Originally Posted by Trip7

The Laguna Beach Loan Breakdown

​When Buffett bought the beach house, he was already worth millions, but he flat-out refused to tie up his liquid capital in real estate. Instead, he took out a standard 30-year fixed mortgage through Great Western Savings and Loan.

• ​Purchase Price: $150,000
• ​Down Payment: $30,000 (20%)
• ​Loan Amount: $120,000
• ​Interest Rate: Approximately 7.31% (which was the baseline 30-year fixed rate when Freddie Mac began tracking data in 1971)

​The 7.31% Opportunity Cost Arbitrage

​Paying a 7.31% interest rate might sound painful when you have the cash sitting right there to avoid it, but Buffett knew his hurdle rate in the market was vastly higher.

​He took the $120,000 cash he would have used to buy the house outright and deployed it directly into his own compounding engine, purchasing roughly 3,000 shares of Berkshire Hathaway stock instead.

​By the time he eventually listed the Laguna Beach house for sale, the contrast between the two assets was staggering:

• ​The physical house appreciated from $150,000 to a eventual market value of around $11 million.
• ​The 3,000 shares of Berkshire Hathaway he bought with the retained cash had compounded into more than $750 million.

​He willingly paid a 7.31% cost of debt because he knew he could compound the retained equity at an IRR that completely eclipsed it.

Originally Posted by Delta757

Yeah fourth grade education, which is why 95%* of active investors beat the market. Oh wait, it's 95% that don't beat the market.

If it's so easy I'm not sure why you're a pilot and not the wolf of wallstreet right now.

I'm not even arguing that investing beats paying down the mortgage, I'm just making fun of the absurd $750mil example that was thrown out there.

*I don't remember the actual number and am too lazy to look it up, but it's around there.