Being Financially Free vs. Debt Free

why being financially free beats being debt-free all day long that's today's episode let's dive into it hey everyone I'm Clayton Morris I'm Natali Morris and this is the investing in real estate show this is the show where we help you build financial freedom live the life that you want enjoy your afternoons and hang out with your kids hang out with your wife like this one she's my wife and we talk real estate on this show but we and we use real estate that's the means that we've achieved financial freedom other people can do it with performing assets like gold or you know hey even warehouses right or mobile home parks or God knows what else right yeah notes no I don't know small businesses yeah there are a lot of ways to think of performing assets exactly right so we talk about financial freedom in fact we have our freedom cheat sheet that we just recently revised it's totally free if you come to our website Morris invest calm slash freedom you can download it for free and it kind of walks you through step by step how to live financially free and you can see so excited about financial freedom she dropped her pen so yeah come on over to our websites our last name morris invest calm slash freedom download it but today we wanted to talk about like the financial freedom piece that's the goal but a lot of people love you know the Dave Ramsey's that would love to talk about just getting out of debt yeah as freedom but that's not freedom not necessarily do you remember in high school when everyone would agree to drop their pin at a certain time yeah on the substitute teacher I feel like I just did that I pranked you that's cool right okay so you know I do want to talk about debt today this has been top of mind because I had been reading a few real estate books and specifically around protecting your castle right because the word loophole comes from the crenellations of a castle where you would sort of sneak through and be able to shoot an arrow at anyone advances yeah it's the top of the castle that has looks like where you can like points through right and so that's where the word loophole even comes from actually that's an arrow the arrow loop is the hole on the side of the castle where you shoot the arrows right yeah that's where okay maybe it's not necessarily crenellations are like holes holes in the castle where you protect yourself so loophole has kind of a like a negative connotation in our language but really it just comes from the idea of how you protect yourself right you like put a hole in your estate so that you can make sure that you are ready to fire off attackers Vikings about to attack any Vikings at any time could be attacking your 401k right so because I've been reading that I have sort of been re-evaluating the way I think of debt now we're always kind of like oh we should just pay off all our mortgages right we should pay off this debt or that day but when you think of debt you can also think of it as a protection because if someone were to sue me for the value of my estate right and let's say I live in a home that's worth two hundred thousand dollars but I owe a hundred and fifty thousand dollars well that means that I have gone into a government agency and signed for the fact that my mortgage or is going to have first position on this debt right the lien holder is the is Bank of America or whatever right they have the first they have the first position and not some guy who suing you right so if I have a mortgage for over eighty percent the value of my home well then no one can sue me for more than twenty percent so debt can be asset protection and I had not really thought of that in that way before so that was one way in which I thought well debt can be pretty great right now it doesn't really work that way with like a student loan or a car payment right if someone's going after you for a certain amount of money and you have the cash your sort of car lender Nissan is not going to say well we get this money first right it doesn't work that way and so debt on your assets obviously like your real estate investments is much more protected than say your credit card debt because visa is not gonna get in line for that kind of thing right so if you're able to buy you know a package of properties or you're able to buy a $500,000 building and you're paying you know 5% interest to the bank but you're making 12 percent or 10 percent return or even 9 percent return or 7 percent return there's still a differential between what you're paying the bank and what you're making but that debt is also a protection it's an asset protection right exactly right so you know we've been accelerating pay off on several of our liabilities but this gave me a little like I tapped the brakes a little because I thought well ok I could think of this debt as asset protection also the interest on this debt because it's interest inside of entities like an LLC is a write-off so that's obviously a tax deduction and that's a benefit but also you know I don't want to fixate on paying down low-interest debt when I can use that money to make higher returns so this is the teeter-totter we're always talking about like you put your two options on two sides of a teeter-totter and see which one you make more money or pay more money for right right and so again it's allowing your tenants to pay your debts right so buying an asset a performing asset with the money from someone else enables you not only the asset protection but then you have this you have this personal you have this asset that's now added to your net worth your tenants are paying the rent which is paying down that debt but you're protected because you won't like because you know not only or do you have it in a business entity but you also have it owned or the debt is in first position with a mortgage note right the the equity there is spoken for so let's just talk about your primary residence because many of you watching probably have a primary residence and so to Natalie's point like if you had a $200,000 house you owe 150 on it to a bank you have it in your own name you could only be sued for a portion of it and and nobody who's suing anyone it would just they're not gonna do it bottom line because they know they're never gonna get access to that because there's like Bank of America has a bigger position than coming after you so then there's additional ways to protect yourself as well with that house right by putting it into a trust taking it outside of the government's ability to get their hands on it so putting it into like a dynasty trust making sure that you're protected right even at a higher level yeah that's definitely outside the purview of this podcast we should do a whole episode on trust and dynasty tres oh and protecting your primary home even yeah that might be a good one to see if Andrew would get on the phone for Andrew how is our lawyer and so we're not giving you any advice about how to own your primary home but we want you to sort of change your mindset about debt now also a lot of times someone will say well I've got this four percent interest on a car loan should I just get rid of that before I start investing well that depends on where you're going to start investing right if you're going to start investing in the stock market and making four percent on a good day then maybe that money is better spent not paying four percent to the car company right but if you know you can do better than four percent which must really invest real estate investors in New Jersey are aiming for around eleven percent and this is a really expensive place so elsewhere where you're not living in an expensive market people are aiming for between ten and fifteen percent so if you can secure an investment for let's say ten percent but your car loan is five percent well duh keep the money in the don't take that chunk of money and pay off the car take that chunk of money put it in ten percent and you've created five percent right exactly right I recently had a question from a listener who I think was a pharmacist and had a hundred and fifty thousand dollars in pharmacy debt from you know student loans wanted to know whether or not they should be paying off that pharmacy debt or investing and that goes to the same thing that Natalie just said which is well it matters it you know your the interest point matters later are you gonna take a hundred and fifty thousand dollars and just plunk it down on this debt or are you gonna work as a pharmacist and then make great money and then also be able to by performing assets and allow your tenants to pay down your pharmacy debt right right and then you're increasing your net worth you're creating a tax shelter your that's financial intelligence right there right because think of that one hundred and fifty thousand dollars do you just put it in that and then it's gone right so you've nothing to show for five percent but or do you take it and put it in a ten percent return and then you continue to pay that five percent to the lender but you've created five percent in between that's yours right right yeah I mean like good rule of thumb people ask me all the time like what's a good return well it's like you know the stuff we buy is between like seven and a half eight percent on the you know up to about twelve percent you know some of our like our c-class stuff but we you know aim and that sort of B Class range you're looking at between like seven and twelve percent return and then if you have got a debt of four percent use that additional three and four percent you just pay it back and you don't have to be involved in it let your tenants pay your pharmacy bill yeah exactly so that's how to live financially free that's how to have financial intelligence right that's what we try to teach you here all right yeah and it's just sort of a more feel good way to think about your debt because we we have so many again negative connotations with not only the word loopholes but debt as well and debt is not necessarily a bad thing now you know we're making no judgments on what you spent that debt on in the first place so whatever your values are hopefully you're using it wisely right right and don't bring up the boat again he always says not to buy a boat no no I was gonna say something that I was seeing about the pharmacy job right yeah it's a smart like that one hundred and fifty thousand dollars is likely going to provide a good salary for this individual for many years to come so as long as the debt makes sense right going into debt to be I don't know an artist and then you're not gonna make any money look you got to really think about their returns right what is the return limiting belief as well sure okay but yeah are you gonna be a Picasso I'm just saying we're not gonna make judgments on people's like this is so hard for Clayton you know because it's really important to think about you're getting ready to go to college do you you want $300,000 in debt but then you're only gonna make 40 grand a year for the rest of it like this the are alive okay I understand what you're saying right but don't discourage anyone from artistic expression I'm not just saying don't just is my artistic us it right you can go out and become an artist you don't have to pay $300,000 to learn from somebody how to do it anyway you don't know that why are you think about people's lifestyles I'm not I'm just saying B I think I think about the debt that I got from college if I had to go back and think about is the ROI there right I mean it's not and we would talk about return on investment on this show we talk about financial literacy okay like why would you spend four hundred three hundred thousand dollars someone that experience may be invaluable you're a dot like if you're gonna become a surgeon and you know that you're gonna make five hundred thousand dollars a year that makes sense right then the return on that investment makes so you don't know what something will make of you before you get into it ever so I don't want to discourage people's experiences or put I fight for your right to go to art school okay dear listener and if you doesn't pay back well then maybe you had some other enriching experience like I just want you to think about it in a more practical sort of freeing way about this specific type of debt right so yeah I love that high in the sky yeah why are you saying this we have a lot of Picasso's watching no I'm to say all right fine I get it I get what you're saying I'm just saying think about it wouldn't you know I'm gonna have this discussion with our kids before they go up there yes yes right yeah so you know right I'm not paying for them to go something to something they haven't thought through right but I'm just saying we may have some listeners who might have some beautifully creative experiences that we don't know what they're gonna get again I don't want to discourage you from why this is a tangent yes this is a financial intelligence show that's what we're talking about here I'm not talking about people's dreams and hopes around art and crayons all right so let's say you're in the loop that is gonna do it for today's episode well investing in real estate podcast thank you so much for sitting in on our marital discussions today on whether or not your kids should go to art school go out there live live financially free and have financial intelligence how about that all right and become a real estate investor its field of dreams here and go out there become an artist spend $300,000 carpe diem everybody get an art degree we'll see you next time.

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