“Millennium, taking a loan is quite risky!”
This was my friend’s reaction when I mentioned getting a bank loan for a property in 2018. He was echoing what many believe, that all debt is dangerous.
But here’s what he didn’t understand: there’s good debt and bad debt.
That “dangerous” loan? It bought me a property that pays me every month while building wealth. The difference lies in understanding how debt works for you versus against you.
How Nigeria’s Wealthiest Think About Debt
Look at Nigeria’s richest men – Dangote, Otedola, Rabiu. They didn’t build empires with their own money alone. They understood a fundamental principle: leverage other people’s money (OPM) to multiply returns.
When Dangote expanded his cement business across Africa, he used strategic debt financing. When real estate moguls acquire prime Lagos properties, they typically put down 20-30% and finance the rest. Why? Because using $100 million of their own money to buy one property makes less sense than using that same $100 million to control $400 million worth of assets across multiple deals.
The wealthy Nigerian mindset: Preserve capital, maximise leverage, multiply opportunities.
Good Debt vs. Bad Debt in Real Estate
Good Debt:
- Generates cash flow – Rental income exceeds all expenses
- Builds wealth – Property appreciates while you pay down the mortgage
- Tax benefits – Interest and depreciation are deductible
- Inflation hedge – Fixed payments get cheaper over time
Bad Debt:
- Negative cash flow – You pay out of pocket monthly
- Over-leveraged – No cushion for vacancies or repairs
- Wrong property – Poor location or declining market
- High-interest, short-term – Credit cards or expensive bridge loans
The Debt Magic Formula
Good debt pays you. Every month that rental property sends a check, you’re literally getting paid to have borrowed money.
Bad debt costs you. Every month you write a check to cover shortfalls, that debt is destroying wealth.
It’s that simple.
The Bottom Line
Wealthy people use debt to buy assets that make them money. Poor financial decisions involve using debt for consumption or speculative investments.
Real estate, when properly leveraged, can generate passive income while building long-term wealth. The key is understanding the difference between debt that serves you and debt that enslaves you.
Remember: You don’t need to avoid debt – you need to master it.
Your Next Steps
- Get pre-qualified – Know your borrowing capacity
- Run the numbers – Every deal must cash flow from day one
- Build reserves – Never leverage without a safety net
- Start conservative – Success builds confidence for bigger deals
