How to Use Long-Term Debt to Grow Your Wealth

I recently just purchased a house, I recently just bought a lake house that I'll use for networking parties and masterminds and workshops. And I paid cash for the house because debt is bad, right? And we were talking before the camera started rolling about how that's a really bad financial strategy. And I know that and I know a little bit of how I'm, what I'm going to do. But paying cash got a better deal for the house and allowed me to close faster. So you were saying it'd be a really bad idea to just let that sit around and not borrow against it. Why is that?

That's a great question. So one of the things that's really beneficial about debt is what debt does as a general rule of thumb especially, and let me clarify, not short term consumer debt. This is not your credit cards, this is not your high interest car notes. This is long term, especially real estate debt, that's got some tax, you know, tax deductions to it as well. So long term debt, what it does is it puts you and it aligns you on the same cycle as what the overall economy does to transfer wealth. So debt is made and is designed, long term debt is designed to transfer wealth from the lender to the borrower. And the reason, if you think about.

Why you just blew my mind there.

Well, it'll get better.

Okay, keep going.

So the idea is if you think about.

How is the government, how are they meeting unfunded liabilities, part of that's going to be with taxes. And so we think about that just from completely regardless of your political standing, you understand that we have unfunded liability. We have people living longer than they've lived before. So there's unfunded liabilities we have as a government to the American citizens that will have to be met somehow. One way is to raise taxes, but that's really chump change. That's chump change. And notice I said chump change, that's chump change in comparison to the real way that wealth is moved and redistributed from hand to hand. The real way wealth is redistributed is through inflation. Because inflation taxes the rich man and the poor man alike. It's not something that makes you lose your seat in Senate. It's very, very easy to institute and it's the stealthiest but most effective tax that we have right now. And so long term debt, what you're doing is you're effectively fixing a good portion of your balance sheet. So we take this million dollar property and we fix long term 30 year debt, okay, think 30 years ago. Okay, it's 2017 now, so 1987. Think about what year I was born. There you go. Think about what a million dollars did in 1987. It did a lot more in 1987 than it did here today. And a lot of things as you can pick, and some of our gold bugs and people track these things and say, well, an ounce of gold still buys the same thing it would have bought. And that's all true because gold is more of a standard to measure these things by. But you think about what that long term debt is doing, is it is hedging that portion of your balance sheet against inflation because in 30 years you'll be paying that mortgage note back. With 30 year future dollars, that dollar is going to feel like a lot less. And so along the way, what's really key here is if you have good assets to invest in, and this is always predicated by, you know, in some people's situation, you may just have so much cash you don't have anywhere to put it, in which case, you know, that's, that's its own problem. But if you have, if you have good assets, you can put these dollars in where you can leverage it out. You can take that long term debt and you can put it in something that even if all you did was break even on the cost of the mortgage, you've done a good thing because you're hedging that portion against inflation and you've kept the liquidity outside because debt, I'm from a moral background, I know that, you know, debt can be viewed as a bad thing. And we come across that quite a bit with clientele. However, when debt is used properly, it's just a tool. It's just like any other investment where you're using a tool to grow your wealth and you're using a tool that has a high likelihood of you increasing your wealth and a low likelihood of decreasing your wealth. Because unless we enter into a deflationary environment, which I think is very unlikely, unless we have a change in mortality here very soon with those who are expecting benefits.

We are going to benefit from the inflationary environment with long term debt that kind of paying down.

So by borrowing against the million dollar house, taking that million dollars and buying other assets, businesses, real estate, I would even say, Sam, if we go back four years, not even 30 years, but four years, and I were to look at the return on investment of the $600 that I put into my first physical products business.

Yes sir.

That then Became millions and millions of dollars.

That was a good investment, I would say. So to have a million dollars in a house that I could borrow against and put into other assets, even looking four years from now, I don't know that I'm going to turn $600 into millions again. But using that money to fund other businesses, to invest in our students, which I do, to put into other positive cash flow investments, and then we look ahead 30 years. The ROI on borrowing against that house is just stupid amounts of money.

It's insane. It's absolutely insane. And the thing is, you think about just. And I talk a lot about liquidity or I talk a lot about accessibility to your dollars because it's so key. Whether you're a business owner or whether you're an investor, you always are managing your cash flow. You're always managing your liquidity and making sure you can operate the way you want to operate. And you think about how many opportunities are missed because you didn't have sufficient liquidity. I have clients who missed out on 2009 or 2008's downturn. The time to buy was in 2009. But if you had your assets allocated to things that were exposed to risk, you were then in an illiquid state. You couldn't access them without taking a big hit, a big equity loss from selling at a low. If you had maintained some liquidity and had money in this capital warehouse, for example, now when the market crashes, you get 0%, but you're still liquid, you can go buy at a value and you can. You can be an idiot in 2009 and make money. And that's not the only investment. No timeframe we can make money in, but it sure is a good one.