But the sophisticated investor looks at cash flow and the impact on net worth. The misinformed investor looks only at debt amount and interest rate. There is a large misconception out there that all debt is bad and there is no difference between good debt and bad debt. As a bonus, when the funds required for the interest payments plus principal payments come from the investment itself (i.e., the tenant pays the mortgage for you) the loan is essentially free and creates cash flow. In contrast, good debt could be a 12% interest rate on a bridge loan to acquire an apartment building that produces 15-25% a year profit. Although most consumer debt (credit cards, personal loans, etc.) falls into the latter category, it’s not particularly because they generally come with interest rates over 20% - but because they create little to no income.įor example, a 4% student loan that allows Junior to get a college degree that doesn’t help advance his career would be one instance of bad debt. There is no rule that a certain interest rate is the split between good debt or bad debt. I have been asked a lot about whether certain assets or liabilities are good debt or bad debt. “Good” debt makes money by being invested in assets that produce income and capital gains. “Bad” debt is used to purchase things that do not produce more money. There is a difference between “good” debt and “bad” debt. That’s why you’ll observe smart real estate investors, those people growing legacy wealth, excited about accumulating more debt to acquire properties. A hammer can do a lot of damage, especially if you hit yourself over the head with one. They offer advice like freezing your credit cards in a block of ice, paying down your mortgage as quickly as possible and never splurging on a $5 latte as ways to avoid or eliminate debt.īut debt is a tool, just like a hammer is a tool. Personal finance teachers are very against debt. Working as a high-paid professional in corporate America and frustrated by the traditional wealth-building dogma, Lane was compelled to inspire and mentor other working professionals via his Top-50 Investing podcast at – Is All Debt Bad Debt? – By Lane Kawaoka – 19.03.29ĭebt is something that is generally regarded as a bad thing. On the surface, it makes sense. In addition to an analytical engineering background, Lane has real-world experience working as a project manager for over $250 million of capital construction projects in both the public and private sectors. Lane obtained a BS in Industrial Engineering and an MS in Civil Engineering and Construction Management from the University of Washington. As the owner of, , and, Lane is responsible for finding investment opportunities, analysis, and marketing. Lane Kawaoka has been investing for over a decade and now controls 4,800+ units. How to know who to trust when investing your hard earned cash.How to turn your emergency fund into an opportunity fund.Indicators that you must watch out for when deciding whether or not to invest.Criteria you should consider with regards to the market and the type of asset.
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