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.