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Bryce Holdaway Blog post by Bryce Holdaway

Ask Bryce – What do you think stops Australians from investing in property?

A:  Fear of debt!  I think most Australians’ are conditioned from previous generations that debt is a necessary evil, but it should be avoided as much as possible and reduced quickly when used… but investing in property means you are getting into more of it!!

With this in mind, I think it helps to know that there are three types of debt – horrible, tolerable and productive – and each one should be treated totally differently.  One you should totally avoid, another you should look to minimise and the final one should be actively embraced!

  • Horrible debt is consumer debt – credit cards, store cards and personal loans which are generally used for one thing: consumer items that go down in value!  This type of debt should be avoided at all costs or at the very least paid off promptly and as a priority since the interest rates attached to it are usually excessive.
  • Tolerable debt is the mortgage on the family home.  You’re the only one paying it off so it can be a burden at times but at least you’ve bought an asset that can increase in value and ideally increase your nest egg.
  • Productive debt is the stuff you should get as much of as you can as it’s the debt you use to buy income producing assets that will help you increase your wealth and provide for a better future.

Interestingly, the richest men and women in this country actively embrace debt as a “tool” rather than a “burden” but the majority of their debt, often measured in millions of dollars, is the “productive” kind and they are crystal clear on the differences between the three types.

I recall the parable of the two kids playing in the park and one said to the other that we are “so poor that our family owes the bank $10,000whereas the other kid responded with a smile sayingwe are so rich our family owes the bank $1,000,000!”.  This highlights the different mindsets around horrible debt vs. productive debt.

Once the fear of debt is overcome, embracing the use of debt as a “tool” rather than a “burden” is the next focus and finally “optimising” your use of debt through best practice debt structure will ensure a full paradigm transformation so you are ready to embrace property investing.  Optimal debt structure is what separates the novice investor from the successful one and is the difference between simply getting a loan for a property or building a successful multiple property portfolio.

If you want to discuss how you can embrace “Productive Debt” and ensure that your debt structure is optimised, why not have us do a FREE financial health check for you by clicking here.

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