Conventional wisdom says to avoid debt like the plague BUT certain types of debt, when used properly, can make you incredibly wealthy. Another word for debt is leverage. A concept that many people have a difficult time wrapping their brain around is that the careful, prudent exercise of debt actually reduces your risk when investing in real estate.
Welcome to commandment #8 in our series on Jason’s 10 Commandments of Successful Investing. This one is Thou Shalt Borrow to Maximize Leverage and Accelerate Wealth Creation.
Obviously, we can’t discuss all our innovative ways of using debt in this single post but here are a few broad ideas. Debt is your best inflation protection policy. Furthermore, investing in tenant-financed real estate is the best form of debt known to mankind and will significantly reduce your risk while allowing you to create extraordinary wealth.
Think about these factors:
• You put down only a small amount of money while the bank ponies up the rest.
• Your tenant pays off your mortgage for you.
• Ultimately, you own the asset that was financed and paid for by someone else.
By using proper leverage, you are able to defer payments on the principal of your loan far into the future. With inflation continuing to erode the value of the dollar, you’re better to pay in future dollars because they are cheaper than current dollars. The more you can push back the date of paying off a mortgage, the cheaper it becomes to do so.
That, my friend, is why the right kind of debt is very good.
