Goodbye Bad Debt, Hello Equity

By Author: Alexandria Anderson
Total Articles: 46
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Robert Kiyosaki's Rich Dad, Poor Dad series of real estate investing books encourages property buyers to figure out whether they aught to be spending money on a specific investment property or not. A good investment, as expressed by Kiyosaki, is one that will provide the investor with a good ROI relatively quickly. A quality investment is one in which there isn't a whole lot of capital outlay, like as repairs, to offset the income from the rent.

Many people think their house is an asset, but it isn't. Since there is little or no cash to be earned from most dwellings, most houses are liabilities. It is for that reason, the mortgage one gets to purchase a house is considered what Robert Kiyosaki calls bad debt. There's only expense in this scenario - but no cash flow.

Bad debt (and liability) is considered undesirable to investors, in particularly because the possession of a house is an illusion. The home owner believes that he/she owns a house, just because he/she is paying for the claim to live in it. However, if he/she were to stop paying for that privilege, the bank would foreclose and he/she would be kicked ...
... out into the street.

What he/she owns in reality is equity, and home equity is nothing but numbers. Never the less, acquire sufficient equity and it will become a property deed. Better yet, it will dissolve the bad debt.

When one increases equity, she decreases undesirable debt. Bad debt is bad. Decreasing your bad debt is good.

The homeowner can decrease this type of bad debt in 2 ways. The most apparent way, of course, is to pay more on the principal annually, or even monthly, by making more or larger payments. It is smart to research a head of time, however, that your mortgage does not stipulate a penalty for paying early. It is even smarter for the person who is thinking about getting a loan, to be sure that it does not have a stipulation like this before signing it in the 1st place.

Another way to reduce bad debt and increase equity is by turning a thirty-year mortgage into a fifteen-year loan through refinancing. This can mean that the homeowner is paying less interest in the long run, but forking out extra per month. If he/she can swing it, it's a great way to accelerate equity. Making extra payments will shave only one half as much time off the total time to pay the mortgage as refinancing can.

Reading the Rich Dad, Poor Dad books teaches the buyer that it is a good idea to study as much as they can about the process of purchasing and paying for investment properties, because those who can to benefit from the buyer's ignorance will typically not volunteer information. There are approaches to avoid spending one's entire life paying for a single investment property. Considering at the act of purchasing a home, not as a resident, but as an investment property owner, will make it obvious that most people fork out far more cash than they need to, just because they do not know any better. Knowledge is the home owner's greatest asset.