Yeah, the whole thing surprised me. MMM makes enough blog income that the risk is a non-issue for him. For the rest of us, it seems highly risky. If you do a margin loan and borrow 30% (the limit is 50%) and the market drops 50% would you be able to sleep at night? Knowing that the market dropping a little more would result in me automatically selling at the bottom would terrify me. If everything goes well, it's fantastic. Borrowing at 1% interest is a great deal. Yes, things have to get really bad for it to not work out. But, if things DO get that bad, it's a HORRIBLE time to sell.
In the case of MMM, buying this particular home seems like a great deal. If his "friend" can't get a mortgage, he can probably sell for a profit.
Here is some math for this scenario:
Initial Value of Stock: $1,000,000
Borrow (30% of initial value): $300,000
Allowed to borrow: $500,000
After the market drops:
Value of Stock: $500,000
Borrowed: $300,000
Allowed to borrow: $250,000
Need to sell: $50,000 of stock at market bottom
The $50,000 is stock that had been valued at $100,000 pre-drop when the decision was made to borrow on margin. Being forced to sell in this case results in a $50,000 loss.
Because of the above, I would say you want to limit this technique to real estate deals you can get because you're able to move quickly, or you're able to purchase something does not qualify for conventional financing. You should also limit this technique to cases where the real estate deal is priced at least ($50,000/$300,000) = 17% below market value due to just the financing. eg.: If the house doesn't qualify for typical financing because it's missing a kitchen, and a kitchen costs $25,000 in your area, you'll want the house to sell for at least:
$300,000 (your purchase price)+$25,000 (cost of kitchen)+$50,000 (possible cost of financing should SHTF)+1%*300,000 (if it's going to take a year to flip, adjust accordingly)
to make sure you're covered in the case of a market meltdown.