Can Debt Actually Make You Wealthy?

Most of us are taught that debt = bad. But in some cases, debt can be used strategically to create wealth — this is what’s often called good debt.

Let’s look at how it works 👇

✅ What Good Debt Looks Like

Used to buy income-producing assets (e.g. rental properties, businesses).
Cash flow from the asset covers (or exceeds) the debt payments.
Inflation erodes the value of the debt over time, while the asset can appreciate.

Example:

Borrow $30M to acquire $50M in real estate that generates $350K per month. Even after $150K debt service, there’s positive cash flow + potential appreciation.

⚠️ The Risks You Can’t Ignore

Market downturns → asset values can fall while debt remains.
Cash flow gaps → vacancies or lower rents could make payments harder.
Interest rate changes → higher rates = bigger monthly obligations.
Concentration risk → all your wealth tied to one sector (real estate).

🛡️ How to Mitigate the Risks

Keep conservative leverage (don’t borrow the maximum).
Maintain cash reserves for downturns.
Diversify across different properties, tenants, and locations.
Fix rates where possible to reduce exposure to rising interest costs.

📈 An Alternative: The S&P500 Index Fund

Instead of putting $200K down on a $500K property and taking on a $300K mortgage, you could simply invest that same $200K directly into the S&P500 index fund.

Over a 30-year period, history shows that:

The S&P500 has delivered an average ~10% annual return (including dividends).
That means $200K could grow to $3.5M+ — without loans, tenants, or property management.
It naturally keeps pace with (and usually beats) inflation.

While markets can crash in the short term, the long-term trajectory has consistently outperformed most real estate returns, even when real estate is leveraged with debt.

🔑 The Key Point

Real estate with good debt feels more powerful because leverage magnifies returns — but when you compare using the same $200K of your own money, the S&P500 can actually outperform over the long term.

It’s not risk-free (market crashes happen), but it avoids the management headaches and leverage risks that come with real estate.

💡 Takeaway

Good debt can build wealth if used wisely, but it carries significant risks.
S&P500 index funds may provide a simpler, more diversified path for long-term wealth.
Many wealthy investors combine both strategies for diversification.

🔄 Question for You

Would you personally be more comfortable building wealth with leveraged real estate or through the stock market? Why?

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