Good debt and bad debt

One of my biggest pet peeves is someone who wants to live "debt free." It is a good goal to have, but is it a realistic one? I do not think so. No matter what you do or how you do it you will always be in debt to someone, whether it be your cable provider, your telephone service, electric company, water company, or taxes. All of those have one thing in common that you owe someone else money, and therefore you cannot live debt free. Unless you want to be a hermit, you will always owe someone money. Here we will cover the differences in debt and how you can use debt to your advantage and grow your Real Estate Empire. 

If you currently own a home you probably have a mortgage on it, and since it has a mortgage you are paying the mortgage every month, right (or at least I hope so)? So you should have some equity in your home, and you want to get into real estate, but don't know how. Well first refinance (refi) your home to get the equity out and have that money ready to invest into a property. When you got your new house you saw all of your dreams coming true! New house, new wife/husband, maybe new kid or dog, possible even a new job or a pay raise, everything was going great, but someone failed to mention to you that you have to upkeep a house, just like a car. Yes you do have to do that oil change in your car, just like you should hire someone to clean your HVAC system once a year. Now 10 years on you have come to the realization that your house is just a money pit. You keep throwing more money at the house, but it never seems to solve the problem. 

At this moment in time your house is BAD debt, because it is not making you money. Make your house GOOD debt by pulling all of the equity out and leveraging your house to buy another house. Your 2005 Prius is GOOD debt because it takes you back and forth to work everyday. That 2016 Corvette you just bought is BAD debt because it is not worth anything other than a toy, a boat is BAD debt, and an RV is BAD debt. If you have any of these toys I say sell them, and invest that money into real estate, you can always buy them later when you have more time for them, i.e. you aren't working anymore AKA retired. Your Credit Cards will always be BAD debt I say get rid of them now. Instead of worrying about whether you should pay off your car or pay down your house first, get rid of those plastic cards with their 18+% interest and instead use the money saved to pay down your house or pay off your car or put it into your real estate fund! We have all heard the saying "live within your means" most Americans do not live within there means, due to credit cards. So get rid of the toys, take the equity out of your house, and buy real estate, not dirt, not a condo, but a nice single story house with 3 bedrooms, 2 bathrooms, and a 2 car garage. 

A rental is not a money pit, a rental is never BAD debt, a rental will make you money, if it is not making you money, then you did something wrong or your rent is to low. Sure paying off that loan on your rental to increase cash flow sounds amazing right? Wrong! Why take money that you have that you can invest into another rental house and throw it away at a mortgage? Lets say you find that perfect property, its in an up and coming part of town it needs cosmetic work, no roof or foundation repairs, you can see the money pouring into your bank by the truck load. Then you realize you do not have enough cash reserves to buy that house now, so you have to mortgage one of your rentals, which takes time, maybe 3 days. Whoopies now that prefect place you had is taken by another investor and you are now without an extra house. 

Lets say you own a $100,000 house free and clear. You have the desire to buy more houses, but you really like owning your house free and clear. What do you do? Make an extra $400-500 a month by owning free and clear. Or do you leverage your $100,000 house to get $80,000 in your pocket which you then use to buy 4 or 5 more houses that each earn you $400-500 a month each. So we just took that $4,800 a year owning free and clear and turned into $24,000 to $30,000 a year in extra income! Which sounds better to you? Then you keep doing this by buying more properties and leveraging them to buy more properties. Soon you will have the real estate empire that you want and be able to retire from the cubical in a matter of years instead of at 65. There are only 2 kinds of debt, bad and good, which do you want?