Mike – the one who actually seems to like my blog – makes a good point in response to the other Mike, who doesn’t:
I’ve never taken out a loan from a bank for my personal finances. Bought every car 100% cash, and bought my first home (condo) 100% cash back in 2005…
On the businesses I’ve run there have been bank loans but I like to get things to where cash flow is coming in and no need to take out a loan.
Unless your business is very capital intensive I’d argue that investment money should come from cash flow and not bank loans. Granted, if you want to expand quickly you need access to capital but who faces this in today’s market?
Now, I’ve been recently told that the true meaning of the word ‘ambivalence’ isn’t a lack of care, but that you care equally strongly about two or more choices; therefore, I can claim that I am ambivalent about bank debt … let me explain by sharing my response to Mike:
1. I have a finance company that uses 90% borrowed money (it has to!),
2. I happily borrow 65%+ for my commercial property purchases,
3. I have zero debt on my houses ($6m+ between them).
So, I can make an argument for anywhere between 0% and 100% leverage (e.g. bank funding)
… and, I forgot to mention to Mike that my residential properties are funded 75%+.
Why don’t I pay down the properties now that I have the cash?
Well, if I was truly in Making Money 301 (wealth preservation) I probably would or should, but I have thrown myself back in to Making Money 201 (wealth creation) by making the property development site purchases that I mentioned in this post, last week. If I didn’t preserve my cash (i.e. by NOT paying down debt), then there’s little chance that I could complete these developments.