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If you follow many of the financial gurus you will quickly hear about how we should...

If you follow many of the financial gurus you will quickly hear about how we should live debt free and maybe even cut up our credit cards. However, does this debt management advice apply to an investment portfolio? The question we are really asking here is about leverage. Should we strive to eliminate it or maximize it when creating our real estate portfolios?

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Rather that eliminating debt altogether, it makes more financial sense to maximize it. Taking debt to increase investment portfolio will yield higher returns since the debt taken will have a fixed cost but the returns from the investment/ real estate would be greater than this cost. However debt also increases risk of default and so should be taken in moderation.

With real estate there is a dual benefit of taking debt. The cash flows can start immediately in the form of rental income. This can be used to pay off the debt. Thus taking debt will help one to create a permanent asset which will also appreciate in value.

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