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In today’s episode, I dive into a question that may seem a bit counterintuitive: could debt actually be safer than equity? When it comes to real estate, we’re often taught to pursue ownership and build equity, but what if taking a debt position – being the lender instead of the owner – offers more security?
I share how banks view debt as a low-risk investment by ensuring they’re first in line to be repaid, a concept known as "priority in the capital stack." As I’ve seen in my experience, lenders often get paid before equity investors, particularly in challenging economic times. I cover how debt positions can yield stable returns with less risk compared to traditional equity investments, especially in uncertain markets.
00:00 – Is debt safer than equity?
01:05 – Welcome to Money Ripples
02:20 – Equity versus debt in investing
04:00 – Banks’ preference for debt
05:45 – Equity mindset versus debt
07:30 – Debt's position in capital stack
09:15 – Understanding senior and mezzanine debt
11:00 – Risks in equity investments
13:20 – Why banks prioritize debt
15:10 – Real estate market downturns
17:00 – Choosing debt over equity
19:30 – Example of debt priority
21:00 – Common pitfalls in equity
23:15 – Benefits of private lending
25:00 – First position in lending
27:05 – High equity as bank temptation
29:10 – Debt in rental properties
31:00 – Wrapping up and key takeaways
#gooddebt
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