There are two sides to debt.
Bad debt is the most obvious and easy to accumulate. It’s tied up in your credit card, your car loan, and any other consumer debt you’ve taken on that will depreciate in value over time and do nothing to improve your financial standing.
Bad debt can be hard to shake, but it shouldn’t leave you sceptical of all debt moving forward.
Surprisingly there is such a thing as good debt – this is debt that actually helps you to purchase wealth-building assets. When it comes to property investment, good debt can be an absolute goldmine.
First and foremost, as a property investor, there are three things you want to happen to claim good debt:
You Want Your Property To Appreciate
This one is pretty straightforward.
Real estate is known to be a safe investment – it consistently increases in value over time and often outperforms other investment avenues.
Of course, this won’t be evident when you first buy the property and you shouldn’t expect to get back the money you invested straight away.
However, as you start paying off your debt regularly – not out of pocket but through rental income of your tenants and additional tax breaks – you’ll be widening the gap between your debt and the property value each time.
You Want It Provide A Tax Incentive Or Allow You To Claim Tax Deductions
Good debt should be tax deductible. In the case of property, the interest payments, maintenance costs and depreciation on the property may all be claimed as tax deductions.
This is because your debt was incurred to generate a taxable income in the future.
Depending on your circumstances, you may also be eligible for tax incentives/breaks to help pay for your investment property and actually provide extra cash flow on a regular basis.
You Want It To Create A Passive Income In The Future
The biggest benefit of good debt is that it’ll continue to put money in your pocket – not take it away.
With an investment property, you’ll be getting rental income each week. At the start you’ll likely be using this just to pay off the mortgage and interest.
However, as your debt reduces over time, more of that money will start to become positive cash flow and eventually all of that rent will become an additional source of income.
The longer you hold onto a property, the more you will gain from it. That’s why when we get asked how long should you have an investment property for, the answer is usually forever.
Start Getting All The Benefits Of Good Debt Now
Property is a fantastic way to get all the benefits of good debt without the stresses of bad debt.
This is the foundation of what our expert coaches teach during the Positive Real Estate Property Investment Nights.
If you’re interested in embracing the benefits of good debt, then we’d love you to come along to one of these free seminars.
Spaces fill up fast so to ensure you don’t miss out make sure to book now!
By Jason Whitton
Group CEO Positive Real Estate