Why Graham Stephan Is Happy to Be $4 Million in Debt

How could owing millions be a good thing?

Graham Stephan is a YouTube personality and a real estate investor and agent. He also provides online financial advice on a variety of social media platforms, and has a newsletter where he offers insight into his "successes, failures, insights, and experiences in the investing world."

Recently, Stephan released a newsletter with the surprising title, "I am 4 Million Dollars in debt." 

Now, to many people, having so much debt would be a frightening position to be in -- especially those who subscribe to the philosophy that borrowing is bad. But Stephan makes it clear immediately in the subtitle to his article that he believes owing so much is a good thing. And there are a few key reasons why he's happy to have taken out so many loans. 

Here's what they are. 

Borrowing allows him to use leverage to grow his wealth 

Stephan is happy to owe so much because he believes his debt is the "key to my wealth." He subscribes to this philosophy because he understands the concept of leverage. 

He defines leverage as "borrowing money to invest…" in order to "multiply gains." And he gives a simple example of taking a $100,000 loan at 1% that you could easily invest in assets that would make you 4%. Taking such a loan would be a "no-brainer" since you make a 3% profit even with having to pay interest.

Of course, he recognizes that it can be trickier to make sure you're profiting when borrowing in a real-life scenario, since you usually aren't going to get a 1% rate. But he says skilled investors can make an assessment of how much an investment -- such as purchasing a property -- can make over time. If the likely ROI exceeds the interest cost, you can profit off the difference.

He recognizes the differences between good and bad debt 

Stephan also says he's happy to have debt because he's well aware that "All debts are not equal."

Some types of borrowing, such as using high-interest credit cards to take on consumer debt, can be damaging to your finances. But, if you're taking on affordable loans to acquire assets that will make you more than the cost of borrowing, the loan in this case isn't an expense but an investment.

He explained that his simple rule is not to take on debt if doing so won't make him money. 

He benefits from inflation 

Finally, Stephan pointed out that inflation can be his friend due to the borrowing he does, since he's able to repay his loans with money that is worth less than when he first borrowed it.  

Inflation is high right now, and as he says, "Every $1 Million of debt that I take on is reduced by $75k when the inflation is 7.5%." That's because, as the price of goods and services goes up, the real value of money goes down. But if you have a fixed-rate loan, you get to keep making the same payment but doing so with money that doesn't buy as much. 

"The rates at which I locked in my debt are much lower than what they would be due to inflation," Stephan explained. "So though my money has less purchasing power considering the current prices, my past debt is easier to pay off."

Stephan is exactly right on all three of these points, and his explanation for why he's happy to be in debt can help others understand when borrowing might make financial sense for them as well.