Getting started in Property Investment: Good Debt vs. Bad Debt💡

When it comes to building wealth, not all debt is created equal. Understanding the difference between good debt and bad debt is critical for making smart financial decisions—especially when getting started in property investment.

What is Good Debt? Good debt is an investment in your future. It’s debt that helps you acquire appreciating assets or generates income over time.

Examples:

• A mortgage on an investment property that increases in value and provides rental income.

• A loan for further education that boosts your earning potential.

Why it’s “good”:

• It can be leveraged to grow wealth.

• Interest on investment loans is often tax-deductible.

• The asset can produce long-term returns that outweigh the cost of borrowing.

What is Bad Debt? Bad debt is borrowing to purchase items that don’t hold or increase in value, and it often comes with high-interest rates.

Examples:

• Credit card debt for discretionary spending (e.g., holidays, luxury items).

• Personal loans for depreciating assets like cars or gadgets.

Why it’s “bad”:

• It doesn’t generate income or wealth.

• High-interest rates can trap you in a cycle of repayments.

• The purchased item may lose value over time.

How to Use Debt Wisely in Property Investment

1️⃣ Focus on leverage: Use good debt strategically to acquire income-producing assets, like rental properties.

2️⃣ Manage risk: Keep your loan-to-value ratio (LVR) at a comfortable level to protect against market fluctuations.

3️⃣ Have a plan: Understand how your debt fits into your overall investment strategy and have a clear repayment plan.

Remember: Debt is a tool, not the enemy. When used correctly, good debt can be a powerful ally in building your financial future through property investment.

If you’re considering getting started in property investment and want to know how to leverage good debt for long-term success, let’s connect. As a buyer’s agent focused on investment property, I specialise in helping investors make informed, strategic decisions.