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Debt can be used to generate wealth through property

Sunday, 15th Aug 2010
Categories: Finance, Newsletter

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For many people, the idea of generating wealth through property is appealing, but finance is a stumbling block that many people cannot get over. If conventional finance is an issue preventing you from building your property portfolio, then you need to understand there is a number of alternative property financing strategies available to you.

Most people are afraid of debt. That is because the average person only uses what we call horrible debt and tolerable debt. Horrible debt is borrowing to purchase items that depreciate in value. These are items such as cars, furniture, TV’s etc. Worse still, this type of debt is usually not tax deductible. Horrible debt should be avoided as much as possible.

Tolerable debt is borrowing for items that increase in value, but the debt is not tax deductible. This is usually a primary residence. While paying non-deductible interest is bad for your wealth creation strategy, at least the asset (if it’s well selected) may increase in value.

The trouble is that most people never move past horrible debt and tolerable debt. Successful investors tend to use productive debt. This is debt that is used to purchase appreciating assets and the debt on the payments is fully tax deductible. Once you understand how advanced property financing strategies can be used to explode your property wealth, your fear of debt will reduce significantly.

Most people think that the banks are the only source of property financing. The banks represent just one way you can get money to invest in property. There is a whole world of finance apart from the banks.

Most people also think that you need a significant amount of cash deposit (around 20% or more) in order to buy property. If you have a solid income and clean credit history, there are a number of ways you can buy property with a smaller deposit, although in recent times higher loan to value credit has been harder to obtain.