Skip to main content

“Good debt is a powerful tool, but bad debt can kill you.” – Robert Kiyosaki

I’ve got a secret to share with you:

I love getting into debt.

When I say this, I’m not talking about all types of debt.

I’m not talking about credit card debt or student loan debt.

You should always be careful of the type of debt you get and how much.

According to this article from the IMF Economic Review, debt can lead to productive investment and economic growth.

However, excessive debt can lead to rollover risk, credit reduction, and default.1

I love getting into debt that allows me to hold great assets like real estate.

Sometimes I even borrow at a lower rate and invest that amount at a higher rate so I can get a great return.

Today, we’re talking about the differences between good and bad debt.

We’ll also discuss why I’m collecting all the good debt I can possibly get.

Let’s jump into it!

1. Leverage for Growth

We’ll start by talking about leverage for growth.

If you only put cash in, you’re limiting the upside of your returns.

I know some people who have paid for homes in cash or paid off their mortgage.  Actually 40% of homes in the US have no loan on them.

Personally, I would never want to do that.

There may be certain situations where it would make sense.

If paying off your debts gives you peace of mind, I totally get that.

But the amazing thing when you have debt is that you can buy appreciating assets.

There are a limited number of houses and apartments on the real estate market.

Because of this, costs will continue to rise.

According to this article in Housing Studies, limited housing can lead to a sharp downturn in residential mobility.

This is seen largely among renters, resulting in a reduction of mobility rates.2

If I can borrow, I can circumvent that scary situation.

Let’s say I buy a million-dollar property and put $200,000 down.

If I have a 20% increase in the value, I haven’t had a 20% increase in my equity…

I’ve had a 100% increase.

I can use someone else’s money to grow.

This strategy multiplies the returns because it applies leverage.

Now, this can work both ways, too, if you don’t have the right type of debt.

But if you can borrow at a lower rate and buy appreciating assets, that can be a great way to grow with good debt.

This is where I really differ from Dave Ramsey.

Dave Ramsey has some great advice, especially regarding credit card debt, but he will not get you wealthy.

However, I think paying for investments in cash is not always beneficial.

2. Tax Advantages

There are tax advantages when you get into debt.

One of them is mortgage interest deductions.

There’s also depreciation up for grabs.

If you were to pay cash, your return on investments is typically much lower.

This isn’t always the case.

I’ve seen people get into deals where they’re able to depreciate 100% of the money they put in.

Those situations can definitely happen.

If you use debt in those same deals, they can be even more advantageous.

My friend Mark Quann has the buy, borrow, die strategy.

When you have an asset, you can borrow against its value, and go buy another asset with the appreciation from the first one.

Because you borrowed money, there’s no taxable basis.

He’s got a book coming out about this, so keep an eye out!

3. Use Other People’s Money

Robert Kiyosaki once said it’s selfish to only use your own money.

I had a big mind shift when I switched from single family housing to multifamily.

I went from thinking I could never buy a big apartment building to being an operating partner of a 225 multifamily apartment.

How did I do that?

I leveraged other people’s money.

Getting into debt is really powerful.

You’re using the bank’s money to grow.

Sometimes, you can even supplement those debts with other investor’s money.

I love getting into good debt.

If you’re able to turn around debt and get a higher return, you can see super positive results.

Now I want to hear from you!

What do you think of good debt?

How do you define good debt and bad debt?

Let us know in the comments.

Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.

If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.

Check out my bestselling book on Amazon!

Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.

Works Cited

1.     E. Boz and L. Tesar. “Debt: The Good. The Bad. The Ugly.” IMF Economic Review, 69 (2021): 1 – 4. https://doi.org/10.1057/s41308-021-00133-9.

2.     D. Myers, Jung-Ja Park and Seong Cho. “Housing shortages and the new downturn of residential mobility in the US.” Housing Studies, 38 (2021): 1088 – 1109. https://doi.org/10.1080/02673037.2021.1929860

Bronson Hill

Bronson used to work as a consultant for a medical device company but switched to investing in apartment buildings to make his money work for him. He started with a single rental property that made good money and, after some advice from a family member, moved into bigger real estate projects. Now, he's all about helping others get into this kind of investment to earn money without having to work all the time. When he's not dealing with investments, Bronson loves to travel, write songs, stay active, and help fight modern slavery through his work with Dressember. He believes in working smarter, not harder, and wants to share how that's possible with everyone.

Leave a Reply