How Real Estate Investors Rely On “Good Debt”

Access to credit, whether through personal accounts or through corporate accounts, is very important to real estate investors.

Sure, it would nice to have cash sitting in our accounts to use for down payments and renovations, but most of us are not in that position. Therefore, many investors use debt (unsecured lines of credit, home equity lines of credit, private loans, credit cards, etc.) strategically to grow their portfolio.

This does not mean that you buy a property, rack up a large debt bill, and then get stuck paying interest on that debt for the foreseeable future. 

What it means, is that we temporarily leverage the credit that we have access to in order to buy a rental property either at under market value, or one that we can add a lot of value to (or BOTH). We then access the “good debt” while renovating and bringing that property to its highest and best use, and then go back to the bank and refinance that property. 

If done correctly, the refinance provides us money to pay back the majority (if not all) of the debt balances that we have as a result of the purchase and renovation of that property. The interest on the debt is also a tax-deductible expense.

Again, if executed correctly, after the refinance, the monthly income is higher than the new higher monthly mortgage on the property.

That is how real estate investors use debt.

Having access to debt (i.e. line of credits, HELOCs, credit cards), costs nothing until you start using it. There is definitely strategy involved in setting up and gaining access to various accounts at multiple lenders so that you can maximize the amount of debt products you can qualify for.

Leverage is Power – Robert Kiyosaki