Why The Wealthy Go In Debt for Assets They Can Afford

本站添加: 2026-05-22

[00:00:00]Most people spend their entire [music] lives trying to get out of debt. The wealthiest people I have worked with spend their lives getting into debt, using debt to strategically build more wealth. The difference not reckless and it's not greed. It's simply understanding how the tax code [music] treats borrowed money and how the IRS actually rewards you for borrowing to invest in the right [music] assets. I'm Tom Wheelwright, CPA and best selling author of Tax-Free Wealth. And today, I'm going to show you exactly why the wealthiest clients I've ever had [music] borrow money to buy assets they could have paid cash for. Almost everyone is taught that debt is dangerous and the goal is to pay it off as fast as possible. I had a buddy and he was a land investor and he paid cash for everything. He paid cash for his car, he paid cash for his house, he paid cash for any land he invested in. He always paid cash. He was scared to death of debt like most people. Now, my 40 years working with both middle-class earners and nine-figure clients, the difference in their relationship with debt, it's miles apart. Where does the average person's belief actually come from?

[00:01:07]Well, here's what happens. The average person uses debt to buy a liability. I'm going to draw this on my whiteboard. I'm going to show you exactly the difference in a picture. Let's say this is your income statement and your balance sheet.

[00:01:20]So, these are your financial statements and by the way, even if you don't formally have them, in real life, you actually have them, okay? Because think about what you have. You have income, you have expense, you have some kind of assets, hopefully at least cash, and you have liabilities. Most people, when they borrow money, what they do is they take their hard-earned income, they buy a liability. So, let's say it's a car. Why is a car a liability? Well, because it doesn't produce income. So, first of all, let's get the definition straight.

[00:01:48]An asset is something that puts money in your pocket. A liability is something that takes money out of your pocket.

[00:01:52]It's Rich Dad, Poor Dad 101. So, a car takes money out of your pocket, not putting money in your pocket, not not a personal anyway. Or house, or a vacation. And what do they do? Let's say they earn $10,000. They combine it with a $40,000 debt to buy a $50,000 car. You know what we call this? Middle class.

[00:02:08]Middle class is always, when they get a raise, they go, "Oh, I can borrow more money." What are they most worried about? Their credit score. Why are they worried about their credit score?

[00:02:17]Because they can buy more stuff. But what does this kind of liability do? It makes you poorer because you have to pay that money off all the time. Let's say you got a raise of $1,000 a month and you save $10,000. You go buy this car, but now you're paying $1,000 a month off on the car. So, now you didn't really get a raise, you just got a car. $1,000 a month raise, that's pretty good raise.

[00:02:36]And yet you went and spent it on a car with a liability and you're paying interest to the bank. So, yeah, I'm all with those people who say you should pay this kind of debt off. I don't like this kind of debt, not this way. Let me tell you what a wealthy person does. They earn money and they buy an asset. Now, let's say they earn same $10,000. This is just a wealthy mindset. Doesn't have to be more money. Just a wealthy mindset. They borrow $40,000. But rather than buying a car, what do they do? They buy an asset. I'm going to change these numbers a little bit so that it's a little more obvious. I'm going to say they earned $100,000, $400,000, and they bought a $500,000 property. Okay? Let's say this is a property. One thing they could do, they could buy an oil well, they could buy business. But they buy an asset that puts money back in their pocket. Let's say we get 10% return on this, okay?

[00:03:22]After debt and on our money. 10% return on $10,000, $100,000. So, we're putting back into our pocket $10,000. Now, could we use that $10,000, that $10,000 to pay off, instead of let's not buy a $50,000 car, let's not buy let's borrow the $40,000. We'll buy a $40,000 car that we pay $1,000 a month on, okay? But where's the $1,000 coming from? It's coming from the income from the property. So, we earn the money, we put the money into an asset to buy a liability. Okay, but the assets buy paying for the liability, okay? It's not our income. It's not our earned income that's paying for liability. We don't want to take our time and sell our time for a liability.

[00:04:05]You don't sell your time for a car. The whole point of a car is to have more time. So, let me give you another example. We have investor A. Investor A buys a property $2 million in cash. So, investor A $2 million cash. So, they've got a $2 million property, okay? Nice.

[00:04:20]Okay? What do they not have? They have no interest deduction, which they have no cash going out. So, that's kind of a wash. Let's ignore that, okay? But, what do they get? So, watch my videos on depreciation and bonus depreciation.

[00:04:34]Read chapter seven of Tax-Free Wealth, okay? So, what's the maximum amount of depreciation they might get on that?

[00:04:38]Let's say they did no cost segregation, okay? And on that $2 million property, they got about $60,000 of depreciation.

[00:04:46]With bonus depreciation, they would get, say, $500,000 of depreciation. Or, $500,000, right? That's just the difference between bonus depreciation and no bonus depreciation. You'll see my other videos for that. But, that's what they got, 60 or 500. Now, investor B, they also have $2 million of cash. But, what they did was, they put $500,000 down on four $2 million properties. So, they bought four $2 million properties.

[00:05:09]So, they put 25% down, and so they actually bought an $8 million property.

[00:05:14]Now, I will tell you, these people almost always do cost segregations. But, let's say they didn't. Then, they would get 240,000 of depreciation without a cost segregation, or they would get $2 million of depreciation. Now, who do you think paid less tax? Well, certainly this guy paid less tax than this guy, and this guy paid less tax than this guy. But, this guy paid the least amount of tax at all, the one who did a cost segregation and used that. Now, you go, "But, wait a minute. What about I mean, you're in debt. All those payments."

[00:05:45]Okay, I'm going to run you some numbers on this. Let's say that your property produces 8%. It's an 8% what we call an 8% cap rate. So, investor A, [snorts] 8% gets them how much? $160,000 a year.

[00:05:58]Well, wow, that's great. I might be able to live on that. I guarantee you, if you've got $2 million cash, $160,000 is not going to pay your living expenses.

[00:06:05]Investor B, however, they buy an $8 million property. So, what they get is on their cash, it's still 8% and they get their $160,000 on their cash. about the bank's money? Well, if I'm at 8%, okay, and I borrowed $6 million. But, I'm getting 8% on the whole 8 million.

[00:06:23]So, if I get $160,000 here, I'm getting $640,000 here. But, yes, I am paying the bank, okay? Well, what am I paying the bank? Let's say I'm paying the bank 6%.

[00:06:34]It's about where interest rates are right now. I'm paying 6% on $6 million.

[00:06:38]6 * 6 = 36. $360,000 of interest. By the way, deductible, okay? So, the government's paying part of that interest. Most operators ask their CPA the wrong question. They ask, [music] "How much do I owe?" The right question is, "What should I do this year so I owe less next year?" That single shift is what separates the people who keep their capital from the people who hand it over, which is why on July 24th in Park City, Utah, we're running a one-day conference walking through exactly [music] how to align your business and investments with what the code already incentivizes. The link to learn more is in the description. What do I have left?

[00:07:15]I have $280,000. Now, let's make sure that number is right. If I had 2% on the bank's money and 2% of $6 million is $120,000. $120 + $160 is the $280.

[00:07:28]That's where that's coming from. I'm getting making $120,000 on the bank's money and I'm making $160,000 on my money. So, if the interest rate is lower, I make more money. If the interest rate is higher, I make less money. But, remember, I'm not paying tax on that $360,000 of interest that I'm paying. I may be paying tax on $280,000, but I took a $2 million depreciation deduction. Or, let's say I'm doing it every year. I'm getting a $240,000 depreciation deduction. Let's look at this. So, let me show you one other thing. You're going to have to watch this several times. Let's take this guy that's really conservative and has a really conservative accountant. Conservative meaning, I would say, a really less educated accountant, okay?

[00:08:05]So, they have $160,000 of income minus $60,000 of depreciation.

[00:08:10]They have $100,000 of taxable income.

[00:08:12]Now, take this person who's also conservative, not doing a cost segregation. They're getting $640,000.

[00:08:18]They're subtracting out their interest, then they're subtracting out $240,000 of depreciation, and they're only paying tax on $40,000.

[00:08:27]So, they're getting $280,000 versus $160,000 and paying less tax.

[00:08:33]Once again, this person is making $280,000, almost double what the first investor A is making. Investor almost double, $280,000, and paying only 40% of the tax than investor A paid. Now, if you go, "This doesn't seem right." Well, I'm not the one who makes the laws, but I'm going to tell you this is how the law works. So, I'm going to give you one more strategy that just blows this out of the water. I call it buy, borrow, die. Buy, borrow, die works like this.

[00:09:01]Remember all these deductions. Remember my debt. Remember debt, when I borrow that debt, that's not taxable. Debt is not taxable unless it's forgiven. It's not taxable. Why? It's not yours. You have to pay it back. So, what am I going to do here? I'm going to buy, borrow, die. And I'm going to start accumulating single family homes. I'm going to keep buying these up. I'm going to rent them out and make a little bit of money every month. I'm going to get tired of it.

[00:09:25]They're going to go up in value, hopefully, over the years. They absolutely will over a period of time.

[00:09:29]Okay, so they're going up in value. I'm getting cash flow, maybe a little bit, but I might need more cash. So, what I do? So, here, right now, let's buy. I need a the cash flow, I borrow. I'm tired of single-family homes. So, what am I going to do? I'm going to go buy a couple of apartment buildings. I'm going to exchange trade them. This is called a 1031 exchange. I'm not getting any tax on that exchange. Again, it's going to go up in value. I'm going to borrow some more and do some more borrowing. I'm going to get tired of the multi-family.

[00:09:56]I'm going to I want to retire. So, what do I do? I go exchange these for big box store, like a Walgreens. So, I go buy the big box store. This is also a 1031 exchange. I need a little more money.

[00:10:06]I'm getting some good cash flow from the Walgreens, which is my real estate backed bond, which is all that is. And what am I going to do? Well, I'm going to borrow some more. Let's say, in the end, I've depreciated this all down.

[00:10:17]Let's say I have a $200,000 basis, okay?

[00:10:21]I've depreciated down to $200,000. This thing is worth like 15.2 million dollars. So, that means if I sold it, I'd have tax of 15 million dollars. And I'm not going to sell it. I'm going to die holding on to it. When I die, the tax on that 15 million dollars goes away. So, that's basically buy, borrow, die. Now, is there risk to this? Yes.

[00:10:41]What is the biggest risk? Ignorance, lack of education. Those are the biggest risks. There are market risks. There are all sorts of risk to buy property. Those risks exist whether you have debt or not. The biggest risk is when you take a risk on the debt and you do an adjustable rate mortgage. People did it in 2006 and 2007 got hammered in 2008, 2009. People did it again in '21, '22 on a multi-family and they got hammered in 2023 and 2024. So, you want to mitigate that risk, don't do an adjustable rate mortgage. Do a fixed rate mortgage.

[00:11:15]Fixed over a long period of time. You reduce your cash flow cuz your interest rate's going to be higher, but you significantly reduce your risk. Do not do this until you practiced doing it and gotten lots of education understanding it. Do not do any of this. Don't go buy a property because you go, "Hey, real estate's going up. Oh, real estate's a good buy." Don't do it. Practice. Just like you would if you were learning how to trade stocks, you paper trade. Do some paper buying and renting in your real estate. Practice. Play the Rich Dad game, Cashflow 101. Play it multiple times with multiple different people.

[00:11:49]Now, here's the thing. If you do understand it, once you do get it, it's just magic. It's absolutely magic. Now, if you want to understand the specific investments the government will literally pay you to invest in, watch the video on the screen here.