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Odd that you would say that. I seem to recall some of your posts touting the benefits of owning apartments with no money down. Can you elaborate more on the differences between that debt and your statements here? I'm not being condescending, but am truly curious about how you differentiate between the two.
Seriously Snake -- try this for a year -- live in surplus. It is a very pleasant and peaceful place to be. Then come back and tell me of the wisdom of debt (shortage and lack) for running a life, a business, an economy or a country.
The only folks debt really serves are the debt merchants.
Don't kid yourself, Phil. I fully grasp the benefits and risks of debt. I also enjoy living with a comfortable "surplus" each and every day of the year. Just because I know how to utilize debt to my advantage doesn't mean that I am living beyond my means. It just means that I know how to get ahead in life.
Your view doesn't make sense at all. If there were no "good debt" then the economy would come to a standstill (no need making wise cracks about temporary economic hardships here). There is most certainly good debt, and people are making fortunes knowing how to utilize it.
And losing fortunes from thinking that they know how to utilize it.
edit: D'oh, Humanoid already said that. (shakes tiny little fist at Humanoid)
Odd that you would say that. I seem to recall some of your posts touting the benefits of owning apartments with no money down. Can you elaborate more on the differences between that debt and your statements here? I'm not being condescending, but am truly curious about how you differentiate between the two.
No sweat.
Overall all debt is 'bad'.
Debt makes you into a slave.
However among debts, I see some debts as being much worse than others. Though they are all 'bad', and debt should only be entered into with consideration and wisdom.
IMHO, interest bearing debt to acquire property that loses worth, is stupid.
IMHO, interest bearing debt that you must pay the interest on from your hard earned wages, is likewise stupid.
None of my money goes into paying interest for debts.
My wages, my business income [and pension now] are not spent on interest.
I do hold properties that do have interest bearing debt; however those properties generate their own income, which covers that debt, with a profit. The interest is paid from other folk's sweat-wages.
Should those debts be called in, or foreclosed on, I will not lose my home.
However among debts, I see some debts as being much worse than others. Though they are all 'bad', and debt should only be entered into with consideration and wisdom.
IMHO, interest bearing debt to acquire property that loses worth, is stupid.
IMHO, interest bearing debt that you must pay the interest on from your hard earned wages, is likewise stupid.
None of my money goes into paying interest for debts.
My wages, my business income [and pension now] are not spent on interest.
I do hold properties that do have interest bearing debt; however those properties generate their own income, which covers that debt, with a profit. The interest is paid from other folk's sweat-wages.
Should those debts be called in, or foreclosed on, I will not lose my home.
What your saying about your apartment units is pretty much what I said for businesses and for education/skills attainment. If the amount you draw in covers the interest and more on the debt, than the debt is a good debt because it draws you more income than you could of done without it.
If you didn't have that debt... how long would it have taken you to save up and purchase those apartment units in full? Furthermore, what would be the opportunity costs if you waited X years to save up? Would those units still be there?
Pretty simple. Debt/leverage allows you to do more than you could of done on your own. If used properly, you wouldn't be the one paying the interest anyways (ie, rental cash flows greater than outflows, skills that gives you a higher income that covers the debt payments and more, etc.).
Philip T,
Ideally everybody would want to live in "surplus". Companies would love to be in "surplus", it gives them more flexibility. But, surpluses don't come from nowhere. It either had to grow over time (savings/reserve funds), or inherited (spoils). The ultimate goal of good debt is to grow towards a greater surplus than savings alone. Although, it is taking on more risk so that the person/company can get to the point of surplus faster.
Businesses don't take on debt to be in debt forever. They take on debt so that they can eventually get to a point of higher surplus. Likewise for individuals who invest in skills/education.
What your saying about your apartment units is pretty much what I said for businesses and for education/skills attainment. If the amount you draw in covers the interest and more on the debt, than the debt is a good debt because it draws you more income than you could of done without it.
If you didn't have that debt... how long would it have taken you to save up and purchase those apartment units in full? Furthermore, what would be the opportunity costs if you waited X years to save up? Would those units still be there?
Pretty simple. Debt/leverage allows you to do more than you could of done on your own. If used properly, you wouldn't be the one paying the interest anyways (ie, rental cash flows greater than outflows, skills that gives you a higher income that covers the debt payments and more, etc.).
I agree.
"less then the worst debt': To buy a dump truck [on a note] which then allows you to rent it to another fellow who is going to use it for a landscape business. He is going to work with it and earn his living from that dump truck. To you, it brings in cash to cover it's debt with a bit on the side for maintenance, and you get the depreciation write-off.
"how long would it have taken you to save up and purchase those apartment units in full?"
LOL
When I bought my first Apartment building, I was a college student. I was paying for college using my GI bill. I was working on campus as a tutor 20hr/wk for minimum wage. I was supporting a wife and a child.
In no manner could I have paid for a home without debt.
My 'best' option was to buy income property and to live in one unit.
Which began our basic pattern.
Quote:
... Businesses don't take on debt to be in debt forever. They take on debt so that they can eventually get to a point of higher surplus. Likewise for individuals who invest in skills/education.
-chuck22b
We do pay down our debts [the outstanding notes on income properties]. However we get equity loans to keep a mortgage note on each property, so that they still have a net loss once depreciation is included.
Otherwise we would have to begin paying income taxes.
I view paying income taxes as a far greater 'bad', than having debt.
When I bought my first Apartment building, I was a college student. I was paying for college using my GI bill. I was working on campus as a tutor 20hr/wk for minimum wage. I was supporting a wife and a child.
In no manner could I have paid for a home without debt.
My 'best' option was to buy income property and to live in one unit.
Which began our basic pattern.
So there you go ... if debt wasn't available... forest beekeeper wouldn't have been as financially sound and successful as he is today. So, IMO, forest beekeeper used good debt.
Otherwise, only the rich would own, be able to rent out units, or own capital/investments. Taking on debt allows most people to do something they wouldn't have been able to do without debt.
Quote:
We do pay down our debts [the outstanding notes on income properties]. However we get equity loans to keep a mortgage note on each property, so that they still have a net loss once depreciation is included.
Otherwise we would have to begin paying income taxes.
I view paying income taxes as a far greater 'bad', than having debt.
Ah, interesting... there's your tax loophole :P... so, that's another way of using "good" debt. To reduce your tax burden.
What your saying about your apartment units is pretty much what I said for businesses and for education/skills attainment...
Great post, Chuck! I couldn't agree more.
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... if debt wasn't available... forest beekeeper wouldn't have been as financially sound and successful as he is today. So, IMO, forest beekeeper used good debt.
