Why Graham Stephan is happy to be $4 million in debt

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How could owing millions be a good thing?


Key points

  • Graham Stephan is a real estate investor with a newsletter and YouTube channel.
  • He recently published an article titled “I’m $4 million in debt. And that’s a good thing.”
  • Stephan is glad he borrowed a lot because he recognizes that debt has been essential to his wealth-building efforts.

Graham Stephan is a YouTube personality and a real estate investor and agent. He also provides online financial advice on various social media platforms and has a newsletter in which he offers insight into his “successes, failures, insights and experiences in the investment world”.

Recently, Stephan published a newsletter with the surprising title, “I’m $4 Million in Debt.”

Now, for many people, having so much debt would be a scary position, especially for those who subscribe to the philosophy that borrowing is bad. But Stephan immediately clarifies in the subtitle of his article that he thinks having to pay so much is a good thing. And there are a few main reasons why he’s happy to have taken out so many loans.

Here is what they are.

Borrowing allows him to use the leverage effect to grow his wealth

Stephan is happy to owe so much because he thinks his debt is the “key to my wealth”. He subscribes to this philosophy because he understands the concept of leverage.

He defines leverage as “borrowing money to invest…” in order to “multiply gains”. And he gives a simple example of taking a $100,000 loan at 1% that you could easily invest in assets that would earn you 4%. Taking such a loan would be a “no-brainer” since you make a profit of 3% even when paying interest.

Of course, he acknowledges that it can be harder to make sure you’re profiting from it when borrowing in a real-world scenario, as you typically won’t get a 1% rate. But he says qualified investors can gauge how much an investment — like buying a property — can earn over time. If the likely return on investment exceeds the interest cost, you can profit from the difference.

It recognizes the differences between good and bad debt

Stephan also says he’s happy to be in debt because he’s well aware that “not all debt is created equal”.

Certain types of borrowing, such as using high-interest credit cards to take on consumer debt, can hurt your finances. But, if you take affordable loans to acquire assets that will earn you more than the cost of borrowing, the loan in this case is not an expense but an investment.

He explained that his simple rule is don’t go into debt if it doesn’t make him money.

He takes advantage of inflation

Finally, Stephan pointed out that inflation can be his friend because of the loans he takes out, since he is able to repay his loans with money that is worth less than when he borrowed it for the first time.

Inflation is high right now and, as he says, “every million dollars of debt I take on is reduced by $75,000 when inflation is 7.5%.” Indeed, as the price of goods and services increases, the real value of money decreases. But if you have a fixed rate loan, you continue to make the same payment, but with money that doesn’t buy as much.

“The rates at which I have locked in my debt are much lower than they would be due to inflation,” Stephan explained. “So even though my money has less purchasing power given current prices, my past debt is easier to pay off.”

Stephan is absolutely right on all three points, and his explanation of why he’s happy to be in debt can help others understand when to borrow can also make financial sense for them.

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Ruth R. Culp