Most of us were raised with the idea that debt is bad. Debt drags you down. Rich people are never in debt.
While that may have been true for our great grandparents, it’s no longer the case. Debt is one of the keys that can unlock future wealth as a property investor. The more good debt you have, the more income you can create.
But, before you go out and put yourself $1 million in the hole, let’s talk about the right kinds of debt. The debt that’s going to lead to success, not ruin. This is called…
With real estate you can use your assets to create wealth. In simple terms, you can pull money out of one property in order to buy another. Equally borrowing money from a bank or other financial lender and using that cash to buy a property that is going to give you an income and increase in value over time, is a smart way to use debt to create wealth.
With record-low interest rates up for grabs, now is a great time to borrow money. Cash is cheap, which means borrowing and investing is more accessible to more people. The opportunity to create wealth as investors is in great shape.
But, even with low interest-rates, the banks aren’t just throwing cash around and there are steps you need to take to ensure you can borrow at your maximum amount and then leverage that cash to start building a portfolio.
STEP 1: CLEAN UP YOUR FINANCES
For at least three months before you want to borrow money that you can then use as a deposit, get your finances in shape. That means:
- getting rid of direct debits i.e. any ongoing drain on your finances and;
- cutting out any unnecessary spending
Your ability to borrow, and how much, will depend on how clean your accounts and budget look. Come up with a strategy to reduce your outgoings and get your accounts looking healthy.
STEP 2: THINK ABOUT HOW TO LEVERAGE YOUR LOAN
The point of borrowing for property investment is not about reducing your loan amount as quickly as possible. Let go of the idea that your debt is hurting you, when it’s actually your best friend.
Consider this. You have $100,000. Do you spend it all on one deposit, or take that cash and split it into two deposit amounts, and buy two properties? Can you leverage your debt to work harder for you and start to create cash flow faster?
If you can divide your deposit into smaller amounts and purchase more properties, your debt will start to create cash flow that much quicker.
STEP 3: GET THE RIGHT LOAN – AND DO YOUR NUMBERS
The difference between an interest-only loan and a principal interest loan is important when we’re trying to make debt work for us, not against us.
The key here is to read the terms, especially when it comes to interest-only loans. While they can be the smartest way to leverage your deposit to it’s maximum, you need to be aware of how your finances will need to adjust when the fixed term comes to an end.
Part of making debt your friend, not your enemy, is by respecting it and getting to grips with the terms and conditions attached. A smart property investor knows the cost of their interest and how that might affect their debt moving forward. In short – read the small print and pay attention. It’ll pay off.
By now you’re probably aware that good debt can serve as a faithful friend on your journey to create real and lasting wealth.
The real key though, is ensuring you’re maximising your debt potential with a strong property investment plan that will set you up for long term financial success. To do this there are a lot of moving parts which is why we’re currently running a free property investment seminar.
Sign up to this extremely valuable event and learn the most crucial elements you need to be across to make sure your debt is working for you not against you.
This is a great opportunity to be equipped with the tools, resources and support to thrive, and not fall behind on your path to financial freedom – whatever that may look like for you.
Limited spaces are available. Book here now.