Recently, I wrote about what I think is a common misconception, in that a long-term rental must meet the 2% rule to be a good investment. I think another misconception is that all debt is bad, and must be avoided at all costs. Many people will tell you stay away from debt at all costs, while others will say good debt is okay but stay away from bad debt. Most people define bad debt as debt that uses depreciating assets or no assets as collateral. Car loans, credit cards, student loans, retail goods like TVs, furniture, exercise equipment all would classify as bad debt. My personal philosophy; I don’t care what is used as collateral, if I can use debt to invest and make me a higher return than the debt costs me – I will.
Words of Caution
Before I get too deep into my debt strategy, let me say this strategy is not right for everyone! Everyone has certain comfort levels with debt and risk. I happen to have a very high comfort level for debt and aggressive investing strategies. If the idea of debt makes you anxious, nauseous and break into a cold sweat, stop reading now! I don’t want people to think there is one right way to take out debt and invest in real estate. We all have different amounts of money, are at different points in our lives and have different needs and wants. This article simply describes how I invest and try to maximize my returns by using debt.
I am very fortunate in that I make a very good living as a Realtor and investor. When I talk about my strategy of using leverage, please consider that I am not spreading myself so thin that a slight market fluctuation will cause everything to crumble around me. …read more