https://www.patreon.com/Jellyman_Investing
Is fire a good thing? It can devastate forests, destroy houses or it can cook food and provide heat. In short the answer is, depends who's controlling the fire.
Before I get on with this episode, a reminder that I have a Patreon page where you can read articles, download spreadsheets, get internet resources, watch tutorial videos and even chat with me. It's free to join so sign up today. The link is:
Patreon.com/Jellyman_Investing
Also, a disclaimer, that I am not a financial advisor, please consult with a professional before making any financial decisions. On with the episode.
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Many Real Estate 'gurus' on platforms like YouTube and TikTok praise the concept of 'good debt.' This is reminiscent of a World War II story where engineers wrongly focused on reinforcing parts of returning fighter planes instead of considering the ones that didn't return. This analogy is vital for understanding the risks of good debt in real estate investing.
Good debt involves borrowing money, usually for real estate, with the aim of wealth accumulation. It seems straightforward: take a loan, buy property, wait for equity growth, and profit. However, this simplistic view often leads to underestimating the risks.
Consider those who aggressively invest in property, like a woman I knew who used credit and loans to increase her home's value. This strategy worked until the 2008 financial crisis, which eroded much of her home's value. This illustrates that equity, though valuable on paper, isn't accessible wealth until the asset is sold. Many, planning to retire in their homes, will never realize this equity.
The term 'equity rich, cash poor' describes those with valuable assets but little liquid wealth. Real estate and leverage aren't inherently bad, akin to fire that can cook food or burn forests. However, debt increases risk. The more you borrow, the higher the interest and the greater the financial burden if things go awry.
The key to using leverage is caution. Avoid over-borrowing, start small, build a buffer, and don't hastily compare your progress to others. Opting for modest living with financial security is preferable to a lavish lifestyle with constant financial worries.
https://www.patreon.com/Jellyman_Investing
Is fire a good thing? It can devastate forests, destroy houses or it can cook food and provide heat. In short the answer is, depends who's controlling the fire.
Before I get on with this episode, a reminder that I have a Patreon page where you can read articles, download spreadsheets, get internet resources, watch tutorial videos and even chat with me. It's free to join so sign up today. The link is:
Patreon.com/Jellyman_Investing
Also, a disclaimer, that I am not a financial advisor, please consult with a professional before making any financial decisions. On with the episode.
---------------------------------
Many Real Estate 'gurus' on platforms like YouTube and TikTok praise the concept of 'good debt.' This is reminiscent of a World War II story where engineers wrongly focused on reinforcing parts of returning fighter planes instead of considering the ones that didn't return. This analogy is vital for understanding the risks of good debt in real estate investing.
Good debt involves borrowing money, usually for real estate, with the aim of wealth accumulation. It seems straightforward: take a loan, buy property, wait for equity growth, and profit. However, this simplistic view often leads to underestimating the risks.
Consider those who aggressively invest in property, like a woman I knew who used credit and loans to increase her home's value. This strategy worked until the 2008 financial crisis, which eroded much of her home's value. This illustrates that equity, though valuable on paper, isn't accessible wealth until the asset is sold. Many, planning to retire in their homes, will never realize this equity.
The term 'equity rich, cash poor' describes those with valuable assets but little liquid wealth. Real estate and leverage aren't inherently bad, akin to fire that can cook food or burn forests. However, debt increases risk. The more you borrow, the higher the interest and the greater the financial burden if things go awry.
The key to using leverage is caution. Avoid over-borrowing, start small, build a buffer, and don't hastily compare your progress to others. Opting for modest living with financial security is preferable to a lavish lifestyle with constant financial worries.