What To Do With Debt
By Paul Esajian on September 5, 2013
Investors often slow their pace while they are trying to figure out what to do with their debt. If you have mortgage debt, you will accelerate how quickly you can gain equity or own the property free and clear. The offset is that you are using residual funds that could be used to invest in current opportunities or pay down other debt. There is no right or wrong answer as to what the best approach is. It comes down to how much other debt you are carrying and what your short and long term approaches are to the business.
If you do decide to pay down mortgage debt, the easiest strategy is to make one extra payment to principal a year to reduce seven years off a thirty year mortgage. This is great in theory, but that extra payment could mean a few credit card payments or other household debts. If your debt is being used to make you money, that would be considered good debt and something you should consider part of the business. If you have debt that is used to just keep you afloat, you are doing something wrong with your business and either need to generate more revenue or cut back on spending.
Unfortunately, you will most likely have to spend money to make money to be a successful investor. You can find private money to get into the property, but with title searches, inspections, appraisals and other expenses, you will need to spend some money. What you do with your profit is critical. If you treat it like you won the lottery, you won’t last very long in the business. If you reinvest or pay down debt, you will see your money working for you. Debt can either lead to more profit or sink your business. How you work your debt is up to you.