When it comes to taking out loans, they aren’t necessarily good or bad, it just depends on what you’d like to take the loan out for. As discussed in our previous blog posts, debts to pay for liabilities are bad, whereas debts to pay for assets are good. Generally, you want to make sure that whatever the loan’s money is going towards is something that will pay for the loan and itself after a time. Here are some examples of assets you could pay for using a loan!
Buying a property
While your first home may not necessarily be an asset, any home you buy after that will be, as long as you make a rental income from it that also pays off the interest on the loan and a little bit of profit thereafter! This is because the loan will pay for the home, which then pays for the loan over time! This method can take years to a couple of decades depending on how you operate the portfolio. For example, you could be someone that creates a large portfolio by accruing debt to a business to keep buying properties, so while you do have a lot of loans out, you’ll be increasing your company’s net worth and asset portfolio, which also tend to grow in value over time, protecting you against the debts. Or you could be the type that buys property one by one until they grow in value, pay for themselves and then wait until the loan/mortgage is paid off to buy more!
Developing a new skillset
While this option is a bit more nebulous than buying property, it could also be a fantastic way to make a loan pay for itself and more! By developing your skillset or learning new skills, you can increase your earning power, either in your current role, current area of employment or moving to another industry altogether! This might enable you to get a payrise or seek out a job that pays much more, or even take on an extra freelancing role on top of your full time work, such as writing text, consulting, online marketing or anything else that takes your fancy while also being profitable!
Starting up a business
Finally, we’ve saved the best for last! While starting up a business is always a risky endeavour and can never guarantee to make money for you, if it is a marketable business, that will pay you a salary or dividends, then it’s always the best option for a new loan! Assuming you’ve crunched your numbers successfully and have also tested a product or service has a viable customer base with a small amount of marketing budget first, then the loan will pay for itself fairly quickly, as well as pay more further on down the road!
Of course, Applying for a loan for a business should be the last step in the process of setting up a business. Before that, you’ll need to make sure you can run a business, that it’s an area you’re interested in as well as having a viable audience, that there’s a gap in the market for it and that your advertising skills are strong enough to get into it!