Somewhere along the line, you were probably taught that debt is a
But, I don’t agree with that.
Having debt is not a problem.
Not being able to repay our debt (or interest on your
debt) is the problem and that’s why it’s so important to understand the
difference between good and bad debt.
Having said that in today’s economic environment I believe good debt is
Now I know that may sound counterintuitive but let me explain…
In the old days, when you owned an investment property your mortgage repayments would have likely been more than the rental income you
received meaning most "investment grade” properties were negatively geared –
and this resulted in a cash flow shortfall.
The tenant would have contributed to some of your mortgages by paying
you rent, the taxman would have assisted with depreciation allowances andnegative gearing benefits, but each month you would have had to contribute to your
However, today, taking on good debt and borrowing at historically
low-interest rates and using leverage to grow your assets while at the same
time receiving rent that is likely to cover your interest payments is a sound
Your cheap debt is an asset because you are using it to create more
equity (as the value of your investment property improves) plus cash flow.
And you can accelerate this by using debt recycling.
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Tuesday, 16 March 2021