Is Owning Debt Safer Than Equity?

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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