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The most successful real estate investors understand the difference between good debt and bad debt. Consumers are taught that all debt is bad. The ideal consumer goal is to be debt free. This is not the way that the most creative real estate investors think about debt. They regard debt as an investor's best friend. This type of good debt has its own name. It is called "OPM." When you take on good debt, you can use "other's people's money." Another word for good debt is "leverage." In physics, a lever is something that allows you to move something else. If you stick a rod under a rock, and then push down on the lever, you can move the rock. If you have to rely on your own strength, you are limited in what you can do. A lever allows you to move what you could not move without it. Leverage also works with borrowed money. When you use someone else's money to accomplish what you could not accomplish without it, debt becomes a lever. This leverage allows you to use somebody else's money for your own purposes. Say you are looking at an investment property. You'd like to buy it, but you don't have the money. But someone else has the money. So you borrow the money and buy the property. This is an example of good debt. You use borrowed money to create wealth. Debt is a tool you can use to buy what you could not buy with your own money. If the investment creates profit, you create profit from the leverage of good debt. This is not what happens when you take on consumer debt. If you buy an item, such as a plasma TV for $3000, you have taken on bad debt. The TV costs you money. It does not become a means to create profit. This is the difference between good debt and bad debt. In other words, consumer debt produces no leverage. It doesn't provide a tool to create wealth. It is bad debt. When you borrow the same $3000 to invest in property that leads to profit, debt is a tool to create wealth. This is the definition of good debt. Some of the biggest debtors on the planet are people like Donald Trump. Donald Trump owes fantastic amounts of money. He's in debt, but he leverages the debt to build his skyscrapers. If you want to create wealth, the fastest method is to use borrowed money to do it. You might prefer to talk about using leverage and OPM, but in reality, these are simply another way to refer to good debt.
Article Source: http://www.philvault.com
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