September 8, 2008, 6:00 am

Borrowing To Increase Your Net Worth

by: The Financial Blogger    Category: Alternative Income,Assets and Net Worth
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I swear, if you only look at my balance sheet (especially the liabilities side), you will think that I am a credit addict. My credit cards are always showing a high balance, my line of credit is maxed out, my home equity line of credit is maxed out as well and I just contracted a personal loan. “He is going down the hill” you might be thinking. “What kind of financial advice can you give me Mr. Debt?”. Well actually, you would be surprise that all my debts are (almost) good debts.



Credit cards

I actually pay my credit cards on a monthly basis. They are always showing high balances (about $1,000 for me and another $1,500 for my wife). However, we are paying everything on a monthly basis. I basically pay with my credit cards any expenses exceeding $10. This allows us to make a lot of reward points (which I exchange for coffee and drug store coupons). In addition to that, we receive a complete statement at the end of the year showing our spending habits in each category of our budget. So it becomes harder to ignore that you are spending $3,500 in restaurants every year 😉

Lines of Credit

I used my personal line of credit and my home equity line of credit to buy my property. I am paying interest only on everything in order to liberate cash flow for my Smith Manoeuvre. One day, my whole mortgage will become tax deductible!

Personal Loan

I recently contracted a new debt. It is a loan of 8K in order to buy shares in a company. I was actually buying websites that are already making steady income. While this was another addition to my liabilities, this investment should give me between $350 and $400 a month right away while my loan will request a monthly payment of only $135. So even though the loan is on five years, I should be able to pay it off within 2 to 3 years. In any case, the interest is tax deductible as well 🙂

While I still fully believe in my strategy (after all, I bought my first house by leveraging stocks on the market), banks don’t look at it that way. Even though I work for one of them, trying to get credit when you are young and you already have your bag is getting harder. I would say that banks have now a tendency of letting good deals go since they have to control their risk tightly. This resulted in having a personal loan instead of a line of credit for my latest investment. Not a big deal but still, this is the sign I better start making some serious money before calling my banker again 😉

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Comments

I pay with my CC everything I can, even it is $2 . But I also pay it in full every month. Why not get as much cash back as I can

Before I say this, let me state I am the kind of person that can find the good and bad in pretty much anything.

This is great that you can do this and it is building your assets, however, you loose your job and this strategy becomes a problem.

I learned the hard way on this. Granted my debt was bad debt, but it was still debt. Got laid off in ’02 and was unemployed for 6 months. Just now starting to recover.

I’m in the same situation with people as well, because of that one incident, people don’t believe I can give good, sound financial advice.

Here’s to it staying steady!!!

I found your blog through a friend of mine a few months ago and have found it a great read. You are doing a great job.

After reading through your blog, I’ve noticed that I have very similar financial views as you and I’m actaully about 12-18 months behind you in my transition into financial planning (I’m interviewing the firms now) and a new season of life with family.

I’ve always loved the idea of passive income, but am curious on how you broke into the web market? i.e. how did you find websites to buy that are of good value and providing a steady stream of income? (As you know leaving a steady salary job for financial planning with a new family can be a bit challenging). Any thoughts would be much appreciated.

by: The Financial Blogger | September 8th, 2008 (3:59 pm)

Richard,

I agree with you and I definitely do not suggest anyone to do the same. The more money you borrow, the more at risk you are if you lose your job.

I did it because I am young and working in a really hot industry for the next 10 years (if it’s not more!). I also did it because I like to take risk 😉 hehehe!

As my land guy told me the other day when I said I was buying 3 lots (~700k) instead of 2 (~150k) ….

More power to ya!!!

I like the idea of buying already earning websites. You got them from sitepoint? Definitely a good debt! I plan to purchase a reseller program so that I could offer hosting packages too. Hope this will push through.

by: The Financial Blogger | September 9th, 2008 (10:03 am)

Hey Mat,

First, I found out about the website industry through the techy guy behind TFB; my best friend Pierre. He was running websites back in the 90′. We are always looking for website on forum such as Site Point (where I found out that Violent Acres was for sale!!!) and Digital Point.

Second, I decided to work for a bank as a financial planner. That gives me a steady salary so we can live without worries. While I could make a lot more as an independent, I decided to start with a based salary. You may want to consider this option as well.

[…] Financial Blogger presents Borrowing To Increase Your Net Worth posted at The Financial Blogger. Everybody knows that there is bad debt and good debt. This article […]

[…] Financial Blogger presents Borrowing To Increase Your Net Worth posted at The Financial Blogger. Everybody knows that there is bad debt and good debt. This article […]

Great Article. I like your attitude to debt. While most people take on bad debt you are leveraging your ability to borrow to make money. Good Debt! Nice one!

Sure some people might regard it as risky but I can see exactly what you are trying to do and I like it! and as the saying goes ‘no risk – no reward’

We invest on “credit” too – and I agree, banks don’t necessarily look at it in the same way we do. Especially now with the “crisis” going on. It will be interesting to see how it all shakes out!