It would seem there are more property financing myths than facts in Build a Legacy. We look to shed the truth on these myths #BuildALegacy
Most of us have ‘pre-conceived’ ideas about property finance. I have talked to bankers, financial consultants and many other people in the ‘know’, but am always amazed by their ignorance in understanding certain basics of property finance. Most of what we know in connection with mortgages, bonds and loans is very much a reflection of our learning from parents, peers and the media. In most cases, this is what urban legend is made of, perceptions without facts.
In my investing career, I have had to unlearn most of what I knew about financing property, and I am sure you will learn a great deal from a few “myth busters” outlined below.
Debt Is Good!
Most of us learn from a very young age that owing money is not a good thing. Having debt is denounced in most societies, more so in the African Community. On the contrary, having no debt is branded as a good thing and this becomes a bragging right in most social interactions.
Without being judgmental, we all know cases where debts and loans has gone awfully wrong and where families have ended up on the streets. This is scary and to say the least petrifying. If you have gone through it once, it leaves an indelible mark on your understanding of debt.
On the other hand, there seems to be no one out there who is willing to show you the positive side of debt, what good it can do, how it can help you build wealth and how to differentiate between good debt and bad debt. Robert Kiyosaki, in his classic book “Rich Dad, Poor Dad” gives a great explanation of these two different types of debt.
In the most simplistic definition, bad debt is any debt that is acquired on a depreciating asset i.e. any asset whose value is decreasing with time.
The best example of bad debt is debt on a car. There is a tendency to purchase a car on credit. This is universal and Vehicle Asset Finance (VAF) is a key aspect of buying vehicles the world over. This type of finance is highly structured into either credit with deposit or without, balloon payment or no balloon payment, over 48 months or 60 months and so on. The monthly payments are also made to look easy with honeymoon periods of non-payments and window periods of suspended payments in between the finance duration. There are so many variations on the way in which you make the payments. However, no one is eager to tell you that bottom-line, you are buying a depreciating asset.
To read more on this be sure to order you copy of Build a Legacy today.