How to Use Debt as a Tool (Not a Trap) in Real Estate Investing

For a lot of business owners, the word debt sends up a red flag. Maybe you’ve heard it your whole life: "Debt is bad." But like a lot of things in life and business, the truth is a little more nuanced.

Here’s the reality: Not all debt is created equal. When it’s used smartly, debt can actually help you reach financial freedom faster—especially when you’re investing in real estate.

Over the years, I’ve had countless conversations with business owners who hesitate to get involved in real estate because of the fear of debt. I get it. But when the math supports the decision—when the returns outweigh the costs and the risk is properly managed—debt becomes one of the most powerful financial tools in your toolkit.

Let’s break it down step-by-step:

1. Understand the Difference Between Good and Bad Debt

Good debt pays you back. Think about acquiring real estate where the rental income covers your mortgage—and still leaves you cash-flow positive. Bad debt, on the other hand, drains your resources without any return.

In my practice, we always ask: Is this debt working for you—or against you?

2. Use Cash-on-Cash Return as Your Compass

Cash-on-cash return measures how much income you’re earning compared to what you invested out-of-pocket. It’s one of the simplest and clearest ways to evaluate a real estate deal.

For most clients, I target a 10% or higher cash-on-cash return. If you can't hit that number, it might be time to walk away or rework the terms.

3. Be Conservative With Your Numbers

This one’s critical: Overestimate your expenses. Underestimate your income. If the deal still produces positive cash flow under those assumptions, you’re managing your risk the right way.

Because let’s be honest—real life rarely plays out exactly like the pro forma.

4. Explore Different Financing Models

You don’t have to go it alone.

There are plenty of ways to invest in real estate without personally guaranteeing every loan—through partnerships, REITs (Real Estate Investment Trusts), or fractional ownership platforms.

Part of the planning we do is figuring out how much risk you want to take on—and how directly you want to own the assets.

5. Know Your Risk Tolerance

Debt isn't for everyone—and that’s okay.

If you’re not comfortable leveraging debt to grow, you don’t have to. But if you're looking to scale faster, smart, well-structured debt might be part of the solution.

The key is matching your strategy to your goals and risk appetite—not just doing what your neighbor is doing.

Final Thought: It's Not About Debt. It's About Control.

The real question isn't “Is debt bad?” The question is: “Do you know how to use debt to your advantage?”

When you control the terms—when you understand the numbers, manage the risks, and have a plan—you’re using debt as a tool, not falling into a trap.

And that’s how you build real wealth.

If you’re curious about how smart debt strategies could fit into your bigger plan, reach out. I’d be happy to walk you through a few real-world examples—and help you find the right path forward.