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You can use “good debt” to buy performing real-estate assets for lifelong wealth (example inside)
Debt is bad. That's what our elders tell us
And our mind is trained to think this way. We are taught to understand debt as something that does more harm than good.
But debt is more profitable than you think. Just like cholesterol—there are good and bad types. The sad part is that many people never learn the difference.
But a smart person can always learn how to use debt to their advantage.
“Good debt” is an under-rated financial strategy to create wealth.
It can be used to buy performing assets to build wealth. You could also speed up the returns and achieve important financial goals.
Intrigued...? Let’s dive in.
Here’s why debt gets a bad name. The conventional “bad debt” is harmful since it takes money out of your pocket.
Bad debt #1: Credit cards
Credit cards are not bad. It’s how you use them that makes all the difference.
If you buy liabilities like electronic gadgets and vacations, you’ll end up in a monthly debt cycle, which is difficult to get out of.
People make it worse by only paying the minimum payment each month. That’s a trap.
Investing in liabilities is the fastest way to drain your money. Remember, buying gadgets and vacations is more of a status symbol than a requirement.
Never use your credit card to buy liabilities.
Bad debt #2: Loans
Again, there are lots of loans that you can get, only to buy unnecessary liabilities. Most car loans and payday loans fall into this category.
Loans are the fastest way to gain bad debt…often at a high price.
Avoid at all cost!
Bad debt #3: A house that takes money out of your pocket
Some of you would be surprised.
But here's the cold hard fact. Any real estate investment that only takes money out of your pocket is a classic example of using bad debt.
A house takes money out of your pocket in the form of utility payments, maintenance, among other taxes. Interestingly, these are additional to the mortgage.
But there's a way!
You could use “good debt” to bring lifelong wealth (a secret only a minority of lucky people already know)
Good debt is all about creating a leveraged position that can be converted to cash or net worth. You set up a cash flow or return in excess of the debt’s cost.
That’s what wealthy people do. You need to use the bank’s or other people’s money to buy performing assets. One such asset is buying real estate.
Real estate provides the best opportunity to utilise the principles of good debt. But you need to understand the mechanics of real estate.
The most dangerous common myth you’ve always believed as a “fact” - “Your house is your biggest asset.”
It most probably isn’t. Rather it is a liability.
Instead of putting money in your pocket, it takes money out of your pocket in the form of a mortgage, utility payments, taxes, maintenance, and more.
Then how is it an asset?
In fact, if you don’t own your home, your house is the bank’s asset, and it is working for them. It's not earning you anything.
But people do make money off real estate all the time. That's a closely guarded secret.
Here’s how they make money off real estate
'The best investment on Earth is Earth.' - Louis Glickman, Real estate investor
Most people make money from selling a house after years of living in it. The monetary difference between what you bought your house at and what you can sell it for is how money is made. It's called appreciation.
But here's the catch. Appreciation is not guaranteed, especially with a pandemic and a looming recession around the corner.
So to make money from real estate, the income from the house needs to be higher than the expenses.
If you view a house as an investment property, the renter pays you rent that covers your expenses, including your mortgage and taxes. Expenses usually include mortgage payment, real estate taxes, insurance, utilities, and maintenance. You make money every month while renter pays down your liability. This is called positive cash flow.
This way, your real-estate investments will put money in your pocket each month in the form of rent. That's the power of leverage in real estate!
That’s how the “smart ones” use good debt as a way to create wealth.
A quick example.
Assuming you want to invest $200,000 in real estate. Never use all of your money to purchase one property.
Instead, use "good debt" to buy three $300,000 properties. The bank would lend you around $250,000 for each property and you would divide your $200,000 for initial deposits and buying expenses.
Here’s the only little formula you need to understand.
Rental income - Expenses = Net Rental Income
Now if the overall rental income that you made is higher than what you pay to the bank plus other expenses, you’ve successfully used leverage to make your investments into an asset.
Now this may seem challenging to do on your own, but it is all simple math.
Concluding Thoughts
Now you know the secret of how you watch stories of the rich people buying a $1,000,000 property that profits $100,000 a year with no money of their own etc.
The key to understand good debt and investing is to educate yourself.
Many people never make money, thinking that their residence is an asset. With such a bad experience, they will tell you that real estate is a bad investment. The truth is that you could build massive wealth and capitalize on the mistakes committed by the herd.
Understand how leverage can help your own performing real-estate assets. Focusing on fundamentals will teach you how to buy real estate for cash flow and drastically reduce the risk so you can make it through any recession.
The fact is that if you build your monthly cash flow the right way, you NEVER have to worry about money again. That’s the secret to living the life of your dreams.
You can essentially “train” yourself into how to use “good debt” without having to learn the hard way.
That’s right. There’s a simple, easy way. And it can work immediately for you, starting today.
To learn more about using “good debt” to buy performing real-estate assets, click here.
We’ve planned a one-on-one session that’s uncomplicated, easy to digest, and most importantly, fun!
We’ll talk about your financial goals and clear bottlenecks. So next time, you don’t find yourself lost at sea when dealing with debt.
After the session, you might find yourself with a new best friend--Good Debt. Again, click here to schedule.
Make the most out of this session to have more self-confidence heading into this next chapter in life. Time to get a grip.
Disclaimer:
This article is not financial advice. The circumstances of individuals may differ, and you must get financial advice where necessary. What follows here is our personal and subjective opinion. It's based on simple strategies that have helped us and our clients earn great income over the years.
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