Quote:
Originally Posted by ILG
It is debatable whether owning your own home is good debt or not. It is controversial.
An example of good debt is if you have a rental property. Good debt is not bad if you lose your job because you have income from the property. You have say, $100,000 in debt on a rental but maybe $150.00 a month in cash flow (above your payment, taxes and insurance etc.) It is not necessarily good to pay this off verses saving the income to make another down payment on another rental property because you would have more debt but more cash flow. If you use the money to pay off the debt (good debt), you won't have money to put down on another property, thereby lessening the cash flow you could have by making another invesment.
Good debt is using other people's money to make money.
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What you are not factoring into this scenario, is the risk of a 100K mortgage, in the event that you lose your job, and your tenants lose their jobs and move out. If the property is debt free, you have time to get more tenants, even if you have to miss several months of the rental income. Debt-free is ideally better. Yes, you may leverage debt to increase income, but you also increase your risk.