Never Pay Off Debt

Never pay off debt. Yahoo let’s go spending forever! Not quite like that, I normally write about consumer debt and the need to pay it all off. It is true, if you have a mountain of credit card debt or payday loans, you need to pay that stuff off as quickly as possible. In this article I am going to write about debt that is for investments. You see your whole life cannot be about getting out of debt. It needs to be about getting into wealth.

If you are 40 years old you have seen some wild interest rates. In the last ten years they have been quite low and in the last few years really low, with a slight rise in the last year. For the sake of keeping this simple lets say interest rates are 5% for the moment. If you go to a bank and have the right paperwork you can get a wack of money for 5%.

What can you do with money that you have to pay 5% interest on, well depending on how much research you have done, lots and lots of things. From mild to wild and lets start with mild. Go buy a house and rent it out. The classic thing for a family trying to get some financial independence. You go buy a house in a nice family neighborhood, 4 bedrooms, 3.5 baths, two stories, fenced back yard and you rent it to a nice family. They pay you 1-1.5% of the selling price of the house in rent and all is good. In twelve years, if you do it right, the house is all paid for and you are earning money in two ways. One is the rent they pay and the other is the value of the house as it goes up.

A little bit wilder is; you search for a house, you know is under market value and buy it. In a couple of months you sell it again. Preferably you sell it the same day and actually never owned the house. Yes, it can be done. It is like someone paid you a finder’s fee and with none of your money down that is a nice return. This is my favorite thing to do.

Or a little wilder is; buy a house that someone rented to a nice family and the family turned out to be a little dysfunctional and destroyed it. I mean there are holes in the walls, stuff on the floor (bad stuff), every light is broken, the grass is dead, you get the idea. You rent a dumpster and rip out the carpet, fix the walls, fertilize the lawn and pick some nice paint. Then sell it and make another $55,000. The reno’s cost us $30k, interest $8K, our time $free, and we net a nice profit. This does require some basic skills and common sense.

Or a bit more wild is; we go and buy an empty lot and build a house. I did all of these and this one I lost my shirt. But a partner of mine has built over 100 houses from scratch and has made tens of millions. I mention this because some of us just have talents in one or two areas of investing and not any talent at all in other areas. Once you find your area DO NOT branch out. Just make your profit in what you are good at. You think that is too boring, hey use your extra money to go on an adventure holiday. Don’t mess with your money machines, once you find your golden goose, which lays you a golden egg. Don’t kill it!

Okay up the wild scale some more is all the stock trading stuff. From Warren Buffet’s buy and never sell, to RULE #1 buy and sell later, to buysellbuysellbuysell and do it faster. I know people that make money doing all of them.

The wild part is doing it with borrowed money because the price of failure is much higher. That is why you need to know what you are doing. Each of these examples will earn you more that the 5% interest charged by the lender. This means you are making money from nothing. You just added some of your time and knowledge but the start up capital was a gift for a low, low rental charge of 5%.

When you are using borrowed money, you need to have a plan, keep your emotions in check, maintain a cool head or things can go really bad. If you do this intelligently however they will go really great. Be careful and be wealthy.