Bank NII(gross margins) is around 2-3% , so for me even if i know i can definitely earn x% after considering every unknown cost which is larger than interest rate pay, i will too take the loan( considering impact on taxes as well). Net your money is earning more for you right, thats why my majority of purchases are on credit cards, i get Interest free money plus close to 7-8% rewards points.
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Correct.
When a housing loan is given, itâs given usually only to the extent of 80 percent of the value of house. Again, the value of land is not considered.
These are secured loans to the bank. If you are saying the value of property is less than the value of outstanding loan, then whatâs the point of calling them secured loans. So at any given point of time, the value of house is more than the value of loan.
Same thing holds good for car too.
Now if loan is taken by manipulating some accounts, then itâs a different matter.
So I can say at least 99 percent of the time loan outstanding is less than the value of the house.
Hence networth is positive most of the time.
For unstructured business I would say this is the bare minimum. If you are working hard in your business and not generating 20 percent itâs not worth it.
Theoretically if you can generate anything more than your cost of capital, then leverage is good. We call this as financial leverage in business terms.
Even if you have margin of 5 percent, you need to just have asset turnover of 4 times to make 20 percent.
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I do the same. It makes a lot of difference when it accumulates.
Thereâs good news & bad news.
The good news is that you define what is your problem statement. You can pick your material goals, place guard rails for things you are open or not open to do - essentially design every aspect of what being rich means to you. Thatâs also the bad news, you are the only person who can define what it means to be rich 
Once you know what you are trying to solve for through your finances, it becomes fairly simple to figure how you want to track your progress.
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Rich people build assets & these assets give them income. Same way liabilities will take away your money.
The society might think you have a beautiful car and you are rich. If you spend money on your car - its a liability not an asset. Again you might need some vehicle for commuting, reaching office etc - so its a compromise you are willing to take.
Same is the case with house. And its quite complicated to convince people that 1 house is not an asset - so let me stop there.
count the real things that will give you multiple streams of income - thats the easiest way to get rich.
Getting 10k each from 5 sources is much better than getting 80k from a single source.
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IMHO, in absolute terms, neither of the scenarios quoted are actually rich.
Being leveraged (liabilities, debt) is slightly worse-off in terms of freedom of choice.
@raoawesome i would like to suggest this series of 6 articles
to help you decide for yourself with confidence. 
Hereâs some food for thought -
After, one has achieved financial independence,
all subsequent financial queries are in the territory of - " Whatâs the meaning of life? "
In other wordsâŚ
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Great question!! The way I see it -
I think there should be a third option other than balance sheet and society standards - it is - to set your own standards to define richness and there should be an element of enough (finite) in it - because life is finite.
Let me explain both the aspects with following anecdotes -
I heard this story from someone where this boyâs father during his early years - before going to restaurant - used to make all of the family eat some form of junk food or filler so that in the restaurant - they donât have to order costly starters. The boy thought that only the rich order starters. That became his definition of richness. Once he grew up and got steady cash flows - whenever he went to the restaurant - he always ordered lots and lots of starters. That made him feel rich.
I think there is a lot of truth in it.
Now, if the question is about âthe real richâ - I think - that is a person who has âEnough.â
From âPsychology of Moneyâ by Morgan Housel -
At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds, âYes, but I have something he will never have ⌠enough.â
Enough. I was stunned by the simple eloquence of that wordâstunned for two reasons: first, because I have been given so much in my own life and, second, because Joseph Heller couldnât have been more accurate.
For a critical element of our society, including many of the wealthiest and most powerful among us, there seems to be no limit today on what enough entails.
Itâs so smart, and so powerful.
On your second question -
If it is strictly about measuring âfinancial progressâ and the confusion it is causing around liabilities, assets, loans, cars, houses, etc - all that can be eliminated by âDiscounted Cash Flowâ which is the basis of Warren Buffett pricing model for companies and its future potential / expected progress. It takes into account ability to service the debt and hence will clear the confusion about person having a shiny car and house but negative balance sheet. It is applied on companies while doing fundamental analysis and you can apply the same on the person and adjust the projection as and when past and newer data becomes clear.
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âMan will always be a man. There is no new man. We tried so hard to create a society that was equal, where thereâd be nothing to envy your neighbour. But thereâs always something to envy. A smile, a friendship, something you donât have and want to appropriate. In this world, even a Soviet one, there will always be rich and poor. Rich in gifts, poor in gifts. Rich in love, poor in love.â
The real question is do you have enough to meet your material needs and desires. For each individual this would vary. There is no one measuring scale that would appeal to everyone.
How about how comfortable you feel to leave the work that you do and sit in a beachside villa
Well essentially from speaking with everyone , this is what they told me as far as home loans and this what I understood.
So they said like rent is a expense, a wasteful expenditure. So they said like to save rent and have a investment , home loan Is the way. And itâs quite true because we still have a long position on house till we are paying EMI. So i thought house or home loan is a leveraged investment with high expense ratio with crazy entry load(buying house, registration, etc) and exit load (again selling house , registration etc) with illiquidity. The only downside is lost opportunity cost to divert funds to other things like equity, gold or even on onself(bussiness, education, upskilling)
Only thing for me was when I look at portfolio perspective, I was wondering like is everyone else out there too much into real estate with leveraged investment. In terms of % of asset class real estate takes up the majority of space
Ohh I asked from the perspective of overall portfolio. I mean how much % of real estate is present in portfolio. Simple, how much % of money is in real estate based on overall portfolio?
All I can say is, as algo eye says I think itâs better not to add home loan to portfolio, I guess although home loan is an investment too which is weird.
Coming back to balance sheet question. Itâs assets - liabilites. So do we take the net worth of house in asset column too even if house is still under home loan ?
This discussion is very great. Valuable points here. There is one more important thing here, I want to know.
So for leveraged bussiness we aim for 20% + or more.
How much % of capital should be margin ?
Like say you have 1cr, and you are gonna take bussiness loan to aim for 20% return. How much % of 1cr(or equivalent assets) should be used to as margin(down payment for loan taken from bank) ? Simply put how much % of overall holdings should be used to take loan for bussiness?
personally i purchased 2 plots in 2010 with a 10 year loan, the interest component was 60% of the landâs cost. Now my selling price has to be 2x to break even - and nobody is ready to buy currently for that price!
maybe it will be worth 20 or 30yrs hence - but with the current conditions, i dont prefer to get into land anymore!
House is an asset. It has to be considered. Thatâs why I said networth canât be negative.
Just to give you more clarity, if you are saying house is not an asset when it is still mortgaged, then does it belong to the bank? Somebody has to be the owner right. You have full right to use it for your benefits and hence itâs your asset.
You can even receive rent from it and claim depreciation. (Subject to provisions)
So again, only if you have taken unsecured personal loan, then your networth can go negative. Not otherwise.
Location, Location, Location!
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If itâs 1cr business, I would want a minimum of 20 percent. But if itâs a business involving 10 crores then may be I would even be okay with 16percent.
So there is no clear answer. It also depends on the risk parameters of the business.
This again depends on the type of business. Higher the leverage higher is the risk as you also know. I am very risk averse person. So I may keep debt:equity ratio around 3:7
But many business keep it much higher. May be around 8:2 also. So it all comes down to the risk appetite. So clearly I canât give you one answer because it changes from person to person.
Like for that matter, you are someone who likes 0 debt. I like 20 percent. Am sure there are many over here who take 5 times leverage. Thatâs basically 80 percent debt and 20 percent equity.
Not sure if I answered your question or created more questions in your mind. 
No, no I understand. Itâs just when mentioned bussiness, I just wanted a through answer to those questions. Like that reminded of below question from long ago.
Well leaving the question above, the background was that, as mentioned by OP, the guy was in real estate bussiness and had leverage like basically put entire of his holdings and savings in bussiness and lost all when he wasnât able to service the debt. And he is not the only guy, I come across many many people that pledge almost everything and find themselves in trouble when bussiness goes and they are not able to service the debt. I was wondering like surely there must be something deeply wrong . Pretty sure there must margin, target miss for such crisis to happen. I just didnât know whatâs the margin(debt to equity ratio,) target % of a good sustaining bussiness.
I can even go further say, itâs same in trading f&o right. It is a bussiness, and often times we see people full crazy using whatever savings they have to play in f&o , especially buying options is leverage and everyone goes crazy and loses everything. I see f&o as bussiness too. Only difference is , I guess we can exit when we want and there is interest rate component here(servicing the debt I mean).
I just want to know the metrics and do it in right direction way.
LOL, @raoawesome Ultimately , it boils down to two things : 1. All these calculations , projections are highly dynamic in nature and subjective to person. There is no right or wrong answer. If you feel you should track or manage certain way then all good, you should be comfortable with what your doing 2. There is always a counter party to what you do in financial world both exists as there are enough checks and balances .Basically its win win game for both.
Thats your Business/Investment mindset kicks in , Its true but on EMI , think it like SIP( That too in true terms EMI-Expense you have to pay if on rent) than it might be not sizable. But again , I really donât like to buy because it gives me flexibility to move to new location with opportunity even location within the city. But , i agree it may change in future .Buying a house its big decision and many personal factors kicks in. But , surely if i know i gonna stay in a place for at least 10-15 years then house makes sense and with this time frame you will see at least 1-2 housing cycle.
It is business. When you take two times leverage, it means you are going for debt equity mix of 1:1.
Buying OTM option is very risky. With 10k you can buy nifty worth rupees 10lakhs. (already assumed nifty to be 20k.)
So indirectly 9.9lakhs is borrowed money. Thatâs why we have time value of an option. It can even double your money to 20k. Thatâs 100 percent return per day.
But if an option buyer is going for ITM option and paying around 50k then 9.5lakhs is coming from debt indirectly. Risk reduces and so does return.
An option seller at the same time, gives margin of around 1lakh. Risk reduces further.
On paper option selling looks more risky, but if you ask me option buying is. Again I am not seeing trade wise. I am seeing over a period of time.
The max leverage I have taken in option is 1.2times. Thatâs what I am comfortable with for the risk appetite that I have. To conclude, in my opinion little leverage is good.
One thing about desire and materialism is I found out is that 
⌠Itâs a bottomless pit. Like I didnât have a bike, bought a bike, I didnât have a car, bought a second hand one. Travelled lot in both then I went a little crazy and thought I should buy myself a mini plane for travel or a glider. Well I am not that rich but something came to my head âwait a minute I only aspired a bike, how did it come to a plane â and said to myself like , I this much is enough , also had some crazy experiences too. I am a all or nothing person.
Ohh I did this stuff too. Well I was earning much and no debt, so I had lot of chocolates especially I love hide and seek biscuits, used to eat packet everyday. After a month , cavities and got root canal done with dentist . Terrible experience.
Same way , I ate outside resturant for a 2 months. I was not eating healthy at all. Became bloated, fell sick, stomach problems. Went to doctor again for medicine
It was same for travel. For one I had a job and weekends are free. So itâs just wearing gears and riding long. Only difference is I started to do this every weekend. Fatigue caught up(travelling is work, commute certainly takes toll, riding bike or driving car or catching multiple train, bus or flight itâs all same) and I horribly became sick and went back to doctor.
So I said to myself , well I am just gonna focus on building my basic infrastructure (which is mostly done) , take care of my health and as far others well (travel, adventure etc) , if itâs there let me do it in a way that doesnât harm me or doesnât matter if itâs not there toođ .
Well the goal for me is having stability and growing in right direction.
This is my perspective. Okay look, it looks great from outside but not worth buying it. Well you have buy it, assume you are rich but then you have to take care of it, arrange servants to keep it clean , arrange for maintenance. I guess all this can be outsourced. But look at the cost and reward, so you do all this only to spend few days in that sea facing villa. Sounds absolutely ridiculous. Itâs better to go to a resort to get same experience for few days. Unless you have some bussiness or you are a instagram influencer or someone that wants social currency like status, it absolutely makes no sense to buy villa near beach .
It aleast gives a direction , am I correct? . Being lost in right area is far better than being lost in unknown area.