Not all debt is bad debt

Somewhere along the line, you were probably taught that debt is a problem.

But, I don’t agree with that.

Having debt is not a problem.

Not being able to repay our debt (or interest on your debt) is the problem and that’s why it’s so important to understand the difference between good and bad debt.

Having said that in today’s economic environment I believe good debt is an asset.

Now I know that may sound counterintuitive but let me explain…

In the old days, when you owned an investment property your mortgage repayments would have likely been more than the rental income you received meaning most "investment grade” properties were negatively geared – and this resulted in a cash flow shortfall.

The tenant would have contributed to some of your mortgages by paying you rent, the taxman would have assisted with depreciation allowances andnegative gearing benefits, but each month you would have had to contribute to your mortgage repayments.

However, today, taking on good debt and borrowing at historically low-interest rates and using leverage to grow your assets while at the same time receiving rent that is likely to cover your interest payments is a sound investment strategy.

Your cheap debt is an asset because you are using it to create more equity (as the value of your investment property improves) plus cash flow.

And you can accelerate this by using debt recycling.

RealRenta has all the tools that a property manager has, but at over ¼ the cost of a property manager.

Join now and the cost is less than a cup of coffee a week to manage your rental property

RealRenta also has a free vision, so why not check it out

Jason Gwerder
Tuesday, 16 March 2021

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