Flip and Danny explain why wealthy people use debt strategically. They prefer low-interest loans (3-5% versus 7-15%), use interest-only terms to maximize cash flow, and cite SBA pandemic programs that offered 3.75% for 30 years as examples of cheap capital. The key: leverage only when you can get others to pay it down.
Hey everybody, Flip and Danny here, founders of the Freedom Real Estate Group family of companies. And welcome to another episode of our podcast called.
Passive Income.
And welcome to another episode you this one is called why Rich People Love Debt.
Yes. So I thought this was gonna be a good episode because a lot of people, I think we probably did this on the myths, right. About how good there can be good debt. Right. So a lot of people have this misconception that having debt is bad thing. And so we wanted to talk about like us, we have tons of debt that we consider good debt, not bad debt. So I wanted to talk about that. And most of the richest people in the world, they didn't pay for everything in cash.
That's right.
They leveraged good debt and they don't want to pay it down to zero.
That's right.
In fact, we'll mention interest only loans in this episode as well as part of that example. So in my opinion, good debt is just anything with low interest rates. Right. If I can get a 3% loan, 4% loan, 5% loan in my own cash, could get 7, 8, 9, 10, 11, 12. I want that loan at the lower debt rate. But there's better debt.
What is it, flip debt when somebody else is paying it.
Yes. And that's why we love real estate so much. Right. Because the tenants are actually paying us rent. That's covering our low interest debt and we're getting some cash flow from it.
That's right.
And so let's tie that into interest only loans. And why I like interest only loans is because we're not even the payment is not even applying to principal and interest. Now this is, is going to be counterintuitive to most people.
Yes.
Because people want to pay down their debt. But in reality, if you have an interest only loan, you've got higher cash flow. And in reality, what does the equity really, who does the equity really protect when you have a mortgage? It protects the bank. Yeah, the bank wants to have as you to have as much equity as possible. When you're getting a bank loan, typically on especially commercial real estate, you're paying 20, 25% down anyway. That's enough equity for me.
Yeah.
Give me an interest only loan so that I can keep my cash flow as high as possible. And so that's one of the things we talked about in the, when we were talking about which loan is best. Right. Is some of them have interest only periods and I would like interest only period for as long as possible. So yeah, I'll let you continue because I Keep on coughing.
So, you know, well, we know why this is good debt. And actually talking about good debt, just recently with, when Covid came out, the Small Business Administration, sba, they came out with their Eidl loans.
Yeah.
You know, and there was, I think there was a loan before the Eidl loan. There was ppp. Yeah, the PPP Payment Protection Program, something like that. But then, and then the Eidl program and they're both, you know, they're, they're loans that are 30 year at like 3.75%, baby. There you go. That's even better.
Cheap money. There's just no reason why you wouldn't leverage as much as you can with that cheap money. No, you have to be also responsible. Right. With it. And even SBA loans, they make you personally guarantee it. So, you know, don't be stupid, don't go to Vegas. And you have to use it in a proper way. But it's with any debt. Like, we're not saying go out there and get a bunch of debt. That's not what we're saying because that's not always a good idea. You have to be a disciplined person and know how to evaluate the deal and know how leveraged low interest debt is going to help you achieve your financial goals. Because certainly you can achieve your financial goals a lot faster if you leverage good debt and you're financially responsible and you know how to, you know, use it. Discipline to make the right decisions, consult people. We had talked about recent episode about having a committee of people when you make decisions like this so you can get other feedback. Right before we were recording this episode, I'm on a mastermind call talking to other people and we're talking about, hey, we've got this deal and we're creating this type of fund and we're doing this and it's a committee of people, a group of people that are going, you know, I've done this before, don't do this. Watch out for this. That's the type of things I think you should do when you're talking about debt. Right. Because really we want to be using our own cash and our own resources for the 6, 7, 8, 9, 10, 11, 12, 15% interest. We want that high cash flow. We don't want to be putting our cash into something that we could get at 3%, 4%, 5%. We want to leverage somebody else's money for that type of stuff. So I thought this was a good topic to talk about because so many people have a bad relationship and a misconception about debt and how it should be used when the most wealthy all leverage low interest debt. Yep. So, and we just did an episode about zero interest to business credit cards. I mean, right, because we're real estate investors and there's times where you gotta use your credit card for this and that. Why be paying interest if you don't have to?
Exactly.
Ha ha ha.
So what else can you do with your money?
Well, invest with us at 6, 7, 8, 19, 11, 12% interest. That's the whole idea, right? Is just to use your own resources for the high interest stuff. Get great returns, leverage good debt, and if you can at all times have somebody else paying that debt for you.
So the moral of the story is there is bad debt, but a majority of time there's good debt and better debt. Yes, that's right. Well, we hope that you enjoyed this episode. Come on down to our website, freedomcapitalinvestments.com and make sure you're joining our investor club. Yes, and make sure because that's where you're going to find out about all the deals that we're doing. But make sure you're hanging out with the gang on Facebook and LinkedIn and all the other social medias and blink, hit that like button if you like this episode as well. But we like to end all of our episodes with invest smart, Live happy. Bye, everybody. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions and information on this show are not guaranteed. All investment strategies have the potential for profit or loss, y'.
All.
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