Healthy debt grows wealth

MOST home owners are so focused on the race to pay off their home loan that they overlook the advantages of staying in debt.

“In placing all types of debt in the ‘avoid at all costs’ category people throw the baby out with the bath water,” Bellarine Property managing director Christian Bartley said.

“Used wisely, debt is a wealth producing mechanism. For example most people would not be able to buy their own home without borrowing the bulk of its value and buying at today’s price rather than saving the total cost and buying at tomorrow’s price.

“The fact that property prices pull ahead faster than consumers can save is, of course, one of the main reasons people buy property in the first place.”

According to Mr Bartley debt falls into two basic categories – healthy and unhealthy.

“Many people get into unhealthy debt at an early age to buy consumer items that either disappear or de-value over time, and debt has become synonymous with poverty rather than wealth.

“Yet most people who are wealthy would testify that with judicious use of ‘healthy’ debt or borrowings they have actually increased the buying power of their income over time.”

Mr Bartley said that even people who borrowed to buy their first home are sometimes reluctant to re-mortgage themselves to buy more property for investment.

“Yet borrowing on their equity is precisely the way to start building wealth.

“A home owner’s debt, or more particularly their debt to equity ratio, is a matter of perspective. For example take a property currently valued at around $580,000 with $200,000 left on the loan. Some people see it as $200,000 owing, whereas others see it as $380,000 borrowing or investment power.”

According to Mr Bartley, the important thing is to get good financial advice and ensure that mortgage borrowings are structured correctly.

“People should approach their accountant or financial planner to find out details of negative/positive gearing and the factors influencing the rate at which they can add to their property portfolio.

“However, the first step is a paradigm shift – the ability to see debt as a positive tool for growth rather than a negative state of moral and financial decline.”

For further information, phone Mr Bartley on 0410 695 325, email [email protected] or visit bellarineproperty.com.au.