Negative cash flow:

If cash is truly flowing out of you, then yes document it on a schedule 'C', 'E' or 'F' and use that to lower your taxable income.

However generally losing real money on an investment is a bad thing.

What we tend to look for, is paper loses. Depreciation is a good one. Repairs and improvements are good ones.

:)

Is this good debt?


http://kiva.org/app.php?gclid=CLD7wM...FQw7gQodvTTebQ

To borrow $1,025 so that you can hire three other bakers to increase your daily production of buns each day?

Sure.

Thank you veggrower. The stuff I quoted didn't seem quite right to me but I haven't done a tremendous amount of research on mortgages yet either. With all the unconventional type mortgages around now it pays to ask.

I know of lots of broke people who borrowed to create wealth in real estate and stocks too! If you factor risk into the equation as well as taxes, most of the time borrowing to make money isnt worth it. And what if the game plan doesnt work? Ie your bank gets bought out and your notes are called due? Stock crashes? House cant sell becuse of bad market? Talk to trump -- hes been bankrupt 3 times or more - not for me -- now I wouldnt mind lending money -- that usually makes money but even banks and svings nd loans have and are collapsing due to bad loans!

You'd rather loan money than rent a house to someone? You are a brave soul patarini!

I'm thinking that I only collect about half of what I loan out and when it comes to my kids, it's probably closer to 90% that I'll never see again, whereas I collect 99% or better of rents due me.

I know lots of folks that invest in real estate and the vast majority of them are successful in what they do. I know a few over the years that didn't succeed and bailed, but even they mostly recouped their initial investment.

I would only be looking at selling a property, if I were of a mind to be flipping properties for a quick profit.

I prefer to hold onto properties instead, since a property makes you money each month, month after month, year after year, I never understood flipping.

Now I did eventually end up selling most properties that we had, but it was because they were too scattered out. East coast, West coast, Europe; just seemed like a bit too much scattered to me. So in my retirement I have consolidated down to only one MFR.

Banks don't want to foreclose. But in a down economy + a down market they have no choice. A banks balance sheet must be in order. They can and will call the loan if need be. As for what happened in the 80's. If you remember the banks had their balance sheets covered by the federal government. So they wouldn't have to take the homes of people. They made Fannie Mae to relieve this but it could fail in the future. See you goto a bank it gives you the money then they sell the loan to Fannie Mae to offset the debt on the balance sheet. That is how it works. I'm sorry to say that Fannie Mae is loosing billions so it wont last long.

You are saying that even if you keep faithfully making payments on your mortgage note each month.

That if the economy is poor the bank is going to foreclose on you anyway?

I don't think so.

Debt
 

As far as Debt goes I have to say in my eyes all Debt is bad, Not that we all dont have to use or borrow at 1 time or another and I have myself but I feel we rely on it to heavily and then pay out the rear for a lot longer than it would take than to just save for things, I personally try to pay cash for cars, any investment property , pay credit cards off monthly , and only borrow if necessary or something looks like a good buy and that isnt very often since I wouldnt buy something if I didnt have a buyer for it for a quick turn around. I feel Debt is ruining this country and just look at the delinquincy rate on homes, credit cards and everything else its a delima in this country and is driving up other costs, buy now pay later isnt working and needs to be stopped, buy now pay now would help people to be better planners and managers.

I'm glad some of you folks don't like debt, makes more available for me! Heck, I've bought houses on credit cards even. The amount I've paid in interest over the last few years is next to nothing, since it seems that every credit card company is lining up to loan me their money at zero interest for up to 18 months. The most I might have to pay is a 3% transaction fee but many of them even forgo that.

I like using other peoples money!

Some years ago, Sears increased my credit limit to a ridiculous amount for some reason. I do get quite a few appliances there for various rentals, but I didn't know what to do with all that credit.

I'm always looking for a way to make credit work for me so I started offering rent to own appliances. Want a brand new washer and dryer? No problem! Only 35/mo and I'll have them sitting in your house this week, what models do you want? After two years they own them or I'll even buy them back! So in essence, even though I might pay some interest on the appliances, I still make several hundred dollars on the deal. Sears offers me 12 months at zero percent plus free delivery. I make sure to pay the stuff off before the year expires.

I haven't been stiffed yet. I've had to buy back and resell some appliances, but 95% of the time the money just shows up in my mailbox each month. If someone is in arrears, it just takes a phone call with the sad information that I need to come by to pick up their washer/dryer/refrigerator and they'll lose what they have invested in it and the money magically appears.

Debt
 

I would say then if Debt works for you to go ahead and use it, as for me I would rather not use it and just use my own money because I can, and like you starting a rental business I just keep collecting the rent checks from property thats been paid for by the poor souls who got in debt to deep and are trying to climb back out,

That is what can happen. I'm not saying the bank wants too. But if the loan value v/s the balance is not in order than they will take your home if things get ruff. READ the small print that came in your packet when you got your mortgage. It's their. The government wont let it not be in their. Part of being FDIC insured.

FWIW: They can, but it rarely happens. For instance in a town where the majority of the folks are employeed at a local factory, and the factory closes. Some banks may choose to foreclose, and the homeowner has the option to either find another lender or go into foreclosure. The reason is so the bank doesn't take on a huge loss later down the road if the homeowner can't make the payments and the local property prices are in the toilet. The logic is to either force the homeowner to seek a loan with another lender to take the risk off their books, or to sell the home near the top of the market and therefore avoiding any significant losses.

Although its probably unlikely to happen. For one, the money to finance mortgages comes from OPM (Other Peoples Money), not the bank's, and Mortgages are typically covered with default insurance. However I suspect the because of extensive use of "No Doc" loans and improper risks assestments, insurers will push to void default insurance policies.

I disagree.

I have seen banks trade their notes to unload, rather than foreclose.

Heck yeah! A perfect example of good debt.

Debt is a great thing. Especially for those who don't have it!

For too many people, money is a drug, not a tool. It should be a tool, and work for you.

Money is a tool, and debt can work for you; however you must be careful with it.

Debt when it is earning you more money, is generally better.

Debt to cover daily living expenses is bad.

I think land will only continue to go up in value. It is a limited resource while humans are continuing to increase in numbers. So more people (rich or poor) need/want to purchase land every year.

After we "finish" raising our children, we will purchase more land to farm and to provide for our grandchildren.

Sooner or later other states will become like New Jersey, where any open space is in demand, from hunting clubs to individuals who just want open space around them. We can name the price on our 50 acres of swamp with our little 1250 sq ft house and outbuildings for someone with the cash that wants to just hunt deer.

debt
 

The word for "investing" using borrowed money is gambling. I think the one single item that has brought our country down the furthest is DEBT. Companies operate on it; families live in it; our country now exists because of it, putting every citizen here is mortal peril. Debt is a bad bedfellow - it never sleeps. Thinking you are living well when you have debt is an illusion. The availability of debt breeds greed and irresponsibility.

Think back to when debt wasn't the accepted way to live.....people were responsible, even the kids. They were morally strong, mostly fit and generally hard workers. They knew where a dollar came from and what they had to do to get it. WORK. Lack of debt enabled them to survive the depression with their lives and family intact and help others at the same time. One of the reasons our country is headed for a new depression is because if DEBT. Debt is not good. You are a slave when you have debt.

For our double lot with a 1200 sq. ft. home we pay almost $2000/year. We had hoped to live in this house after retirement in 25 years but I don't see that happening. Next time they appraise us and raise our taxes again in 2 years, we'll be paying over $200/month in rental fees to the government.
People are moving here to commute 3-4 hours a day. Our cost of living here is now close to Seattle's cost of living index, but with 40% of the wage.

We are at a point now where the cost of the house does not allow for purchase for rentals. The mortgage payment cannot be supported by rental fees alone even if you cram 8 people into a 3 bdrm. place which is pretty common. Even if you did this and covered your mortgage, it wouldn't cover the cost of the damages the renters will do to the property.

being out of debt is SOOOO GOOD!!!!!!!!

For us, it is a faith issue. We bought our house without debt. We bought our cars without debt. I have never worked outside the home. It can be done....but it's hard. Most of the biblical warnings deal with charging usury (interest) but if it is bad to charge it, isn't it equally bad to pay it? Just our personal conviction...

Proverbs 22:7
The rich rules over the poor,And the borrower becomes the lender's slave.

proverbs 28:8 He who increases his wealth by interest and usury
Gathers it for him who is gracious to the poor.

Exodus 22:25
" If you lend money to My people, to the poor among you, you are not to act as a creditor to him; you shall not charge him interest.

'You shall not give him your silver at interest, nor your food for gain.
Leviticus 25:36-38

Deuteronomy 23:18-20
" You shall not charge interest to your countrymen: interest on money, food, or anything that may be loaned at interest.
You may charge interest to a foreigner, but to your countrymen you shall not charge interest, so that the LORD your God may bless you in all that you undertake in the land which you are about to enter to possess."



Esther 3:7-9
He does not put out his money at interest,Nor does he take a bribe against the innocent He who does these things will never be shaken.


Ezekiel 18:7-9
he lends money on interest and takes increase; will he live? He will not live! He has committed all these abominations, he will surely be put to death; his blood will be on his own head.
he keeps his hand from the poor, does not take interest or increase, but executes My ordinances, and walks in My statutes; he will not die for his father's iniquity, he will surely live.


Ezekiel 22:12
"In you they have taken bribes to shed blood; you have taken interest and profits, and you have injured your neighbors for gain by oppression, and you have forgotten Me," declares the Lord GOD.


Romans 13:8
Owe nothing to anyone except to love one another; for he who loves his neighbor has fulfilled the law.

Good debt, bad debt, wise "investment", poor "investment......

It's all moot if you go back just 80 years or so in history and research notes vs. substance in the discharge or payment of a debt.
There is a reason why we were enticed into a paper money system.
There is a reason why the source of all lending "capital" is the European based Federal Reserve. The borrower is slave to the lender. The US economy, of which we are all a witless part, is the slave. Who is the master ?

http://presys.com/~ekklesia/movma.htm

The gestation period for this demon from hell is about over.
Who do you owe your life to ?

I'm thirty. I have a three year diploma, a Bachelors degree and a Masters degree. I paid for all I could by working from the age of fourteen, and by continuing to work the entire time I was in post secondary school, and by getting scholarships, grants and fellowships, but I still have a good sized student loan. My education is a huge part of who I am now, so to me that is a good debt, and I'm glad to pay it all back with interest.

I have been renting apartments and houses to live in for 11 years. To me, paying that rent check every month feels like paying off a bad debt, a small 30 day debt that is preventing me from building equity.

My husband and I just borrowed a hefty sum for the purchase of 160 acres just 20 miles from a city that is going through a land and housing boom right now. We are subdividing it and selling three peices. We will be able to sell them all for enough to pay off the land debt and to build our dream house. (We have modest dreams, mind.) What a wonderful debt that is to enter into!

Money is money, and it can make you or ruin you. It just depends on how you handle it.

Wow! I can't believe this thread is still alive! I've been loaning money left and right since February with no disasters yet, I did see something quite disturbing yesterday,though. I was up near Lake Norman, the new "hip" place to live and the consumption was unbelievable, the cars, the boats, the houses, the clothes, it was insane. Along with using debt as a tool, I also believe in putting up some nuts for the winter, I have a hard time believing that these folks were doing that, but maybe they are. Something I have learned from banking is that you never know anything about a person's financial situation until you see the numbers! Us folks on the bottom like to believe that those folks with all the fancy stuff have shot themselves in the foot to get it, and some of them have, but the fact is, there are also a ton of them that have millions...

Investment debt is usually a very good thing, if you know what you are doing. Most people with any measure of wealth whatsoever got that way through investment debt; usually in real estate.

I despise debt, both mine and others. Unfurtunately my emotions cost me an extra $200 a month.

I paid cash for my land and all the improvements to make it livable. Now I financed a very nice double wide at a fraction of my old mortgage but because I am a tin hatter I insisted on a chuttle loan that cost me 10% interest instead of my banks 6.5% offering. Even I think I made a mistake but bottom line is that if SHTF (personal or global) they can drag off my house but the land and all my time in it are still mine.

Well said.

My grandfather was able to do it without any debt, purchasing lots, building houses and renting them out.

I have done fairly well buying apartment buildings, using debt. Zero down and rental income covers all expenses. Until I had enough cash to retire and purchase our farm without using debt.

What a subject. I think Veggrower pretty much summed it up in his first post. My Grandfather, who lived through the depression and was a (or should I say "the") school master in the area, always told me "Debt ruins people".
Very true words.

Unfortunately, we don't live in a simple or even honest society anymore and debt is a fact for many. With that in mind, I couldn't think of a better way to summarize the conditions when debt would be "good" than Veggrower.

We're living at the end of an era. I own my home and farm outright. Acquaintances (notice I didn't say friends) keep saying "Build another house in X community.

Well...these folks believe in debt. Both people work good jobs and make good incomes. They have mortgages that require one full salary to make. They both drive new cars that are financed. Both husband and wife as well as muffin the daughter and little bumblebutt Jr. have the latest fashions, newest computers, weekly hairdos, greatest soccer camps and all the bells and whistles money can buy.

I won;t get into how Muffin the daughter will be entertaining the football team and little bumblebutt Jr. will be snorting coke because EVERYONE IS AT WORK when they get home...but I will tell you that in an unstable and plastic society one of the parents will lose their jobs sooner or later.

Then the entire house of cards will fall.
For those that like the new cashless society and think debt is GOOD. I say "go for it"

I never have been very sympathetic and expect I will get less so when the crying starts.

Whew...I haven't ranted like that for a long time.

All throughout history-who consistantly have been the wealthiest people? Land Owners.

What seperates the wealthy from the average? Multiple sources of income.

My mantra-Buy Land when you can. They ain't making more of it! :)

Work a second job. Even if that second job is throwing scratch to chickens! :dance:

There are a lot of couples that need both salaries to make ends meet, myself included. I say it is because of our lawsuit happy society that this is bad. It is easy to have a frivalous lawsuit brought against you and then have a wage garnishment put in place. Because of this every couple should have their budget where the household could maintain on what only one spouse is capable of earning for at least seven years.

when 'the donald' went bankrupt, it wasn't really him that was bankrupt, it was his ownership of companies (ie, limited liability) that went bankrupt. i'm sure he had many millions that his creditors could not touch.

the wealthy leveraged-buyout funds and hedge funds today, are highly leveraged with debt, but they aren't *personally* liable if it blows up. last fall a hedge fund blew up, losing $6B in about 2 weeks (yep, billion, not million). the trader that made it blow up, started a new fund a month or so ago. it was OPM, other people's money, with no personal liability to him.

i once met a venture capitalist who told me he had no assets, it was all in trust funds, of which he was the beneficiary. (probably offshore, but i didn't ask). if he was sued, they would have a hard time collecting anything.

my understanding is that many small businessmen have to give personal guarantees for loans by banks to their business. they're generally very relieved when the they can replace those loans with ones that are not backed by their own assets.

the "wealthy" play this game with a phalanx of lawyers, and limited liability companies.

don't pretend that if you personally took out a loan to buy a house to flip, or rent out, with all your personal assets at risk if it fails, that you're playing the same game. if you're playing this game with your entire personal net worth at risk, particularly this late in the game, in my view you're taking huge huge risks.

--sgl

I love ramsey, He kicked us in the butt, and we are less then a year from being fully debt free.
" THIS IS MY FEELINGS, MY MIND SET"

I understand the need for debt, buying/building a home is the main one.
Debt is not a tool , it's a method to make banks wealthy, not you.
Banks are not non-profit.

To take a line from ramsey.
If you will live like no one else, later you can live like no one else.
(I now understand what it means)

I have done a great deal of budget counseling in the past.

As I was taught in the classes, and as I saw in folk's budgets; commonly we advised couples to stop that behavior.

When both adults work outside of the home, you instantly raise your cost-of-living.

You 'need' two commuter vehicles.
You 'need' two professional wardrobes.
You 'need' to pay someone to parent your children for you.
You 'need' to pay someone to prepare your food.

Each of these perceived 'needs' were created by the loss of a home-maker, and must be included into your budget.

If you insist you holding your cost-of-living high, then yes you do see this 'need' for two incomes. However couples bring it upon themselves.

In terms of balancing a household budget, paying off debts, and making solid investments; you do not 'need' both adults working. In fact you need to stop that costly behavior and work out your budget, so that you can gain financial affluence.

:)

There may be hope for the world after all.

One problem I've noticed about two income families is that many women consider it demeaning to stay home. For those ladies I can only say that there is no more important or difficult job than being a mother and homemaker.

Any damned fool can go out and earn money but raising children who have moral values and get them from Mom (and Dad but to a lesser degree) rather than the day care center or school and to maintain a home for the family....takes a very special person.
There is no Corporate CEO that has a bigger responsibility than that. Thankfully my Kids grew up, got educated, married and one has a child and will pass on their Mothers values to their kids.
On the other hand...they got most of their bad habits from me and their Mother was able to correct most of them.

There are lots more important things than material possessions.

There are many well informed view points represented here from people that seem to be debt professionals who have trained themselves in its responsible and well-thought out use. They are all in this with eyes open and fully take the risks in stride. Debt as a tool for generating income works for some, but I do not have the desire to go that route. I find that I am able to attain my desired quality of life at a much lower economic bracket.

I am speaking from the nonprofessional standpoint. I have used fully collateralized loans to enable me to have a home and a car that were safe and appropriate for my family. Yes, I took a risk each time I entered into one of these loan contracts and if things went belly up, I could have surrendered the collateral (or sold it and paid off the loan) to pay off my debt. I believe secured debt is a calculated risk but something that is not necessarily bad.

Unsecured debt is for someone who wishes to live beyond their means and/or can't control their desire for instant gratification. If you don't have the money to pay cash for what you want, then you can't afford it. Wake up! The bottom line is, if you can't afford it, then you must do without it. Unless you are a deadbeat who wants someone else to pay your way, or to let you use their money (hoping you will make good on the promise to pay them back). You presume greatly upon the future and your ability to make the payments for which you are obligated.

In an attempt to bring this back around to homesteading, IMHO debt is the kiss of death to a rural lifestyle. There are so many chances for things to not perform as you are counting on them doing out here. Local employers, even the "good" ones can dry up and move to Mexico at the drop of a hat. Crop prices can fall dramatically due to some incomprehensible political or government policy. The weather or health problems can decimate earnings from your fields and animals. Speaking of health, one herniated disc or other acute problem, which can happen in an instant, can destroy your ability to realize the earning potential of your land. So very many things which can destroy your ability to pay back your debts, most far beyond your control.

So I tell all homestead wannabes to stay away from unsecured debt like it was the plague. We all would like to start out with a nice tractor or a fine team of draft horses. But if we can't pay cash, get a garden tiller for now. If that too is beyond our means, get a fork and shovel. Pay your way as you go. The peace of mind, maturing influence of practicing delayed gratification, and lack of financial risk exposure (aka disaster potential) make this the most prudent choice.

In the early 1970's, my father was told by experts to "get big or get out" of farming and banks were lining up to loan him the money to expand. He refused to bite and so stayed small and got an off-farm job in construction. Other than dealing with the sadness of seeing good men lose it all in the blood bath of the 1980's when farms were going bust right and left, my father continued his small farming unscathed. Upon his recent death, my mother sold the family farm for over 10 times what they had paid for it. And was able to keep all the money since there was no debt against it. Use your heads! Stay the steady course and avoid temptation to get rich quick.

ovsfarm -

Well said.

Both sets of my grandparents bought into the debt load mentality in the 1920's. Buying farm equipment, seed, and petrochemicals. They loaded their soils with salts, and were greatly surprised when the poisons that everyone in Missouri, Oklahoma and Kansas finally brought about the 'Dust Bowl' era.

Had they not been in debt; had they not poisoned their soils; had they not followed the 'experts' they might not have lost their farms.

Add in the possibility of seasonal droughts, bad soil science, economic instability, and poor expert advice; and you do have a recipe for disaster.