Thursday, May 3, 2007

Pay Cash Or Leverage?

Overnight, I received a handful of emails from readers asking about debt. The consensus was that utilizing debt to purchase property (borrowing from a lender) isn't a hard-fast rule, its more a choice.

I would agree. The words I use with my clients are "comfort level." It all depends on your comfort level. There is nothing wrong with purchasing investment property TO HOLD by paying all cash -- if you can swing it. You will still have the benefits of income, appreciation, depreciation and expense deduction. You just won't be able to also leverage a lender's money, and you are tying up a large amount of personal capital.

One thing that amazes me in this ongoing discussion about debt taking place in our nation and around the water-cooler each day is how people will shudder at the thought of utilizing debt to purchase investment property. Yet they don't blink an eye at their consumer debt to buy pretty things that provide no income. And it is these impulse purchases on debt that is getting people into trouble, as they pile more and more charges onto their credit cards.

Still, while leveraging the bank's money to purchase investment property is a smart approach, it is a personal choice. It all comes down to each and every buyer's comfort level.

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