Over the past two weeks of this series, I have focused on offering a fuller understanding of a very misunderstood four-letter word. This four-letter word… DEBT, can engender quite negative emotions in us all.
‘English is a crazy language’… say many with a native language other than English. Let’s look at another four-letter English word… LOVE. In English we have just the one word, love, but the Greek language, which has had a huge influence on English has four words… all translated love!
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Agape: dutiful and selfless love… the God-kind of love
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Phileo: brotherly love… the type shared with family and friends. It refers to friendship or affection
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Eros: selfish love… e.g. conditional, controlling love and lust
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Storge: Tender, loving affection and nurture. Familial (or family) love… so much more than just the words, ‘I love you!’
Instinctively, we know that when one person says ‘I love my wife’ and another says ‘I love pizza’… that they are each referring to different types of love! Well debt is much the same.
What is your natural response to the suggestion that ‘you should have your borrowing capacity assessed to see how much a bank may loan you towards an investment property purchase?’
MANY WOULD ANSWER: ‘No way, we have enough debt and don’t want any more!’
More what? We definitely don’t want more Horrible Debt; and we already have sufficient Tolerable Debt… So what is this referring to?
It refers to PRODUCTIVE DEBT… the type of debt that Katrina & I personally want more of… in fact, as much as we can convince the banks to loan us!
Productive Debt works for us! It enables us to harness the power of leverage… and utilise the untapped wealth in our homes.
Two weeks ago we looked at HORRIBLE DEBT… consumer or credit card type debt. Horrible debt offers no tax relief and is used to finance things that go down in value.
Last week we focused on TOLERABLE DEBT. This is typically the type of debt we use to finance our family home. We receive no tax relief for these borrowings… but at least we have taken out the loan to fund something that appreciates (goes up in value).
Let’s try and avoid Horrible Debt wherever possible; Moderate Tolerable Debt (with the view of clearing it sooner rather than later)… and just as importantly, let’s Change Our Attitude Towards Productive Debt. Rather than seeing it as something negative, to be feared… start to see it as a tool that we can use to build our wealth.
We would find it near impossible to paint a room without a brush or roller. There would really be no point attempting to change a punctured tyre without a jack and a wheel brace! In exactly the same way… there is no way I could have created the wealth I have from property… unless PRODUCTIVE DEBT was first embraced as my ‘tool of trade’. So PRODUCTIVE DEBT is our key to unlocking wealth from property investment….it’s the kind of debt that helps you sleep at night!
Happy Investing,
Nick Lockhart
NB: As always, I must reiterate that my comments about productive debt are general in nature. Responsibility & care must be applied to any type of borrowings – one size does not fit all and before anybody takes on new commitments they need to be sure they do so with full understanding of the implications of doing so. To this end at mrd we will always work with a prospective client to disclose the necessary facts and ensure the information to make a fully informed decision is carefully explained.
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