Why is property debt a good debt?

Many people fear debt. And in some cases, they should.

The ones to fear are outstanding credit card debt, personal loans, or payday advances. These can trap people in a stressful cycle of repayment and become a burden, blocking their path to wealth accumulation.

But what if we tell you that not all debt is bad?

In fact, in the world of real estate, when debt is used wisely, it can become one of your most powerful tools for building long-term wealth.

This is the mindset shift: Do not fear good debt. Instead, learn how to use and take advantage of it.

The power of leverage: How to use debt to amplify returns

Let’s start with a concept called leverage.

Leverage allows you to use a small portion of your own money to control a much larger asset. 

Property A - Imagine having $300,000 in savings. You could use that to buy a property and make a full payment for a 3-room flat. 

Property B - But how about putting $300,000 down as a 25% down payment on a $1,200,000 condominium and financing the rest with a mortgage if you can afford it. In Singapore, this is possible because of the government's Loan-to-Value (LTV) ratio, which allows up to 75% financing for your first housing loan.

Well, let's look at it further to understand how leverage works in your favour.

Picture both properties appreciating at 4% annually over 10 years. The fully paid $300,000 property would grow to approximately $444,000, a gain of $144,000.

The leveraged $1.2 million property, on the other hand, would grow to roughly $1.78 million, representing a $580,000 increase, achieved with the same $300,000 in capital. 

Considering the current value, would you prefer a $300,000 asset or a $1.2 million asset?

This illustrates what good debt is: it amplifies your returns without requiring all your capital upfront.

Beating inflation: Why loans become easier over time

Good debt also acts as a hedge against inflation.

Inflation erodes the value of your savings, but it also erodes the real value of your debt.

If your mortgage payment is fixed, what seems like a big commitment today will feel lighter in the future as your income and rental yields rise over the years.

For example, a $3,000 mortgage payment today might buy 400 cups of coffee. Twenty years from now, that same $3,000 might only buy 100 cups. But your mortgage remains the same, while your income likely increases.

Over time, your loan becomes easier to manage, and your property continues to appreciate in line with the market.

Stretch your dollar further: Use loans to multiply opportunities

Debt also gives you capital flexibility.

Instead of using all your cash on one property, financing allows you to spread your capital across multiple assets. This strategy helps you diversify your portfolio and keep cash on hand for emergencies, renovations, or even new investment opportunities in stocks.

For example, instead of putting $1 million into a single property, you could spread it across other investment instruments or spend on lifestyle needs.

Wealthy people borrow smart: Why you should too

Now, let’s address the elephant in the room: FEAR. 

Many people hesitate to take on debt because they worry about the risks.

Remember that many of the wealthiest people didn’t avoid loans. They used them smartly. They borrowed to buy appreciating assets and created a stream of income that eventually paid off the loans for them.

They weren’t afraid of debt because they understood how to make it work.

In Singapore, the structured property market and responsible lending practices make it even safer. Loans are tightly regulated. Your loan eligibility is based on either Mortgage Servicing Ratio (30%) or Total Debt Servicing Ratio (55%). These policies are in place to ensure you don’t over-borrow. 

So instead of asking, “Should I take on debt?” Perhaps the better question is, “How can I make debt work for me?”

Still afraid of taking on property debt? Let’s change that together.

The fear of debt often comes from uncertainty.

However, with the proper guidance, that fear can be transformed into confidence. When you engage us, we’ll help you understand your financial situation clearly, run accurate affordability calculations, and plan with your best interest at heart. 

With a comfortable loan structure tailored to your lifestyle, you’ll know exactly what you can afford. And more importantly, you’ll move forward with peace of mind.

Let’s make your next property move a confident one. Contact us today.