#335 Should You Borrow Money to Invest ft. Peter Kim, MD
In this episode, Peter breaks down what happens when a friend’s investment problem turned out to be a debt problem in disguise, and why borrowing money to invest changes the entire risk equation. He walks through the two questions almost nobody asks before taking on debt to fund an investment, who’s actually making the payment, and who decides when that payment is due.
If you’ve ever considered using margin, a HELOC, or a personal loan to get into a deal, this episode lays out exactly what can go wrong and when. Tune in!
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Episode Highlights
Now, let’s look at what we discussed in this episode:
- A Friend’s Offhand Detail That Changed Everything
- Why This Idea Is Tempting in the First Place
- The Two Questions Almost Nobody Asks
- When Someone Else Controls Your Timeline
- Where Peter Draws the Line
Here’s a breakdown of how this episode unfolds.
Episode Breakdown
A Friend’s Offhand Detail That Changed Everything
Peter opens with a call from a friend who was stressed about a few investments underperforming, one had slowed down significantly and another had stopped paying out entirely. They started talking through it, the losses, whether any of it could be written off, which deals probably just needed more time. Peter describes it as a pretty normal conversation, one he’s had many times on both sides.
Then partway through, his friend mentioned almost as an aside that the money he’d put into these deals wasn’t actually his, he’d borrowed it. Peter says that single detail changed the entire nature of the conversation. They weren’t talking about investments that might underperform anymore, they were talking about a loan payment that was due regardless of how those investments performed.
He’s upfront that this isn’t an anti-debt episode, since he’s used debt in basically every real estate deal he’s ever done. What he wants to specifically unpack is borrowing money personally and putting it into an investment, whether that’s a private deal, stocks, Bitcoin, or a venture opportunity, because the underlying structure is identical no matter what gets purchased.
Why This Idea Is Tempting in the First Place
Peter breaks down the two versions of this strategy that make it genuinely tempting on paper. The first is the spread, sometimes called arbitrage, where you find an investment paying 10 to 12 percent and borrow money at 7 percent, theoretically pocketing the difference. The second is momentum, watching an asset climb in value and using a line of credit or margin because waiting to save up feels like watching the opportunity run away.
He gives real examples, people who borrowed to buy Bitcoin during a long uptrend, and people who borrowed to get into SpaceX when it went public over the summer, pricing around $135 and running up past $200 within weeks. Peter is honest that these decisions weren’t crazy in the moment, and some people genuinely did well if they timed their entry and exit correctly.
But he keeps coming back to one realization. Whatever you buy in this scenario, you’ve actually signed two separate contracts. One is the investment itself, which can go up, down, or to zero, that’s the risk you thought you were taking. The other is the loan, which has absolutely nothing to do with how the investment performs, it just needs to get paid.
The Two Questions Almost Nobody Asks
Peter lays out the two questions he asks himself about any borrowed money going into an investment. First, who’s actually making this payment. If you borrowed money for something that doesn’t generate income, which most things don’t, the payment is coming straight out of your own paycheck, meaning the entire plan hinges on the investment growing faster than the interest accrues. He calls this less an investment strategy and more a bet with a timer attached.
Even when the investment does pay you, like a real estate deal expected to produce distributions, he points out that those distributions can get paused when a sponsor needs to preserve cash, which is sometimes the right call for them but leaves you exposed. Your loan payment, on the other hand, doesn’t pause for anyone. It’s due every month regardless of what’s happening inside the investment.
The second question, the one almost nobody asks beforehand, is who decides when you actually have to make the payment. This sets up the rest of the episode, since the answer to that question is often not the borrower at all.
When Someone Else Controls Your Timeline
Peter walks through what happens when borrowed money meets a forced sale, starting with margin in a brokerage account. When an account’s value drops below a certain line, a margin call requires immediate action, either wiring in more money or having the position sold automatically, no negotiation involved. He points out that this always happens at the worst possible moment, right when things are already going badly, not when they’re going well.
He returns to the SpaceX example to show exactly how this plays out. Someone who bought with cash at $200 and watched it drop to $108 before recovering to around $140 or $150 is down on paper but still owns the asset and can simply wait it out. Someone who bought the same position on margin likely got forced out somewhere in the $110s, locking in the loss and missing the recovery entirely, even if they were completely right about the company’s long-term potential.
He then covers private deals, which he says can actually be worse in some ways, since there’s no daily price and no margin call to warn you. But the risk is still there. If the investment stops paying and you can’t sell it because there’s no market, you still owe the lender every month, and if you don’t pay, they come after whatever you put up as collateral, the house, the brokerage account, whatever you signed for.
This is exactly what happened to his friend, two separate problems stacked on top of each other instead of one solving the other.
Where Peter Draws the Line
Peter explains the distinction that matters most to him, whether the debt lives inside the deal or whether it’s what got him into the deal in the first place. Debt inside the deal, like a loan on a building, is completely normal. If things fall apart, the lender typically takes the property and that’s the end of it, they don’t come after him personally, especially if the loan is reasonably sized with a locked or capped rate and a long enough term to ride out a rough stretch.
Debt that funds his personal stake in a deal is a different situation entirely, since his name is directly on that loan. If the investment goes to zero, the loan doesn’t disappear with it, he’s still responsible for it. This is why he personally doesn’t borrow money to fund his own investments, not because debt is inherently bad, but because borrowing removes the one advantage he considers essential, the ability to simply wait out a bad stretch without anyone forcing his hand.
He closes by circling back to his friend, saying he didn’t tell him to unwind anything, that wasn’t his call to make. His goal was just making sure his friend understood the actual risk sitting in front of him and had a real plan if those debt payments became difficult to make. His broader advice for anyone considering this right now is to sit with the decision, think through the worst-case scenario honestly, and be sure the potential return is actually worth the added risk.
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