How to Use Real Estate Debt & Invest with Security

Am I remembering correctly, Jason, that you love debt, right?

Yeah, I do. It's my favorite four letter word.

Tell me why you love debt.

Well, I love debt because now, of course, when we say that, we're talking about high quality, long term, fixed rate, investment grade debt at interest rates that are arguably below the rate of inflation or close to the rate of inflation, okay. When you look at real inflation versus what the government tells us inflation is, okay. And that's a whole other argument that I'm happy to have, but I don't know how much time we have. So with negative interest rates or close to negative interest rates, that debt becomes a huge asset. Most people think of. Well, you know, you've got your balance sheet, right? You've got your asset is the equity you have in the property or whatever, right? And then you've got your debt, which is the liabilities against the assets and the net of that is your net worth, right? And the debt, though, is an asset as long as it's high quality, long term, fixed rate, investment grade debt against assets that are indexed to inflation. That, and this is part of what I call the ultimate investing equation, where you can outsource the repayment of that debt to a third party. We usually call them tenants, okay. Or renters. And.

That, among other things, is what makes income property such an amazing investment investment. It's a multi dimensional asset class where you earn your return from several different dimensions rather than just, you know, if you buy a stock or a property in Los Angeles, right, You're only buying for capital gains, right? Appreciation. Now you might buy a dividend paying stock and that's better. So you'll have two dimensions. But Income property has many dimensions.

And what you mean by this is if you can have fixed debt at 4 to 5%, which is kind of a going rate right now, and you can have that debt paid for by someone else, meaning a tenant you outsource or a customer. Even if you were able to borrow to pay for inventory and you sell that inventory, that debt is paid for by the customer or the tenant or the other source.

In businesses, it works too. You know, in businesses, you know, in the corporate takeover world, they do LBOs or leveraged buyouts. It's the same idea.

Yeah, I have a podcast on this. This episode is called Only Invest in Multipliers. And it goes through my strategy for leveraging debt to grow a business or to put in other investments. So what I'm hearing you say is if you can predict the receivable interest rate, and that is More favorable than the payable interest rate. Why would you not make that trade all day long?

I'd make that trade any day in the world. And that's essentially what banks do. Okay. And you know, why is banking such a lucrative activity? Well, it's complicated because of fractional reserve lending and fractional reserve banking. And that's down the rabbit hole. It's a long, long topic that I don't even understand even now after studying this for, you know, so many years. But you're basically arbitraging the difference between the two. So, you know, if a bank can loan out money, you know, because people ask, well, why would banks loan money out at negative interest rates or where there's no margin? Because they're not loan inflation, they're just loaning against what they're borrowing at from the Federal Reserve. Right. And so, you know, money is basically lent into existence, which is a very hard concept to really get your head around, but that's the way money is created in our system. Okay? And what I say is align your interest with the most powerful entities the human race has ever known. Governments and central banks. Those are the most powerful entities humanity has ever known.

So many other people out there are trying to bet against them and I think they're crazy. They buy cryptocurrencies, they buy gold, they buy silver. And all of these things seem sound because, and I've fallen for these arguments myself. So now I hope I know better. Right? But those things are fine to have a little bit of, to have your hand in it. You know, I own some precious metals. I bought one Bitcoin. I wish I would have bought a thousand more. You know, right now. I say that, but it will turn because you're betting against the Fed. Okay? The Fed is in the business of creating fake money. Fiat currency. Fiat, meaning by authority or by decree. Right. They say the dollar has value because that's what they say, because it's the law of the land.

Legal tender laws, and.

Another currency, whether it be gold or Bitcoin or any other currency that competes with that is competing against the most powerful forces the human race has ever known. And people say things like, well, and I used to say this and believe it and invest in this way. Well, the dollar is not backed by anything. That's why I like gold. Oh, really? It seems to me the dollar is backed by aircraft carriers, intercontinental ballistic missiles, fighter jets, the most powerful military the human race has ever known, and the biggest brand in the world, America. That's the world's biggest brand. If you ask me. Okay.

I never thought of that.

Yeah, it's a. It's a powerful brand. You know, a lot of people say they hate America, but they still wouldn't mind living here. Okay.

Or we're buy.

Or owning the currency or owning the real estate.