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Debt Can Be A Real Estate Investor's Best Friend

The most successful real estate investors understand the difference between good debt and bad debt.

Most advice to consumers agrees that the ideal situation is to be debt free. Most consumer education treats all debt as bad.

This is not the way that the most creative real estate investors think about debt. They regard debt as an investor's best friend.

This type of good debt has its own name. It is called "OPM." When you take on good debt, you can use "other's people's money."

Physics describes the concentration of power of a lever. Think about moving a rock by putting a crowbar under the rock and pushing down on it. The lever allows you to move the rock. Good debt, in the form of OPM, is a type of leverage.

If you have to rely on your own strength, you are limited in what you can do. A lever allows you to move what you could not move without it.

When you borrow money, you create a type of leverage. You can use someone else's money as a lever to accomplish what you could not do with your own money. This type of debt is a powerful tool. You are using someone else's money for your own purposes.

Say you are looking at an investment property. You'd like to buy it, but you don't have the money. But someone else has the money. So you borrow the money and buy the property.

This is an example of good debt. You use borrowed money to create wealth. Debt is a tool you can use to buy what you could not buy with your own money. If the investment creates profit, you create profit from the leverage of good debt.

Compare good debt with bad debt. Consumer debt means going into debt for something that won't bring you profit. If you charge $3000 for a plasma TV, you have created bad debt. The TV is not going to bring you profit. It is going to cost you money.

Consumer debt does not give you leverage. It is not a tool you can use to create wealth. This is why consumer debt is bad debt.

When you borrow the same $3000 to invest in property that leads to profit, debt is a tool to create wealth. This is the definition of good debt.

Some of the biggest debtors on the planet are people like Donald Trump. Donald Trump owes fantastic amounts of money. He's in debt, but he leverages the debt to build his skyscrapers.

This means that good debt is one of the fastest routes to creating wealth. You can call it leverage or OPM if you want, but these terms mean the same thing. You are using borrowed money to make money.

Article Source: Free Content Articles Directory

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