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Debt as a Tool

Megan Martin


One of the biggest objections we hear when it comes to investing in real estate is a simple yet scary word: Debt. We get it. It is scary. Especially when we live in a time where debt is a little four letter word we don’t want to associate ourselves with. But we’ve got a different perspective on debt. One that says debt as a tool is not just okay, but can lead to long term wealth.

Have you ever thought about investing in real estate? The idea of sitting on your yacht and collecting rent checks every month sounds nice, right?

But have you ever put together a plan for what it would actually look like to make it happen?

If you’re like me, the only option to get started is to take out a loan. It’s probably stressful enough making your current house payment. Do you really want to take on another mortgage and all the headaches of maintaining a second house, and dealing with tenants? It adds up to overwhelm, a dream delayed, and why most people will never get past that fantasy yacht stage.

When we got married, my first job was at a mortgage company that specialized in loans for high net worth clients. You’d immediately recognize some of their celebrity names. A majority of the time we weren’t even dealing with the clients directly, but the people that they paid (quite well) to take care of their finances.

The point is, these people had plenty of cash; they didn’t need a loan. So why were they hassling with getting a mortgage?

Being in debt is not just good, it can be amazing!!!

What do you think? Does that sound a little “off” to you? I would have agreed with you 10 years ago.

A badge of honor or something to hold you back?

Growing up, being frugal was like a badge of honor in our house. We had a long-standing joke about our vacations and how small of a hotel room we could fit our whole group in to save money. I get the stigma around being in debt.

Most people are taught that being debt free is the ultimate goal. The thinking is that once you’re debt free, you can stop paying your lenders, and start paying yourself (and finally build wealth).

It’s SUCH an easy trap to fall prey to because it all seems logical.

I’ll give you my real life example:

The last loan I refinanced had a loan amount of $275,723. Over 30 years I’m going to pay them $475,769. That’s over $200k more!! It would be easy to think, “Oh my gosh, why am I paying that huge amount to the bank!?! I need to reallocate my resources, devote a significant amount of time and energy into becoming debt free, and save hundreds of thousands of dollars!”

Honestly, it can even make you feel guilty like you’re being a bad steward of your money. Of course, you can’t get ahead if you’re paying almost double the price! Right?

You’re focusing on the wrong side of the equation.

The problem is, that’s focused on the wrong side of the equation. You should be focused on what those expenses are providing to you – the opportunity to vastly expand your capacity for income and wealth.

I can tell you this confidently because we lived the scarcity model using Dave Ramsey’s envelope system, where he advocates that you “Live like no one else now, so later you can live like no one else.”

Taking a page from Biblical theology, it felt a lot more like the Law (condemnation), than the gospel (the good news). We were focused on scarcity, which is not a fun way to live.

There was a constant battle to minimize our expenses, so splurges had a way of making us feel guilty (or resentment if it was our spouse’s splurge) because it wasn’t in the plan.

How debt as a tool has led to our financial freedom.

Conversely, we’ve never felt more financially free than when we signed the contract for our fifth home and went over $1 Million dollars in debt! Something I would have thought was crazy when we started our journey.

I know it’s not easy to just get over the idea that with debt you’re a “slave to the lender” when that’s been drilled into your head. I think about it like this:

Our mortgage lenders are business partners. Up front, we sign a contract with very clear expectations, and the business looks like this: They put up almost all of the money; usually 95% on our deals. We have 100% control and ownership of the business. We pay them back (plus interest) over the next 30 years, from the cash flow.

Talk about a good partner!

At the end of 30 years, they walk away with whatever they made charging you interest, but you get to keep ownership & operation of the business, and all the cash flow is now going to you!

To be fair, you are required to pay them back whether your business makes money or not. So your job is to make sure the business makes enough money. So let’s talk about why you should start a real estate business.

Real Estate is a Business: The Ultimate Subscription Model.

If you could start a business doing anything at all, what would you want to do? Obviously, you’ve got to produce something people are willing to pay you for, otherwise, you won’t have a business for long.

Most successful businesses you hear about are started by people “scratching their own itch”, or doing what interests them. If you have a particular skill (or passion) you might already have an idea.

Unfortunately, I’m just too boring a person to have a good business idea. But this line of thinking got me to ask myself, “How could I scratch my own ‘itch’?” Or what do I already spend my time and money on?

I went through our budget, and housing is easily the biggest item month in and month out. Not only that, but it’s always been the first bill to get paid because we need a place to live.

So when you think about real estate as a business, it’s the ultimate subscription model.

It’s a high dollar transaction, so you don’t need thousands of houses to bring in substantial revenue. There are lots of business partners (aka mortgage lenders) that will loan you most of the money to get started, and there’s continuous demand. It’s the first bill people pay every single month.

Would you rather spend your time building a business where you have to convince people why they need your product or service? Or build a business that everyone on this planet is going to need for the rest of their lives?

Using debt as a tool to get starting in real estate investing.

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