One of the best-known commentaries on debt is contained in Rich Dad Poor Dad , published in 1997 by Robert Kiyosaki, an American investor and entrepreneur. Kiyosaki famously distinguished between “good debt” and “bad debt,” writing: “The rich use debt to get richer. The poor and middle-class use debt to get poorer.”
In Australia there are significant advantages of using “good debt” to invest in property taking advantage of #negativegearing and #capitalgrowth.
Many people are against borrowing money, whereas the rich understand using leverage or “opm” other people money.
Let’s take an example of someone who has $1m to invest.
No #Leverage
buy a $1m with a return of 5pc net and capital growth of 5pc per year after expenses and After CGT)
You will pay tax on $50k per annum say at 30pc betting $35k per annum
In 10 years you will have made $350k in net income and $500k in capital appreciation
Total $850k in 10 years .
With #Leverage
But 5 properties of $1m with a deposit of 200k eqch 80pc gearing.
Buy $5m worth of property with a return of 0pc net and capital growth of 5pc per year After CGT)
You will pay tax on $0k per annum.
In 10 years you will have made $250k in capital appreciation per annum
Total $2.5m in 10 years .
It really comes back to having a steady income flow so that
1. you have the option to jump on an opportunity when it presents itself.”
2. You have the ability to find any potential shortfalls
Inspired by an afr article by Jessica Penny showing how Sandilands has built his wealth with 4 mortgages!
