This piece is part of my 2016–2026 archive migration. Some original formatting, content, and external links may be missing, changed, or not be optimized.
There is such a thing as good debt, after all!
What do most people do with this equity?
Some use it to buy worthless crap. Others use the equity to pay off debts like credit cards, student loans, and car notes.
But here’s what the wealthy active investors do instead: They use their property’s equity to buy more property to build more passive income.
Though the additional rental property will create more debt, it creates more passive income. As soon as they acquire a tenant for the new property, the new tenant is the one paying the rent and the interest on the home equity loan. Hence, the new tenants are amortizing the debt on the new property.
It’s a win-win situation; the investor gets a new property, more passive income, and the opportunity to decrease their taxes with depreciation tax deduction along with many other rental property tax write-offs that come along with maintenance and upkeep of the property.
Good Debt Exists
Often, we believe all debt is wrong; this is frequently the case. But there are deviant cases that provide you with potentially tax-free passive income and income advantages.
New Ways of Thinking:
The best kind of debt is paid off by someone else.
An intelligent way to purchase an asset is with debt.
I never heard of these two phrases until I came across the book “Why The Rich Are Getting Richer” by Robert T Kiyosaki and Tom Wheelwright.
Us personal finance gurus often shy away from getting into more debt because our true tolerance for risk and unhealthy finance behaviors is low. However, many wealthy individuals utilize debt to their advantage to expand their wealth to greater levels.
A perfect example is buying a property with ordinary income (wage income) versus buying a property with debt (e.g., credit card or loan).
If a person in the 40% tax income bracket purchases a house for 200k that requires a 10% downpayment, that equates to $20,000 on paper, but they’re really spending over 30+ thousand dollars due to government taxes for that 20k.
However, if you are to put a $20,000 downpayment with debt (e.g., credit card or loan), you don’t have to work for that money. And your tenant can pay off that debt for you while you collect a passive income check every month without working a single day in your life for that initial investment.
That’s right; the bank gave that money to you for free.
There are always three sides to every coin. When it comes to debt here are the 3 sides:
Bad debt (i.e., most debt).
Good debt (e.g., student loans – but not really).
Intelligent and strategic debt (e.g., real estate investing).
This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.