-seven. You are left with fifty-seven thousand dollars, less, of course, your tax liability on the capital gain. Note that because you don't occupy the home as a principal residence, you can't take advantage of the capital-gains exclusion that is available for homeowners."
"It's too easy," Tom snorted.
"Not only that," James Murray added, "but there can be some tax advantages to using borrowed money to buy real estate."
"Then why isn't every man, woman, and child doing it?" I asked.
"You'd be surprised how many people are doing it, or something similar to it. It's said that ninety percent of the world's millionaires have become millionaires through real