Good Debt

Who took my money? By Robert T.Kiyosaki.

One of the ways Robert had taught in that book was about how to make money through Real estate.

First you have to understand that not all debts are bad.

There are good debts, which helps you to leverage by creating more temporary wealth and bad debts which like everyone knows; credit card bills, loans for doodads(things that take money out of your pocket.). For this purpose I will be talking about debts and namely good debts.

Reasons for real estate versus Mutual Funds or Stock market.

Real Estate	Mutual Fund	Stock Market
Leverage possible. $9 loan for every $1 you put in.	No type of loans available	No types of loan available
Cashflow; meaning moneys comes to your pocket every month	Nothing comes to you until you sell.	Nothing comes to you until you sell.
Ultimately when you finish paying your loan, it becomes yours to keep	When you buy it, you don't own it.	When you buy it, you don't own it.

There are more to that but I just can't remember them.

Leverage.

Not in Stocks or Mutual Funds do you get to invest more than what you have.

For a Stock or Mutual Fund you choose to buy, If you have $10,000 You can only invest that amount. No bank is willing to loan you any amount for the purpose of stock exchange.

For a piece of real estate, With a $10,000 Down payment, You get to have a $90,000 Mortgage, Meaning the real invest value becomes $100,000 whilst you'd only have put in $10,000.

What is good debt?

IF the debt enables you to make money by having it, it is a good debt.

Assuming a property of $788,000

with a monthly rental of $4200

Value	788000
Down payment (~10%)	88000
Mortgage	700000
DBS's Managed Mortgage is at 6.25%
Yr1	700000*106.25/100=743750
Amount after Rental amount	743750-(4200*12)=693350(gain of $6350)
Yr2	693350*1.0625-(4200*12)=686284.375(gain of $7065.625)
Yr3	686284*1.0625-(4200*12)=678776.75(gain of $7507.625)
Yr4	678776.75*1.0625-(4200*12)=670800.296875 (gain of $7976.453125)

Please note that this is a real advertisement taken from the CAT classified.

Note that I've not added in property tax, and revonation and sorts. But you can get the idea of a Good debt from this example.

Not pumping in extra money from my own self, I've actually gained value from Money ($88000)

Which I wouldn't be able to get without a good debt. Comparing with this quote putting money into a CD,

HSBC S$ Time Deposit rates

	1 Week	1 Mths	3 Mths	6 Mths	9 Mths	12 Mths
S$50,000 to S$99,999	0.67%	0.74%	0.85%	0.91%	1.02%	1.09%

Assuming a generous rate of 3% for 3 yrs of CD,

End of 3 yrs,$88000*0.03=$2640

a 1/3 gain compared to the method I stated above.