Debt is a Cancer!

On April 15, 2011, the Feds closed Bartow County Bank.  It’s the third local bank to fail since the real estate bubble popped in 2006.  And this isn’t just a local thing.  The big boys have also been dropping like flies:  LaSalle, Bear Stearns, Merrill Lynch, Wachovia, Washington Mutual, etc.

Here’s the irony: The feds forced these financial institutions to close because they carried too much debt.  So what happened yesterday?  The federal government had its credit rating down-graded because the government is carrying too much debt!  (But who polices the police?)

In addition, Kim and I know plenty of real estate investors who have gone under in the last few years…and it’s not just investors who have tanked.  So have a ton of realtors, mortgage brokers, bankers, contractors and builders!

How did the federal government, the banks and these real estate professionals get into such dire straights?  Easy answer – DEBT!!!!  Remember: Debt is a cancer that eats you up until you’re dead.  End of story!

On the other hand, I don’t know of a single person who owned their properties free-and-clear who went under.  In fact, these zero-debt folks have thrived over the past four years.

Before you think I’m all high and mighty, let me tell you what a bonehead I was in 2004.  As real estate values began blasting into orbit, I begged Kim to let me borrow against our investment properties.  She just smiled and said, “No!”

I explained to her simple, girl mind that I was a man, a college graduate and that I could make a financial calculator sing and dance.  If she would just do what I said, I’d have us swimming in dough within three years.  Again she said, “No!”

To prove my going-into-debt-is-a-smart-idea theory, I challenged Kim to a game of Monopoly.  During the game, I borrowed against my properties to buy more properties.  But because my properties were leveraged, I couldn’t collect rents.  On the other hand, because Kim’s properties were free-and-clear, I paid her rent each time I landed on one of hers.  In short order, she put me out of the game.

Losing that game rocked my world.  I finally understood that debt is the enemy.  Kim, the smartest real estate investor I know, was 100% right.  I was just a big, fat dummy!

Folks, if Kim hadn’t have stuck to her guns in 2004, I would have refinanced all of our properties – including our home.  If I had, there’s no doubt that we would have lost EVERYTHING when the bubble popped.

Thankfully, after Kim schooled me at Monopoly, we became of one mind – DEBT IS A CANCER!  We hunkered down and paid off our home and many of our investment properties.  We took Dave Ramsey’s Financial Peace University.  We devoured Thomas Stanley’s books: Millionaire Next Door and Millionaire Mind!

The lesson: Don’t use debt to build your business or support your lifestyle.  As my daddy used to say, “If you can’t pay for it with cash, then you simply can’t afford it.”

Bill & Kim Cook are a husband and wife real estate investing team. They live in Adairsville, Georgia and have been investing in real estate since 1995. They specialize in buying single-family homes, mobile homes and mobile home parks. They also run North Georgia REIA and teach folks how to successfully invest in real estate.