The case for debt
The wealthy borrow to live. You were taught to pay it off.
Debt is an extension of your cash reserves. This page is what that means in practice, with the numbers.
Debt is an extension of your cash reserves, with an interest cost attached.
Picture someone with unlimited access to debt. The size of their interest bill stops mattering, because there is always more debt to pay it with. Nobody has unlimited access, so the real question is how much your position can carry well, and how to structure it to carry more at a fair price. Access to debt is a strategic asset in its own right, and a savvy wealth builder treats keeping it open as a priority.
Most people run the opposite default: debt is bad, pay it down, keep it small. Run that way, debt loses its place in the strategy, and the financial services industry largely leaves it there. The result is missed purchases, extra tax, and a portfolio smaller than the household could have carried. The question worth asking is how to optimise the debt you have and the debt you can reach, so the whole position works harder for you.
How the wealthy run it
Assets grow. The borrowing funds the life. The debt is dealt with last.
Ultra-high-net-worth families rarely pay themselves an income. They hold assets that compound, borrow against them to fund their lifestyle, and repay or restructure the debt in retirement or through the estate. Borrowing costs them interest. Drawing income would cost them tax on every dollar, and the sale of assets that were still growing. The arithmetic favours the borrowing, so that is what they do.
The same logic scales to a household. Keep the assets growing, keep the borrowing capacity alive, and use debt wherever it produces more than it costs. The five uses below are where that plays out.
Five uses of debt
Every figure below is an illustration to show the mechanics. Your own numbers will differ, and the structure is what makes any of them work.
More assets working for you
Offered the same risk, most people would take 15% over 10%. The better question is how much capital each one lets you deploy. Put $100,000 of cash to work at 15% and it earns $15,000 a year. Use the same $100,000 as the deposit on $500,000 of assets earning 10%, with $400,000 borrowed at 6.5%, and the position earns $50,000, pays $26,000 in interest, and nets $24,000. Five times the asset base is compounding, and the return on your own capital has gone from 15% to 24%.
| Position | $100,000 cash at 15% | $500,000 geared at 10% |
|---|---|---|
| Asset income | $15,000 | $50,000 |
| Interest at 6.5% on $400,000 | nil | $26,000 |
| Net to you | $15,000 | $24,000 |
| Return on your $100,000 | 15% | 24% |
| A 5% fall in asset values | $5,000 lost | $25,000 lost, plus the interest |
The last row is the point of the structure. Leverage raises the stakes in both directions, so the buffers, the split of the facilities and the exit are designed before the loan is written.
Better monthly cash flow
Borrow at 6% or 7% and place the funds in assets that pay 10% to 20% a year. Income-focused investment strategies, resource royalties and well-let commercial property are the kinds of assets that pay in this range. Draw $500,000 against existing equity at 6.5% and the interest is $32,500 a year. Placed at 12%, the income is $60,000. The position is $27,500 ahead, about $2,300 a month, and it arrives every month.
Cash flow like this pays down non-deductible debt faster, funds the holding costs of growth assets, or becomes income. Every portfolio needs cash flow to sustain it, and a geared one most of all, which is why we build the income side before we add the growth side.
A purchase that is out of reach today
The family home is the obvious one, and the default is joint names and one loan. That default puts the largest non-deductible debt of your life on the balance sheet and consumes the borrowing capacity you wanted for investing. It is only one option among several, and not always the best.
There are scenarios where a company or trust owns the home as an investment and leases it to the household at market rent. The holding costs become deductions for the entity, and the individuals keep some or all of their borrowing capacity for the next purchase. The main residence exemption is traded for deductibility and capacity, and the arithmetic decides which is worth more. Run before the contract is signed, this one decision can change what the household can buy for the next decade.
The same thinking applies to buying before a sale completes, to a first home bought with family security, and to a purchase that a single lender says is out of reach. The purchase is usually possible. The structure is what has to change.
Funding a commitment
A business needs capital. A separation needs a settlement. A family needs to act before a sale completes. The default response is to sell assets, and selling costs agent fees, tax on the gain, and every year of growth those assets had left in them. Debt structured against what you already own meets the commitment and keeps the assets in place.
A $600,000 settlement funded by a sell-down can cost well over $100,000 in transaction costs and tax before a dollar reaches the other side. The same settlement funded at 6.5% costs $39,000 a year in interest while the portfolio keeps compounding, and the debt is restructured or cleared when the timing suits you rather than the court date. For a business, the same logic replaces expensive unsecured lending with property-backed debt at a fraction of the rate.
Tax outcomes
Interest on debt that funds income-producing assets is deductible. A new build adds depreciation on top of the negative cash flow, and off-the-plan purchases can carry significant tax breaks in the early years. Debt recycling turns a home loan into investment debt one repayment at a time: pay down the non-deductible loan, redraw against the equity, invest the redraw, and the same dollars of debt now produce a deduction.
For the more advanced investor, there are scenarios where the interest on the investment portfolio is itself funded by a second facility or an equity release. The cash position stays sustainable, the portfolio keeps compounding, and a substantial deductible interest bill runs alongside it. Structures like these are designed with your accountant at the table, and they are the kind of work we do most.
Offered the same risk, most people would take 15% over 10%. The better question is how much capital each one lets you deploy. Put $100,000 of cash to work at 15% and it earns $15,000 a year. Use the same $100,000 as the deposit on $500,000 of assets earning 10%, with $400,000 borrowed at 6.5%, and the position earns $50,000, pays $26,000 in interest, and nets $24,000. Five times the asset base is compounding, and the return on your own capital has gone from 15% to 24%.
| Position | $100,000 cash at 15% | $500,000 geared at 10% |
|---|---|---|
| Asset income | $15,000 | $50,000 |
| Interest at 6.5% on $400,000 | nil | $26,000 |
| Net to you | $15,000 | $24,000 |
| Return on your $100,000 | 15% | 24% |
| A 5% fall in asset values | $5,000 lost | $25,000 lost, plus the interest |
The last row is the point of the structure. Leverage raises the stakes in both directions, so the buffers, the split of the facilities and the exit are designed before the loan is written.
Borrow at 6% or 7% and place the funds in assets that pay 10% to 20% a year. Income-focused investment strategies, resource royalties and well-let commercial property are the kinds of assets that pay in this range. Draw $500,000 against existing equity at 6.5% and the interest is $32,500 a year. Placed at 12%, the income is $60,000. The position is $27,500 ahead, about $2,300 a month, and it arrives every month.
Cash flow like this pays down non-deductible debt faster, funds the holding costs of growth assets, or becomes income. Every portfolio needs cash flow to sustain it, and a geared one most of all, which is why we build the income side before we add the growth side.
The family home is the obvious one, and the default is joint names and one loan. That default puts the largest non-deductible debt of your life on the balance sheet and consumes the borrowing capacity you wanted for investing. It is only one option among several, and not always the best.
There are scenarios where a company or trust owns the home as an investment and leases it to the household at market rent. The holding costs become deductions for the entity, and the individuals keep some or all of their borrowing capacity for the next purchase. The main residence exemption is traded for deductibility and capacity, and the arithmetic decides which is worth more. Run before the contract is signed, this one decision can change what the household can buy for the next decade.
The same thinking applies to buying before a sale completes, to a first home bought with family security, and to a purchase that a single lender says is out of reach. The purchase is usually possible. The structure is what has to change.
A business needs capital. A separation needs a settlement. A family needs to act before a sale completes. The default response is to sell assets, and selling costs agent fees, tax on the gain, and every year of growth those assets had left in them. Debt structured against what you already own meets the commitment and keeps the assets in place.
A $600,000 settlement funded by a sell-down can cost well over $100,000 in transaction costs and tax before a dollar reaches the other side. The same settlement funded at 6.5% costs $39,000 a year in interest while the portfolio keeps compounding, and the debt is restructured or cleared when the timing suits you rather than the court date. For a business, the same logic replaces expensive unsecured lending with property-backed debt at a fraction of the rate.
Interest on debt that funds income-producing assets is deductible. A new build adds depreciation on top of the negative cash flow, and off-the-plan purchases can carry significant tax breaks in the early years. Debt recycling turns a home loan into investment debt one repayment at a time: pay down the non-deductible loan, redraw against the equity, invest the redraw, and the same dollars of debt now produce a deduction.
For the more advanced investor, there are scenarios where the interest on the investment portfolio is itself funded by a second facility or an equity release. The cash position stays sustainable, the portfolio keeps compounding, and a substantial deductible interest bill runs alongside it. Structures like these are designed with your accountant at the table, and they are the kind of work we do most.
An unencumbered family home is where we see the most opportunity left on the table. Borrow against it, place the funds in growth assets, and the household owns a portfolio it did not have, for a cash flow position that can be neutral or even positive. The cash flows barely move. The asset base does.
What makes it work
The structure is the strategy.
Every use above depends on the same craft: the right entity borrowing, facilities split so each one has a job, a buffer sized to the position, a fixed and variable mix chosen on purpose, and an exit planned before the money is drawn. Rates move, values move and income moves. A structure built for that keeps working through all three. That is the work we do, and it is the reason a client of ours hears yes where they were told no.
Who this is for
If a lender has declined you on policy, your cash flow is tight, your income runs through a business or trust, you hold property across companies and trusts, you are paying a mortgage with post-tax dollars, or you have equity you cannot get released at a sensible price, this is the conversation to have. Buying a home rather than building a portfolio? We look after those too, with the same strategic thinking.
Debt is a resource. Most of the industry treats it as a wound.
Bring us your position and your plan. We will show you what it can carry, and how to structure it so the answer is bigger than you were told.
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