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Old 10-19-2016, 02:55 PM   #1
robbyreneeward
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Default Is there such a thing as good debt?

What are your thoughts? I have been listening a lot to Dave Ramsey again, and we are actually on our way to knocking out a lot of our unneeded debt. I was aspiring to be debt free. My career goal is in 10 years to become a restaurant franchisee, and my boss says there is a such thing as good debt. He just recently bought 2 restaurants of his own, and is making a very good distribution even after the note payment each month. Even if debt free was a reality for me, it'd take me a very long time to save enough cash to buy a franchise outright, so I'm thinking that debt would be ok, as long as it's with a proven system and a store with a proven track record of profitability. What say the GS?
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Old 10-19-2016, 02:59 PM   #2
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Of course it's a good thing. Dave Ramsey talks a good game for fiscally irresponsible people. He says a lot of stupid things for people who are responsible.
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Old 10-19-2016, 03:01 PM   #3
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Originally Posted by robbyreneeward View Post
What are your thoughts? I have been listening a lot to Dave Ramsey again, and we are actually on our way to knocking out a lot of our unneeded debt. I was aspiring to be debt free. My career goal is in 10 years to become a restaurant franchisee, and my boss says there is a such thing as good debt. He just recently bought 2 restaurants of his own, and is making a very good distribution even after the note payment each month. Even if debt free was a reality for me, it'd take me a very long time to save enough cash to buy a franchise outright, so I'm thinking that debt would be ok, as long as it's with a proven system and a store with a proven track record of profitability. What say the GS?
Dave Ramsey is a long way from a one size fits all financial approach. There is absolutely such thing as good debt in todays world
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Old 10-19-2016, 03:01 PM   #4
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yes, absolutely. In the case of business debt is leverage, if you know how to handle it. Also, my opinion debt is good if it's bringing in revenue or future revenue and/or appreciation. My advice is to learn from your boss in those regards.
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Old 10-19-2016, 03:02 PM   #5
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All depends on your risk tolerance..And that depends a lot on you, your family, your needs etc.

Simple answer is yes, of course it is IF you go into debt and that in turn makes you lots of money that you would not have made otherwise. But obviously no if the debt doesn't work (like a lot of food service places) and causes you to go bankrupt.

I've always thought best to start small and if it's profitable, expand. If you can't sell 10 items per day and turn a profit don't try selling the same item 10,000 times per day thinking it will make a profit.
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Old 10-19-2016, 03:08 PM   #6
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Debt can be a tool. Used wisely it can help you achieve what you want/need.
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Old 10-19-2016, 03:09 PM   #7
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yes, absolutely. In the case of business debt is leverage, if you know how to handle it. Also, my opinion debt is good if it's bringing in revenue or future revenue and/or appreciation. My advice is to learn from your boss in those regards.
^^^^^This. If the debt is generating revenue, it can certainly be a good thing. Most people don't own a business or have their debt generating income, therefore for most debt is not a good thing.

Just remember that Dave Ramsey panders to the masses.
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Old 10-19-2016, 03:10 PM   #8
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^^^^^This. If the debt is generating revenue, it can certainly be a good thing. Most people don't own a business or have their debt generating income, therefore for most debt is not a good thing.

Just remember that Dave Ramsey panders to the masses.
And the masses are stupid
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Old 10-19-2016, 03:11 PM   #9
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yes, absolutely. In the case of business debt is leverage, if you know how to handle it. Also, my opinion debt is good if it's bringing in revenue or future revenue and/or appreciation. My advice is to learn from your boss in those regards.


True.

I'll add, the key to a successful business has as much to do with a willingness to take risks as it does with hard work. Debt is simply managed risk.
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Old 10-19-2016, 03:13 PM   #10
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Of course it's a good thing. Dave Ramsey talks a good game for fiscally irresponsible people. He says a lot of stupid things for people who are responsible.
THank you!!!!!!!!!!
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Old 10-19-2016, 03:17 PM   #11
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There are very few Business models that operate debt free, I have never read a Ramsey book and I know some folks have had great success with them, but I promise you he doesn't live a completely debt free life.
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Old 10-19-2016, 03:21 PM   #12
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Dave Ramsey is talking about not getting bogged down in consumer debt which is a problem that financially suffocates many Americans. However there are very few businesses - especially new businesses - than could make it without the leverage debt provides.
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Old 10-19-2016, 03:22 PM   #13
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There are very few Business models that operate debt free, I have never read a Ramsey book and I know some folks have had great success with them, but I promise you he doesn't live a completely debt free life.
To further expound on this, publicly traded companies are crucified if they don't carry enough debt. The leverage is crucial to quickly mobilizing to meet business needs, and shows investors the company is investing in its future.

There is a reason there is a "leverage" ratio on yearly fiscal statements for these companies.
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Old 10-19-2016, 03:23 PM   #14
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Most people who want to start a business have no other choice than to borrow. I didn't, but it worked out. Don't for a minute think that it didn't worry me though. But I knew my business, and my skills. It was the market that worried me. It's hard to borrow against a future that may go to hell in a hand basket.
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Old 10-19-2016, 03:25 PM   #15
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Dave Ramsey is talking about not getting bogged down in consumer debt which is a problem that financially suffocates many Americans. However there are very few businesses - especially new businesses - than could make it without the leverage debt provides.
Correct me if I'm wrong but I could swear on multiple occasions he advised people against commercial debt.
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Old 10-19-2016, 03:33 PM   #16
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The answer to your question is a very personalized one, in that there is no catch all scenario in which debt is good. There are, however, a lot of examples of bad debt
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Old 10-19-2016, 03:34 PM   #17
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Correct me if I'm wrong but I could swear on multiple occasions he advised people against commercial debt.
You may be right - I have not read that much of his stuff but his emphasis seems to be on getting/staying out of debt by avoiding credit cards, car payments, etc.
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Old 10-19-2016, 03:35 PM   #18
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I listen to Dave Ramsey daily. Yes, there is such a thing as good debt but I wouldn't consider a business loan good debt. There is nothing tangible backing the debt and if things went south with the business that "good" debt is going to turn bad real fast. Dave preaches real estate investing because you have a tangible asset that arguably will not depreciate and provides cash flow.
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Old 10-19-2016, 03:36 PM   #19
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If it makes you more than it costs you...........
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Old 10-19-2016, 03:46 PM   #20
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I listen to Dave Ramsey daily. Yes, there is such a thing as good debt but I wouldn't consider a business loan good debt. There is nothing tangible backing the debt and if things went south with the business that "good" debt is going to turn bad real fast. Dave preaches real estate investing because you have a tangible asset that arguably will not depreciate and provides cash flow.
I would consider a business loan as good debt. If you can sell all the widgets you can make. But don't have the capitol to make them what's wrong with borrowing money? If things don't work out you can always file bankruptcy like Dave did.

I'm not anti Dave as he helps a lot of irresponsible people get out of debt. But business wise he gives some bad advise. He is one heck of a salesman. Whoever thought that you could sell common sense?
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Old 10-19-2016, 03:50 PM   #21
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I listen to Dave Ramsey daily. Yes, there is such a thing as good debt but I wouldn't consider a business loan good debt. There is nothing tangible backing the debt and if things went south with the business that "good" debt is going to turn bad real fast. Dave preaches real estate investing because you have a tangible asset that arguably will not depreciate and provides cash flow.
Understood. He also says to buy it with cash. Dave preaches NO DEBT whatsoever. I would assume a restaurant franchise would be a good tangible asset since it provides cash flow and doesn't appreciate in value as long as it's managed properly. Hell the 2 stores my boss just bought will generate him 250-300k a year income, and he's a 50/50 partner in the new franchise group, and that's after the note payments are made by the stores.
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Old 10-19-2016, 03:51 PM   #22
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I think what your saying is partially true but the consumer debt is what you need to get reduced . You would also need to have a sizeable amount of liquid assets to purchase most franchises .
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Old 10-19-2016, 04:08 PM   #23
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I would consider a business loan as good debt. If you can sell all the widgets you can make. But don't have the capitol to make them what's wrong with borrowing money? If things don't work out you can always file bankruptcy like Dave did.

I'm not anti Dave as he helps a lot of irresponsible people get out of debt. But business wise he gives some bad advise. He is one heck of a salesman. Whoever thought that you could sell common sense?
A business loan is not good debt...it is bad debt. A business is just a piece of paper filed with the state, the only tangible assets are items you use on a daily basis that would be near worthless after purchasing (ie. restaurant supplies). I assume there is no real estate with the franchise and you would just be leasing a space (additional liability). Also, don't think of bankruptcy as just a stroll in the park. It's a life changing event that many people struggle to get out from.
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Old 10-19-2016, 04:15 PM   #24
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A business loan is not good debt...it is bad debt. A business is just a piece of paper filed with the state, the only tangible assets are items you use on a daily basis that would be near worthless after purchasing (ie. restaurant supplies). I assume there is no real estate with the franchise and you would just be leasing a space (additional liability). Also, don't think of bankruptcy as just a stroll in the park. It's a life changing event that many people struggle to get out from.
Alrighty. That has not been my experience. Had I not used borrowed money on some business deals I'd still be a working stiff.
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Old 10-19-2016, 04:18 PM   #25
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Of course it's a good thing. Dave Ramsey talks a good game for fiscally irresponsible people. He says a lot of stupid things for people who are responsible.
This. That being said, I am responsible, but I am well on my way to no debt. Plan to buy my next F-250 with cash.
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Old 10-19-2016, 04:21 PM   #26
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A business loan is not good debt...it is bad debt. A business is just a piece of paper filed with the state, the only tangible assets are items you use on a daily basis that would be near worthless after purchasing (ie. restaurant supplies). I assume there is no real estate with the franchise and you would just be leasing a space (additional liability). Also, don't think of bankruptcy as just a stroll in the park. It's a life changing event that many people struggle to get out from.
Yes the real estate was part of the purchase as well.
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Old 10-19-2016, 04:27 PM   #27
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Yes, borrowing money for a divorce, or a vasectomy. lol
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Old 10-19-2016, 04:30 PM   #28
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Default Is there such a thing as good debt?

If you can make money on borrowed money and make money by investing your cash and putting it to work for you somewhere else, I would say that is good debt, but your talking about consumer debt it seems and likely you aren't going to make more than the apr of credit cards.
Countless financial advisors and wealth management guys disagree with Dave's investment strategies, so keep that in my mind as well.

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Last edited by Sparkles; 10-19-2016 at 04:35 PM.
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Old 10-19-2016, 04:32 PM   #29
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Originally Posted by EatemUpCats View Post
A business loan is not good debt...it is bad debt. A business is just a piece of paper filed with the state, the only tangible assets are items you use on a daily basis that would be near worthless after purchasing (ie. restaurant supplies). I assume there is no real estate with the franchise and you would just be leasing a space (additional liability). Also, don't think of bankruptcy as just a stroll in the park. It's a life changing event that many people struggle to get out from.
There are plenty of people that have levered debt to success without it directly being tied to real estate. Sometimes success takes calculated, measured risks. If those risks include going into debt to execute a quality business plan, then it is not bad debt. If the business plan is not executed and the business fails, it is bad execution of the business. The debt tied to it is a byproduct of the failed business, which then becomes bad debt, but only at that point......
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Old 10-19-2016, 04:38 PM   #30
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Good debt is when you can earn more than the interest cost on the debt - it is called arbitrage. Car loan rate is 1.5% and you can earn 4% on your investments then that is using someone else's money to make you money.

Bad debt is a credit card you pay 10% on each month but you are only earning 4% on your investments.

I can pay cash for anything I need to buy but I still finance some things. As others said before - depends on a number of factors but to say all debt is bad is not accurate.
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Old 10-19-2016, 04:47 PM   #31
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True.

I'll add, the key to a successful business has as much to do with a willingness to take risks as it does with hard work. Debt is simply managed risk.
I agree 100%. Just have a plan and goals when you step out on that limb...
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Old 10-19-2016, 04:50 PM   #32
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There is good debt, it took me a while to realize that, which caused me to miss out on a few good opportunities. It also put me in a bind a few times when I was first starting out because I paid cash for things, that I could have made payments on.

To me, most of the time, a business loan is kinda like a home mortage or a land loan.

Are most people not going to buy a home because they don't cant pay cash for it?

Are most people going to pass on buying a piece of land because they don't have the cash for it either?
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Old 10-19-2016, 04:52 PM   #33
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Debt that can be at once leveraged and covered is a good thing. It's important to remember that there is a technical aspect to debt (large businesses take advantage of this all the time) and it is; if you have the capability to cover the 'debt' at any point in time, you really aren't in debt, you just owe someone money. Tricky, but true.
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Old 10-19-2016, 05:33 PM   #34
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Good debt is basically purchasing something that shouldn't lose value (buying a house). Bad debt is basix ally something that is losing value (vehicle).

Buying a franchise can be good debt if it's profitable and/or appreciating value.
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Old 10-19-2016, 05:41 PM   #35
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If it makes you more than it costs you...........
I like to say: The only good debt is when it is used to buy a productive asset that generates cash flow exceeding fully loaded cost (asset price+carrying cost of debt.)

Most personal debt does not do this, unless you're talking rental property.
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Old 10-19-2016, 05:45 PM   #36
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I like to say: The only good debt is when it is used to buy a productive asset that generates cash flow exceeding fully loaded cost (asset price+carrying cost of debt.)

Most personal debt does not do this, unless you're talking rental property.
^^^This

I own the home I live in, have mortgages on all my rentals. That debt is paying itself off with almost zero effort on my end, and I will retire a millionaire.
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Old 10-19-2016, 07:22 PM   #37
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You know you can actually call the guy and ask him yourself, right?

I'm not a fan of debt....and maybe I'm just not smart enough to live with debt, but I don't like it at all. Part of that is because under our system, I can go borrow way more than I can reasonably pay back -- based on my income LAST YEAR, I can go down to the local Ferrari place and buy two of them on credit tomorrow, but that doesn't make it a good idea. Now honestly....my income last year has nothing to do with my income next year, but that is the primary measure a bank will use to decide whether to give me a loan.

The big problem with listening to other people with debt is that most will overstate their income and understate their debt levels.

YOU have to figure out where YOUR confidence level is....
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Old 10-19-2016, 07:28 PM   #38
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First, you have to understand the difference between an investment and debt. In business, debt is a necessity, for most businesses. You just can't save up and buy with cash these days, in most cases. One older business man told us, "You'll never have anything worth having unless you borrow money". My dad used to be able to save up and buy with cash. That was when new equipment cost $20K or so. Now days it costs $1.4M. Times have changed.
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Old 10-19-2016, 08:02 PM   #39
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^^^This

I own the home I live in, have mortgages on all my rentals. That debt is paying itself off with almost zero effort on my end, and I will retire a millionaire.
as long as real estate stays strong - been in this area for 60 plus years - real estate, like stocks, cycles. I have lived through several real estate downturns in central texas and they are not pretty. I have witnessed a number of friends and clients who went under from real estate exposure. As soon as folks start thinking this will last forever is when they get burned.
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Old 10-19-2016, 08:22 PM   #40
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Originally Posted by EatemUpCats View Post
I listen to Dave Ramsey daily. Yes, there is such a thing as good debt but I wouldn't consider a business loan good debt. There is nothing tangible backing the debt and if things went south with the business that "good" debt is going to turn bad real fast. Dave preaches real estate investing because you have a tangible asset that arguably will not depreciate and provides cash flow.
I don't understand this statement^^^^ Name me more than one or two businesses that didn't start out with some debt.. It isn't the debt that is bad, it's the person in charge of the debt that causes problems most of the time.

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A business loan is not good debt...it is bad debt. A business is just a piece of paper filed with the state, the only tangible assets are items you use on a daily basis that would be near worthless after purchasing (ie. restaurant supplies). I assume there is no real estate with the franchise and you would just be leasing a space (additional liability). Also, don't think of bankruptcy as just a stroll in the park. It's a life changing event that many people struggle to get out from.
With this statement, I guess my business is just a piece of paper? I have some tangible assets but 90% of my business is me.

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Alrighty. That has not been my experience. Had I not used borrowed money on some business deals I'd still be a working stiff.
Exactly^^^^ I guess the $50K I borrowed to help me get started was a bad debt? I paid it off in less than 2 years and fortunately haven't looked back. I have taken on some more business debt that was required to grow my business. I felt it was smarter to take on debt as opposed to using my CASH.

Like stated in other posts, it all depends on how smart you are with money and what your and your wife's risk tolerance is. If you are honest and sit down with a big chief tablet and a husky pencil, and can't get the numbers to work out, then guess what, it won't work in real life either.
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Old 10-19-2016, 08:58 PM   #41
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as long as real estate stays strong - been in this area for 60 plus years - real estate, like stocks, cycles. I have lived through several real estate downturns in central texas and they are not pretty. I have witnessed a number of friends and clients who went under from real estate exposure. As soon as folks start thinking this will last forever is when they get burned.


Yup. This.


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Old 10-20-2016, 07:50 AM   #42
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If you can make money on borrowed money and make money by investing your cash and putting it to work for you somewhere else, I would say that is good debt, but your talking about consumer debt it seems and likely you aren't going to make more than the apr of credit cards.
Countless financial advisors and wealth management guys disagree with Dave's investment strategies, so keep that in my mind as well.

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Of course financial advisors disagree. They would love for everyone to have a full loan out on their ranch so they can "invest" all their money. And yes this "should" work most of the time. But when/if the markets crash you could lose everything.
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Old 10-20-2016, 07:57 AM   #43
Jerry Worley
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True.

I'll add, the key to a successful business has as much to do with a willingness to take risks as it does with hard work. Debt is simply managed risk.

Very well said. Been self employed for 27 years now. No risk, no reward. That being said, it sure is nice being debt free from your business as soon as possible.
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Old 10-20-2016, 07:57 AM   #44
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Yes, during the era of free money, I used $160k worth of revolving credit to by and remodel 9 houses and never paid more than 2% interest over that 10 or so years. Most of the time I paid no interest at all. So yes, I would say that was good debt. But since I had the assets to cover the debt, I didn't really consider it debt. I was just leveraging assets to purchase more assets.
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Old 10-20-2016, 08:13 AM   #45
Burnadell
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A business loan is not good debt...it is bad debt. A business is just a piece of paper filed with the state, the only tangible assets are items you use on a daily basis that would be near worthless after purchasing (ie. restaurant supplies). I assume there is no real estate with the franchise and you would just be leasing a space (additional liability). Also, don't think of bankruptcy as just a stroll in the park. It's a life changing event that many people struggle to get out from.
It is clear that there is a lot you don't understand about various types of businesses and finance.



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Of course financial advisors disagree. They would love for everyone to have a full loan out on their ranch so they can "invest" all their money. And yes this "should" work most of the time. But when/if the markets crash you could lose everything.
You are wrong about your blanket assumption and must be dealing with the wrong advisor(s).
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Old 10-20-2016, 08:17 AM   #46
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I don't understand this statement^^^^ Name me more than one or two businesses that didn't start out with some debt.. It isn't the debt that is bad, it's the person in charge of the debt that causes problems most of the time.
With this statement, I guess my business is just a piece of paper? I have some tangible assets but 90% of my business is me.

Exactly^^^^ I guess the $50K I borrowed to help me get started was a bad debt? I paid it off in less than 2 years and fortunately haven't looked back. I have taken on some more business debt that was required to grow my business. I felt it was smarter to take on debt as opposed to using my CASH.

Like stated in other posts, it all depends on how smart you are with money and what your and your wife's risk tolerance is. If you are honest and sit down with a big chief tablet and a husky pencil, and can't get the numbers to work out, then guess what, it won't work in real life either.
With 20/20 hindsight sure it was not bad. But most people don't know for sure if it will turn out good. Unfortunately most people who are positive they will make money underestimate taxes, payroll liabilities, and a slew of other costs when starting a business.

Bottom line - Business debt for a new business is a gamble. May be a calculated gamble but still a gamble.
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Old 10-20-2016, 08:21 AM   #47
RiverRat1
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It is clear that there is a lot you don't understand about various types of businesses and finance.


You are wrong about your blanket assumption and must be dealing with the wrong advisor(s).
Don't beat me up I didn't mean all of them think that way. I've just heard some of them say you get 6-7% average returns in the market so leverage ranch/home with a 2-3% note and make 3-5% profit. Like I wasn't born yesterday LOL..
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Old 10-20-2016, 08:23 AM   #48
gingib
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amazes me at some of the replies......and we wonder why so many people are always in debt!!!!!!

Car, house, CC debt are 100% bad debt
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Old 10-20-2016, 08:51 AM   #49
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amazes me at some of the replies......and we wonder why so many people are always in debt!!!!!!

Car, house, CC debt are 100% bad debt
ok - so I have plenty of cash to pay for a new car out of pocket.

I got a loan at 1.5% for the car and have a guaranteed tax deferred account that earns me 3.5%. It is called arbitrage. How is that a bad thing?

Not saying it is right for everyone but there are cases that it makes good financial sense
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Old 10-20-2016, 08:59 AM   #50
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as long as real estate stays strong - been in this area for 60 plus years - real estate, like stocks, cycles. I have lived through several real estate downturns in central texas and they are not pretty. I have witnessed a number of friends and clients who went under from real estate exposure. As soon as folks start thinking this will last forever is when they get burned.
One $50k house a year for twenty years. I can eat a few years worth of investments should it come to it, right out of pocket.

And rental prices pretty much remain steady. If you're in the business of flipping houses, a downturn can ruin you. But I'm in it for the long haul renting. I understand there are always risks, nothing is 100%. It has its ups and downs, but if you can stick it out real estate pretty much always bounces back.
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