Should I Use Debt?

[Brady Mullen]

I love money. Not in the greedy way, although I do have ambitious financial goals. I'm talking about the science of money.

It's a great combination of psychology (individual and group) and mathematics. Two of my favorite topics.

Good read from the IMF about it here for junkies: https://www.imf.org/external/pubs/ft/fandd/2012/09/basics.ht...

Many people, until they take the time to consider it, think of money as mostly a mathematical thing.  But if it were just coldly about numbers, debt wouldn't be such a controversial topic.

In real estate, the terms "debt" and "leverage" are often used interchangeably. Yet, there are many who treat any kind of debt like the plague.

What are your feelings about it? What rules do you have about it? Are you someone who will avoid debt at all costs, buying a home only after you've saved enough to purchase it with cash? Or are you comfortable taking on debt for the right reasons?

Most people are comfortable with the idea of getting a mortgage for your primary residence, but what about for a rental property? A small business loan? School? Car?

What rules do you have about it? I'd love to read people's thoughts on this.

[Evan Polaski]

@Brady Mullen, as you allude to and Bjorn hits on.  Debt is just another tool, but a power tool.  It makes things easier, if it is going well, but also more likely to cut your finger off (using table saw versus hand saw analogy here) if you are not careful.

If it is purely used to consume more, then it is bad.  If it is applied appropriately, it still carries risks, but can supercharge your ability hit broader financial goals. My wife and I bounce back and forth on debt is fine and debt should be minimized.  That being said, we are still in growth mode in our lives.  So we have a mortgage on our primary and our one remaining rental.  We have car loans, not because we couldn't afford to pay cash when we bought them, or pay them off now, but because we are borrow at under 2% and under 4% on each car.  

School loans, both my wife and I had, but worked very very hard to pay those off early in our careers.  They were cheap debt, but at the same point, not having debt gives your freedom.  We were not traveling while my friends were.  We did not buy new cars with our first paychecks that my friends did.  

Overall, you are on a real estate forum.  And one that most people here are still looking to grow their portfolios.  Debt is a great tool for that. Clearly, most users of these forums are looking for personal financial freedom, not to build a major company.  But like Finance 201 in college taught and like most companies, public or private, growth requires capital.  Debt, mortgages or corporate bonds tend to be the lowest cost of capital available.