To leverage or not to leverage? That is the million dollar question!
Depending on which guru you listen to, will depend on the answer you get. I used to believe debt free was the only right path. Since getting into real estate investing, I have opened my eyes to a lot of different paths. I dont think there is a right path anymore, I think there are many right paths, and you get to decide what you believe, is the right path for yourself.
With that being said, money is not simply just math, money is also emotions. Some people can handle the emotions of risks better than others. Some people want money to buy lavish things to feel good about themselves(emotions). Others like to save money so they can feel safe(emotions). The question you need to ask yourself is, who are you and how do you view money?
As I chat about in our podcast, episode 480, which is coming out Friday. I have moved my thoughts. If we were on the gold standard and we did not have taxes, I would be all for paying off debt and not leveraging. Reason being, what you own, is actually yours. It would be a good place to put your money and there would not be devaluation of the dollar. Since 1971 when the dollar was removed from the gold standard, the dollar has lost 95% of its purchasing power. $1 in 1971 is equivalent to $8 today. We also get taxed roughly 50% all in from our income. So, owning real estate with a loan, brings you appreciation, which helps hedge against inflation of the dollar. The depreciation of the property, helping you save money on taxes. Interest payment write offs, and debt payments by your tenants, which pays your mortgage down.
This is the route I am taking. If the government will not allow us to be free. Then we never truly own our real estate, so why not have a loan on it? It can be taken if we dont pay the taxes, even if the property is paid off. So, misel have a loan on it. I also have heard a lot of people talk about individuals who have a lot of equity in properties are big targets for attorneys looking to file lawsuits on behalf of their clients(your tenants) to try and get some of that equity.
In a perfect world, we would not have taxes (if we had to, make it sales tax), the dollar would be backed by gold, and I would pay off debt and utilize leverage a lot less. Sadly, we do not live in a perfect world. So…. you will find me utilizing debt.
Your Life Tutor
-Shaun Tutor
Tutors of Life 