15 Apr Why Houses are Considered “Good Debt”
In many of my events, I teach on the power of investing in real estate. I just did a two-part series on how to get out of debt, yet last month I was encouraging you to get into debt by investing in real estate! How can those two things co-exist? Today’s blog post will answer that question, which I have been asked many, many times.
Good versus Bad Debt
What is a Liability?
Consumer debt is considered bad debt because it destroys our ability to create wealth. Did you know that “consume” means “to destroy?” When you walk out of the store with a new flat screen tv or even a car, the value depreciates immediately. It becomes less valuable. This is considered a liability because it is an expense that does not pay you back.
It always amazes me that people are so quick to put $2,000 on a credit card to buy a tv, but refuse to put that same $2,000 towards an asset.
What is an Asset?
Real estate, however, appreciates in value from the time you purchase it to when you sell it. You can make money from this expense so it is considered an asset.
How do you make money from a house? Well first of all, the value appreciates so if you buy a $100,000 and keep it for 10 years, you will likely make way more than that when you sell it. Secondly, you can rent out a property that you own. I teach my real estate clients that you should get around $300/month in cash flow from each property. Thirdly, you can fix and flip a house to make more money out of a property. Do you see where I am going here? There are so many options!
In my book, Money Mastery, I teach you how to become financially free. Basically, this means you aren’t relying on a 9-5 job to pay your bills. It sounds like a dream, right? But how do you get there? Well, you live off the income created from your assets! Your “liabilities” won’t make you any money, but your “assets” will! If you buy and hold real estate, you can follow the formula I briefly told you about before. Think about this: you make $300/month because of the rents from one property you own. If you own 10 properties, you will be making $3,000/month! If you want to be more aggressive about investing in real estate, you can make much more money.
Real estate is the way that I primarily built financial freedom, so I encourage you to take a look at it.
I hope this post cleared up some things relating to good and bad debt. My book, Money Mastery, goes into this a lot more, you can pick up a copy here!