• LIM Mod

    Do you think it’s evil? Amazing? Somewhere in between?


    for me, I feel like the cash on cash return proves that debt can be a powerful tool, but just like a table saw, it can help you build a house, or it can cut your arm off!


    so for me, I view debt as powerful but dangerous.

  • Mod

    As a large-scale concept, debt has become a monster. It's difficult to live a "normal" life without any debt, and I think that's a major problem. For my personal finances, debt is my archenemy. In business, it gets a little more complicated. I think you're right Jaren, it's powerful but dangerous. The problem is too many people start utilizing debt (by choice or by necessity) before they prove that they understand how to manage it, and it quickly gets out of control. Obviously the US has a debt problem at pretty much every level of society. Being in debt almost isn't a choice for most people. It's just a part of how the world works now, and to me that's quite sad. Currently I am Dave Ramsey-like in my aversion to it, but if I can gain enough discipline and if the numbers seem right, it could be a powerful tool.

  • LIM

    I'm mostly opposed to personal/consumer debt when it doesn't pay for itself. However, if the debt is used to buy a cash flowing asset that CAN pay for itself, then it can be a pretty smart way to leverage your money.

    Like Daniel Crawford said, though, that's where it gets a little complicated.

    Sure, most people who understand math would agree that a net positive investment is a good thing, even when it involves debt - but nothing is certain in life. People can miscalculate their projections, people can use the wrong assumptions, the economy can change, supply and demand can change, tenants and contracts can and do flake out, etc.

    Just because you've got a spreadsheet showing you a positive cash flow number doesn't mean it's going to happen... and if you've taken on a bunch of debt with the assumption that it's going to work out, you'd better hope and pray that you're right.


  • Here is my motto:

    Proverbs 22:7 (NIV), “The rich rule over the poor, and the borrower is slave to the lender.

    So, I grew up in a midwestern farm family that basically taught me it was evil. In my personal life, I have been debt free from all consumer debts for years.  I do use credit cards, but pay them off monthly.  In my business I also completely avoided debt for years which made me grow very slowly.  I do understand the power of leverage however, and bought a rental house with a mortgage last year (it still cash flows positively and I make more than the monthly payment).

    I also opened a credit line against a property I owned outright (so it is debt against my own money technically).  I am using the credit line to buy another rental I close on this week, which I will remodel, rent and then get a mortgage on.  I am also going to use the credit line possibly for acquiring a land deal or two.  I am super conservative, because I have two houses for sale which I would probably use the funds from to pay off anything I bought with the credit line in a few months anyway.

    But for me it was important to push out of my comfort zone...

    I know the leveraged idea sounds great but I have seen firsthand the effects of it going south on people that were over leveraged without enough cash reserves.  I do think it is prudent to have the access to credit and be able to use wisely in the right markets though.

    So at this point I will probably say my house business is 15% leveraged, and my land business is currently not at all.  That could all change though.

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