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Does such a thing as \u201cgood debt\u201d truly exist?<\/p>\n
Graham Stephan confronted Dave Ramsey about his views on debt on an episode of \u201cThe Iced Coffee Hour,\u201d a podcast Stephan co-hosts with Jack Selby. Stephan, a real estate agent and investor, was puzzled by Ramsey\u2019s insistence on avoiding debt even though it\u2019s an integral part of the property market.<\/p>\n
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Ramsey\u2019s response highlighted the hidden downsides of debt that even professional investors may overlook.<\/p>\n
Ramsey and Stephan have similar views on what they consider to be bad debt, i.e., debt used for consumption.<\/p>\n
On \u201cThe Ramsey Show,\u201d Ramsey himself once said, \u201cPeople get credit cards for mainly one reason: so they can buy crap they don\u2019t have money to buy.\u201d Similarly, Stephan wrote in a Substack article, \u201cIf holding onto debt does not make you more money, then avoid it.\u201d<\/p>\n
However, the two finance experts disagree on good debt. Stephan believes money borrowed to invest in appreciating assets could be justified under some circumstances.<\/p>\n
\u201cIf buying something does not make you more money, buy it outright. But if it does make you money, then finance it sometimes,\u201d he wrote.<\/p>\n
In 2022, Stephan claimed to have $4 million in debt, much of which was in the form of mortgages on his rental properties or his personal residence. Mortgages are considered good debt because, not only does a home provide shelter, but also its value tends to appreciate over time. The same applies to student loan debt, as it can be considered an investment in one\u2019s future income prospects.<\/p>\n
Ramsey, however, tries to avoid debt altogether. On \u201cThe Iced Coffee Hour,\u201d he said using good debt is \u201ca more effective way to grow fast if that\u2019s your goal, but what people leave out of the discussion is that you\u2019ve increased your risk exponentially. More debt is more risk, period.\u201d<\/p>\n
You can invest in real estate without taking on debt thanks to crowdfunding platforms like First National Realty Partners<\/a> (FNRP), which let you pool your money with other investors and reap the rewards together.<\/p>\n Story continues <\/p>\n FNRP allows accredited investors to access the commercial real estate sector with exclusive, professionally-vetted deals.<\/p>\n The properties in FNRP\u2019s nation-spanning portfolio are necessity-based real estate \u2014 such as grocery stores or healthcare facilities<\/a>. That means the properties are essential to the local community, often leased by national brands, and likely to remain desirable.<\/p>\n Once a deal is closed, FNRP\u2019s team of experts manages the property so you can focus on finding more deals you love.<\/p>\n Read more: Rich, young Americans are ditching stocks \u2014 here are the alternative assets they’re banking on instead<\/a><\/p>\n \u201cI had never lost money on a flip,\u201d Ramsey told Stephan. \u201cI was not behind on the loans, they just called them. They had the ability to do that because it was commercial paper, it wasn\u2019t traditional mortgages.\u201d<\/p>\n Commercial property loans often have loan-to-value requirements, credit requirements and terms that are less favorable than traditional residential mortgages. Sometimes, these lending arrangements can have call options that allow the lender to revoke the mortgage.<\/p>\n To avoid complications when investing in real estate, consider platforms like Arrived. Their service allows you to invest in shares of rental homes and vacation rentals<\/a> without taking on the responsibilities of property management or homeownership.<\/p>\n With Arrived, you can browse a curated selection of homes, each vetted for their appreciation and income potential. Once you find a property you like, you can choose the number of shares you want to buy and start investing in real estate with just $100<\/a>.<\/p>\n Since recovering from the bankruptcy, Ramsey has continued to invest in real estate. However, he has said multiple times on his show he now buys property outright, and encourages listeners to do the same to avoid debt if they\u2019re able.<\/p>\n But he also understands that many don\u2019t have that much cash on hand, and when it comes to his famed \u201cbaby steps\u201d to help get rid of debt and build wealth, paying off mortgage debt is left until the end.<\/p>\n Although borrowing money isn\u2019t Ramsey\u2019s style, he agrees that leverage could be a powerful tool for someone with the right risk appetite.<\/p>\n \u201cI\u2019ve got a degree in finance,\u201d Ramsey said. \u201cI know how to run an Internal Rate of Return (IRR) [calculation] and I know what the IRR looks like with debt and without debt. It\u2019s not nearly as good unless you\u2019re leveraged.\u201d<\/p>\n You can become a confident investor without a degree in finance when you speak to an expert advisor through Advisor.com<\/a>.<\/p>\n This online platform connects you with vetted financial advisors best suited to help you develop a plan for your new wealth.<\/p>\n Just answer a few quick questions about yourself and your finances and the platform will match you with an experienced financial professional. You can view their profile, read past client reviews, and schedule an initial consultation for free<\/a> with no obligation to hire.<\/p>\n