“Good debt is a powerful tool, but bad debt can kill you.”
–Robert Kiyosaki
I want to clear the air here.
Debt made me rich, not poor.
A lot of people talk about debt like it’s all one thing, right?
Listen to Dave Ramsey, debt is always bad, avoid it, pay it off as fast as possible, never take on more than you have to — that’s the get out of debt mindset most of us were raised on.
For a huge category of debt, that advice is exactly right.
I look at it as basic advice, right, this is 101, and honestly 80% of people need that advice.
But there’s a second category that almost nobody clearly explains.
It’s really the difference that changed the entire trajectory of my financial life.
Going from being worth a hundred thousand dollars to four or five million dollars within just a few years, it came down to using good debt instead of bad debt.
We’re going to break it down in three simple steps.
1. The Difference Between Good Debt and Bad Debt
Bad debt funds a lifestyle, right?
It buys things that lose value the moment you drive them off the lot.
Every payment you make just digs the hole a little bit deeper, with really nothing to show for it on the other side.
You just bought something that declined, like buying a ticket on a sinking ship.
Good debt is different.
Good debt is leverage.
It’s debt on an asset that pays for itself.
You’re not the one paying it back out of your own pocket.
A rental property with a mortgage on it, where the tenant’s rent covers the loan payment and then some, that’s not a liability sitting on your shoulders.
That’s actually someone else’s money helping pay it down.
Robert Kiyosaki built an entire framework around this, and the cash flow test he uses is the simplest way to check it: does the income the asset produces cover the payment, with money left over?
If yes, you’re probably looking at good debt.
If the answer depends on hoping the thing appreciates someday, that’s speculation, not investing.
2. Using OPM — Other People’s Money — to Grow Wealth Faster
An asset that continues to grow your wealth is how wealth actually gets built.
A 20% increase in the value of a house you own is typically something closer to a 100% increase in the equity you have, because financial leverage amplifies your return.
Let’s say you have a hundred thousand dollars.
You could buy a small property outright, all cash, and control exactly what that hundred thousand dollars buys.
Or you could use reasonable leverage and buy a five hundred thousand dollar asset with that same hundred thousand dollars as your down payment.
Same amount of your own capital, but five times the asset, five times the potential upside, with tenants making the payments along the way.
This is other people’s money, or OPM, and it’s exactly how banks operate and how institutions build enormous portfolios.
They’re not using their own money.
They’re using leverage responsibly on assets that have cash flow, and you can do the exact same thing at your own scale.
If you think about it this way: both properties, the hundred thousand and the five hundred thousand, appreciate 5% in a year.
The all-cash property gains you $5,000.
The leveraged property gains you $25,000, but it only took a fifth of the capital to get there.
That’s the entire concept of return on capital, and it’s the reason sophisticated investors almost never pay all cash when reasonable leverage is available.
Why would I pay all cash?
Robert Kiyosaki once said it’s selfish to only use your own money, and he was really emphatic about it.
Investors who understand owner financing and seller-carried deals take this even further, structuring deals with almost none of their own capital in them at all.
3. Managing the Risk — Fixed Rates and Debt Service Coverage
But this third point is the one that actually matters most.
It only works if you manage the risk properly.
I’m not telling you to max out every loan you get approved for.
Conservative leverage ratios matter.
I’d rather control a great asset with reasonable debt than an average asset with debt so aggressive that one bad quarter puts the whole thing at risk.
You have to examine the risk within what you’re doing.
Fixed rate debt, whenever it’s possible, is the move.
That’s why a 30-year fixed loan on single-family or small multifamily is so powerful — you’re not exposed to rising interest rates down the road.
A real discipline around debt service coverage means the income the asset produces comfortably covers the payment, with room to spare, even if things don’t go perfectly.
I remember my first leveraged deal.
I remember how nervous I was signing the loan.
It felt enormous.
It was risky.
The Closing Block
But that deal, using debt responsibly on a cash-flowing asset, did more for my net worth than years of just saving ever could.
So a lot of times, when you look back at the things that actually grow wealth, it does involve using leverage.
The lesson isn’t “go take on debt.”
The lesson is to understand the difference.
Debt that funds your lifestyle but will quietly bury you, that’s bad debt.
Debt that funds a cash-flowing asset, managed responsibly, that will build your wealth.
And if you want to see where leverage stops making sense, not every leveraged deal is worth doing either.
So if you want to learn more about building your wealth, join our investment club, check out the link below.
We have all kinds of assets that do this.
They put money in your pocket every month, every quarter.
We’ve really had a bias the last several years to move out of things that are just good long-term deals into more things that have cash flow, because cash flow reduces risk right away.
It allows you to gain more wealth over time, and there are tax benefits involved as well.
But using smart debt, using good leverage, can be really valuable.
So thanks for taking the time to educate yourself here.
We’ll look forward to seeing you in the next video.
