Being Financially Free vs. Debt Free

Why being financially free beats
being debt free all day long. That’s today’s episode. Let’s dive into it. Hey, everyone. I’m Clayton Morris. I’m Natalie Morris, and
this is the Investing in Real Estate Show. This is the show where we help
you build financial freedom, live the life that you
want, enjoy your afternoons, and hang out with
your kids, hang out with your wife like this one. She’s my wife. And we talk real
estate on this show, but we use real estate–
that’s the means that we’ve achieved financial freedom. Other people can do it with
performing assets like gold or even warehouses, right? Or mobile home parks,
or god knows what else. Right. Yeah notes. Notes. Or, I don’t know,
small businesses. There are a lot of ways to
think of performing assets. Exactly right. So we talk about
financial freedom. In fact, we have our
freedom cheat sheet that we just recently revised. It’s totally free. If you go to our website,, you can download it for free
and it kind of walks you through step-by-step how to live
financially free and you can see– I just dropped my pen. She’s so excited about financial
freedom, she dropped her pen. So yeah, come over
to our web site. Our last name, Download it. But today we want to talk about
the financial freedom piece. That’s the goal. But a lot of people love– the Dave Ramsey would love to
talk about just getting out of debt as freedom. But that’s not freedom. Not necessarily. Do you remember in
high school when everyone would agree to drop
their pen at a certain time? Yeah. On a substitute teacher? I feel like I just did that. I pranked you. That was a good prank. [LAUGHS] Good old
high school prank. Right. OK. So you know, I do want
to talk about debt today. This has been top
of mind because I had been reading a
few real estate books and specifically around
protecting your castle, right? Because the word loophole
comes from the crenellations of a castle where you would
sort of sneak through and be able to shoot an arrow
at any one advancing. Yeah, it’s the top of the
castle that has, like– Where you can peek
through, right? And so that’s where the
word loophole comes from. Actually, that’s an arrow– the arrow is the hole on
the side of the castle you shoot the arrow through. Right. Yeah, that’s where– it’s not
necessarily the crenellation part, but there are– Holes. Holes in the castle where
you protect yourself. So loophole has kind of
a negative connotation in our language,
but really it just comes from the idea of how
you protect yourself, right? You put a hole in your
estate so that you can make sure that you are
ready to ward off any attackers. Any Vikings about to attack. Any Vikings at anytime could
be attacking your 401K. Right. So because I’ve
been reading that, I have sort of been reevaluating
the way I think of debt. Now we’re always
kind of like, oh, we should just pay
off all our mortgages. Right? We should pay off this
debt or that debt. But when you think
of debt, you can also think of it as a protection
because if someone were to sue me for the
value of my estate, right? And let’s say I live in a
home that’s worth $200,000 but I owe $150,000. Well, that means that I have
gone into a government agency and signed for the fact that
my mortgagor is going to have first position on this debt. Right. The lien holder is Bank
of America or whatever. They have the first position and
not some guy who’s suing you. Right. So if I have a mortgage for
over 80% the value of my home, well, then no one can
sue me for more than 20%. So debt can be asset protection. And I had not really thought
of that in that way before. So that was one way in
which I thought, well, debt can be pretty great, right? Now, it doesn’t
really work that way with like a student loan
or a car payment, right? If someone is going after you
for a certain amount of money and you have the cash,
your car lender, Nissan, is not going to say, well, we
get this money first, right? It doesn’t work that way. And so debt on your
assets, obviously, like your real
estate investments, is much more protected than,
say, your credit card debt. Because Visa is not going to get
in line for that kind of thing. Right. So if you’re able to buy
a package of properties, or you’re able to buy
a $500,000 building and you’re paying 5%
interest to the bank, but you’re making 12%
or 10% return, or even 9% return, or 7%
return, there’s still a differential between
what you’re paying the bank and what you’re making, but
that debt is also a protection. Is an asset protection. Right. Exactly right. So we’ve been accelerating
pay-off on several of our liabilities, but
this gave me a little– like I tapped the
brakes a little. Because I thought,
well, OK, I could think of this debt as
asset protection, also– the interest on this debt. Because it’s interest
inside of entities. An LLC is a write-off. So that’s obviously a tax
deduction and that’s a benefit. But also, I don’t want
to fixate on paying down low-interest debt when
I can use that money to make higher returns. So this is the teeter-totter
we’re always talking about, like you put your two options
on two sides of a teeter-totter and see which one you make more
money or pay more money for, right? Right. And so, again, it’s
allowing your tenants to pay your debts, right? So buying an asset– a
performing asset with the money from someone else enables you
not only the asset protection, but then you have
this personal– you have this asset that’s
now added to your net worth. Your tenants are
paying the rent, which is paying down that debt. But you’re protected because
not only do you have it in a business entity, but
you also have it owned, or the debt is in first position
with a mortgage noteholder. Right. The equity there is spoken for. So let’s just talk about
your primary residence, because many of you
watching probably have a primary residence. And so to Natalie’s point,
if you had a $200,000 house, you owe 150 on it to a bank. You have it in your own name. You could only be sued
for a portion of it. And nobody who’s suing– it would just– they’re
not going to do it– bottom line. Because they know they’re never
going to get access to that. Because there’s
like– Bank of America has a bigger position
than coming after you. So then there’s additional
ways to protect yourself as well with that house by
putting it into a trust, taking it outside of
the government’s ability to get their hands on it, so
putting it into like a dynasty trust, making sure that
you’re protected even at a higher level. Yeah, that’s definitely outside
the purview of this podcast. We should do– Something you should– –a whole episode on
trust and dynasty trusts. Oh– and protecting
your primary home, even. Yeah, right. Yeah, that might be a
good one to see if Andrew would get on the phone for. Andrew Howell is our lawyer. And so we’re not
giving you any advice about how to own
your primary home, but we want you to change
your mindset about debt. Now, also a lot of times
someone will say, well, I’ve got this 4%
interest on a car loan. Should I just get rid of that
before I start investing? Well, that depends
on where you’re going to start investing, right? If you’re going to start
investing in the stock market and making 4% on a
good day, then maybe that money is better spent not
paying 4% to the car company, right? But if you know you
can do better than 4%– which most real estate
investors in New Jersey are aiming for
around 11%, and this is a really expensive place. So elsewhere where you’re not
living in an expensive market, people are aiming for
between 10 and 15%. So if you can secure an
investment for, let’s say, 10%, but your car loan
is 5%, well, duh. Keep the money in the– don’t take that chunk of
money and pay off the car. Take that chunk of money, put it
in 10%, and you’ve created 5%. Right. Exactly. Right. I recently had a
question from a listener who I think was a pharmacist and
had $150,000 in pharmacy debt from student loans– wanted to know
whether or not they should be paying off that
pharmacy debt or investing. And that goes to the same
thing that Natalie just said, which is, well, it matters. The interest point matters. Are you going to take
$150,000 and just plunk it down on this debt? Or are you going to
work as a pharmacist, and then make great
money, and then also be able to buy performing
assets and allow your tenants to pay down your pharmacy debt? Right? And then you’re
increasing your net worth. You’re creating a tax shelter. That’s financial
intelligence right there. Right. Because think of that $150,000. Do you just put it in that
debt and then it’s gone? Right? So you’ve saved– Then you have nothing
to show for it. –5%. Or do you take it and
put it in a 10% return? And then you continue to
pay that 5% to the lender, but you’ve created 5%
in between that’s yours. Right. Right. Yeah. I mean, look, good
rule of thumb. People ask me all the
time, what’s a good return? Well, the stuff we buy
is between 7 and 1/2, 8%, up to about 12% in
some of our C-class stuff. But we aim in that
sort of B-class range. You’re looking at
between 7 and 12% return. And then if you have
got a debt of 4%, use that additional 3 and
4% to just pay it back. And you don’t have
to be involved in it. Let your tenants pay
your pharmacy bill. Yeah, exactly right. So that’s how to live
financially free. That’s how to have financial
intelligence, right? That’s what we try to
teach you here on the show. Right. Yeah. And it’s just sort of a more
feel-good way to think about your debt, because
we have so many– again, negative connotations
with not only the word loopholes, but debt as well. And debt is not
necessarily a bad thing. Now, we’re making no judgments
on what you spent that debt on in the first place. So whatever your values
are, hopefully you’re using it wisely, right? Right. Don’t bring up the boat again. He always says
not to buy a boat. No, no. I was going to say
something that– I was thinking about
the pharmacy job, right? Yeah. It’s a smart– that
$150,000 is likely going to provide a good
salary for this individual for many years to come. So as long as the debt
makes sense, right? Going into debt to be– I don’t know an artist. And then you’re not
going to make any money. You got to really think
about the returns, right? What is the return? That’s a limiting belief
as well, I’m sure. OK. But, yeah, are you
going to be a Picasso? I’m just saying we’re not
going to make judgments on people’s– this is
so hard for Clayton. No. Because it’s really
important to think about. You’re getting ready
to go to college. Do you want $300,000 in
debt, but then you’re only going to make 40 grand
a year for the rest of– the ROI doesn’t make sense. I understand what you’re saying. Right. But don’t discourage anyone
from artistic expression. I’m just saying don’t waste. This podcast is my
artistic expression. Right. You can go out and
become an artist. You don’t have to pay $300,000
to learn from somebody how to do it. Anyway, You don’t know that. Why are you saying these things
about people’s lifestyles? I’m not. I’m just saying be– think about the debt
that I got from college. If I had to go back and think
about, is the ROI there? Right. I mean, it’s not. I mean, we talk return on
investment on this show. We talk about
financial literacy. And it’s like, why would
you spend 400, $300,000? But for someone, that
experience may be invaluable. Yes. If you’re going to
become a surgeon and you know that you’re
going to make $500,000 a year, that makes sense, right? Then the return on that
investment makes sense. But you don’t know what
something will make of you before you get into it, ever. So I don’t want to discourage
people’s experiences or put– I fight for your right to go
to art school, dear listener. And if it doesn’t
pay back, well, then maybe you had some other
enriching experience. I just want you
to think about it in a more practical,
sort of freeing way about this specific
type of debt, right? She’s so– yeah, I love it. High in the sky. Yeah. Why are you saying this? We have a lot of Picassos
watching right now. I’m just saying,
all right, fine. I get it. I get what you’re saying. I’m just saying think about it. I’m going to have this
discussion with our kids before they go off to college. Yes, yes, yes. Right? Yeah. Right. I’m not paying for
them to something they haven’t thought through. But I’m just saying we may
have some listeners who might have some beautifully
creative experiences that we don’t know what they’re
going to get out of. OK, great. And I don’t want to
discourage you from– well, this is a tangent. Yes, this is a financial– Very much so. –intelligence show. That’s what we’re
talking about here. I’m not talking about people’s
dreams and hopes around art– Like a marriage– –and crayons. –counselor. A marriage counselor would
say you’re in the loop. So let’s knock it out. That is going to do it
for today’s episode of– It will. –investing in real
estate podcast. Thank you so much for sitting
in on our marital discussions today on whether or not your
kids should go to art school. Go out there. Live financially free and
have financial intelligence. How about that? All right? And become a real
estate investor. It’s field of dreams here. And go out there. Become an artist. Spend $300,000 a year. Carpe diem, everybody. Get an art degree. We’ll see you next time. Bye.

74 thoughts on “Being Financially Free vs. Debt Free

  • Clayton and Natalie,
    Thank you so much for the free content you put out. My wife and i were debt free like Dave Ramsey suggest and we were doing OK. I have wanted to buy property for some time and watching you guys and the content you put out actually help put my wife at ease about debt. We just bought our first rental a month ago and we will be getting a second one real soon. Love your show.
    Thanks again

  • I truly wish I had understood this concept earlier. About 7 years ago, I took a (to me) bunch of savings, about $75K, and paid off my house in one fell swoop, after 2 re-fi's and payments for 20-ish years. Had I understood then what I understand now, that would have gone into a couple of rent houses or an LLC partnership buying an apartment complex. I'm seriously considering pulling the paid off equity out of our house to get into another apartment or two, but I will evaluate any deals that come down the road to determine that.

    Clayton, one of the things that also comes into play on using a 401K (changing subjects, I know, but this might be something to discuss on one of your future discussions) is that it makes absolute sense to take the hit and withdraw for investing in real estate if your eyes are opened in your late 20's, or your 30's, even your 40's. But my wife and I have run the numbers every way we can, and we are just a very few years from retirement. There's a point at which you have to just realize you chose the wrong map to retirement using the 401K. No sympathy required, we have a healthy nest egg and will retire comfortably no matter what, but MAN I wish I understood this 20 or better yet 25 years ago! I'd already be retired.

    But a home equity loan on our "Dave Ramsey" model of already paid-off home would still certainly make sense, and if we run out of liquid funds for investing, which we are not close to as of now, we'll definitely consider recovering some of that equity and buying additional property. Unlike rental property and renters, whether single family or multi-family, my house doesn't pay me anything. Thumbs up as usual.

  • So I should have my Real Estate Investments in an LLC… how then can I use a HELOC on my personal home to finance an investment for the LLC?

  • My Wife says that all the time too!
    Yes, I may be taking the dreams of a few but, MANY end up doing nothing because the “don’t want to do that!”

    You still have to pay off the Debt if you want to retire on it!

  • Love the continuous content! The volume on your videos is a bit quiet on mobile relative to other YouTube channels FYI

  • I agree with Clayton on the silliness of going into debt for bad degrees. I know Natalie doesn't want to "make judgments," but I have seen this first hand. I own a house near a "liberal arts" university, and I rent out rooms to them.
    I have seen too many students do this to themselves: Go into debt for a degree with no market viability, then waste the most productive years of their life struggling to makes ends meet.
    If they want "enriching experiences" then they need to do that with their own time and money AFTER they have used debt money to pay for a degree that will make them actual money.


  • Oh, you guys should do an Episode on Umbrella Insurance!
    I find it hard to believe someone could really get you for that much in a lawsuit!
    I must be missing something? LLC vs Umbrella Insurance!
    (I like that as the shows title too!)

  • I agree 💯 on the art school lol… but one of my BEST investments was a BOAT lol. It’s the family on the pontoon that has brought some of the best times… but this was purchased solely through real estate 👍🏻

  • What about if (1)you had a property that was paid off and that was in an entity chain that leads to you. (2) you had an entity chain that leads to a trust and benefits heirs.

    (1) takes out a interest only mortgage with (2)

    Because the property is fully mortgaged a tenant cant sue for the property and only has access to a small amount of cash that is in the primary entity. Do you need insurance on the property?

    If (1) is sued and can't pay (2) then (2) forecloses, (1) does not put up a fight. (1) is broke and the tenant won't get anything. The chain of (1) creates a new last link and receives a new mortgage from (2) and the process starts over.

  • News for Dave Ramsey: Real Estate debt is an asset not a liability. RE debt is constructive not destructive a la credit card loans.

  • Natali & Clayton
    Debt has been used as a defensive ploy by corporations to fend off raiders for centuries. Sophisticated and worldly-wise explanation in simple terms. Nice job.

  • I really enjoy you two and can see both sides of the art school debate! My daughter just graduated from college with huge debt and not a high paying job. Still – I believe the school was an excellent choice and we will see in the end how it all turns out. Love your videos and the podcast. Thanks for sharing your wealth of knowledge!!

  • Lol this is hysterical, Nataly is so cute but he is right about art, art just doesnt pay thats why the saying… for the love of art, art is a passion and a natural ability, not a business, my son went to art school, has 100,000.00 in bad debt and works for the school district in NY making 20.000 a year as a teacher assistant, he has a pt job making more as a home care aide, go figure, there are not 3Danimation studios in Long Island and if he would get a job as an animator would be making 30.000 a year the most, and animators get contracts which means no benefits 😅

  • you guys are so cute how you banter back and forth. I actually taught psychology at an art college for a few years and was conflicted about being part of the system that encouraged college kids to take on debt. They were paying 68k for an undergraduate art degree, which may or may not be worth anything in the marketplace due to tons of competition and talent. I hesitate to say anything negative about it because they were kind people, but the teachers and students get the shaft financially in those environments, while the facilities and admin prosper. But hey, it's their business. Nobody forcing them to sign up, right? Although, I was just talking to a young lady last night that quit college to pursue another path. She was at MTSU where the sports coach got a 6 million bonus while teachers got a measly 3%. That's messed up.

  • Great videos as always. I have a question… should I buy a property with a tenant already in place? Do I rewrite her lease term? Any advice will be greatly appreciated

  • Thank you for answering my question! Point well taken. I have consulted other pharmacists on this topic as well and I was given the exact same advice.

  • Wouldn't having $150,000 in student loans make it almost impossible to get a bank loan to buy real estate? Isn't that one of the major factors in getting approved for a mortgage, your debt to income ratio?

  • The very things that make artists ‘artistic’ also tend to make them bad with money and irrational about debt and business. The two thought processes are diametrically opposed. Art is not practical or logical. It is not well thought out or researched. It is spurious, imaginative, random, capricious. I don’t think artists choose their career, it’s simply an extension of who they are. That said, I agree a college degree in art is likely to never have a good roi. A good artist can do well freelancing and needs no degree.

  • Is President Trump looking to increase the number of houses you can finance for Real Estate Investing?

  • What's your thoughts on home with asbestos siding. Beautiful home great price but has been on market awhile because people are afraid of the siding. I'll be using it as a rental

  • Thank ya'll so much. That really makes me think. And um.. ya'll are just too cute… "Get an art degree… carpe diem!"

  • Question: In your podcasts you say to buy a home in an LLC or put it in one to protect yourself, but then Natali said that your name (not the LLCs name) should be on the lease. Now if your actual name is on the lease with a phone number or address so the tenant can reach you then doesn’t that defeat any asset protection you get from an LLC? Thanks

  • I enjoy watching both of you on podcast and the discussions are very informative. Keep them coming you've help change my thought process. Thanks a bunch

  • i like what you guys are doing, educating people financially but i will say that the going back and forth, trying to prove a point is unnecessary. when the bickering starts, i change the channel. figure it out offline and come back focused. you have good info and i would like see more . hope i didn't hurt anyone's feeling, just my thoughts.

  • So buy properties and never pay off the debt? Doesn t that have an effect on your credit score to buy more real estate? Thanks.

  • Great show. I often wondered about this. Was listening to you guys, robert, and others on loans all the time then Ramsey says its better to pay in cash instead. I get where he comes from not liking debt, being super cautious, less risky and both ways could make you free. What the Morris's and others are saying makes more sense to get there quicker by increaeing financial IQ to manage the risk. Great show.

    What are the chances of hitting it big in art vs real estate? Lol #ArtvsRealEstate

  • I am confused on one aspect. I understand using your tenants to pay off the loan you have on the said property, however does that not mean you will get much less money to yourself?

  • Lol your wife look like a little girl blessing to you guys love the information enjoy but i need to take action🎊🎊

  • @Morris Invest First I want to let you and Natalie know how much I've enjoyed your video content. I've watched dozens of your videos in the past 2 weeks and have taken all of your advice to heart. I've formed my first realty investment LLC, initiated a business checking account, submitted a bid on a rental property this week, and read Rich Dad Poor Dad cover to cover. However, I need some sound advice as to what's more important: Paying off debt to creditors, student loans, car loans or directing extra earned income towards investment properties. I just watched a Dave Ramey video ( This message is conflicting to the "pay yourself first" concept as Robert Kiyosaki advocates. Perhaps this topic is a potential video topic? Again, thanks for everything.

  • Hi Clayton, thanks for the great topic. I understanding putting money into something that will generate cashflow of 10% but what about the 20% you have to put down on the purchase. For like a 120k duplex? I have to put up about 24k cash to get the ROI for 10% ROI.

  • I get both sides, but if I'm a "Picasso", I don't need an art degree. I'd rather have performing assets to carry me through until I'm discovered.

  • It's pretty sad that our society has such an emphasis on "debt is ok." It's so sad that debt is considered an asset. I get the thought idea, I just have a hard time accepting that some douchebag can just come along and take away from me what I've worked so hard for. It's almost more beneficial to be a mooch off society's ass than a hard-working contributing member of society.

  • I have to agree with Clayton about art school. As much as I support people pursuing their dreams, reality must be considered, in particular the reality of the absurd price of going to school now. It's financial suicide if it doesn't lead to a job that can cover the cost.

  • Don't worry…. 99% of the Picasso-Wannabees will be smoking Dak and discussin the Hegelian Dialectic, rather than watching this channel 😉

  • Clayton I got your point…. Natalie… you’re being a bit harsh… he was making a point… this is a show about being financially intelligent…. he wasn’t judging. Smh

  • I am with Clayton. Any money you spend on Art School is a risky and probably terrible ROI. Art is great as a hobby, not as a field of study.

  • Thanks for the video! This was a question in my mind as I already have a primary residence mortgage, and I was wondering whether I should pay that off before starting the brrrr strategy seeing I could save like $27k at the end of 6 years and have a greater cash flow. It's all about trying to measure that opportunity cost, right? The hard part is trying to measure that, though; even, if I start acquiring more debt to gain more rental assets, when should I turn all that cashflow inward to pay off the mortgages to gain more cashflow instead of acquiring another rental property? That's my biggest question.

    I think it boils down to my worry of having a lot of debt and not being able to pay for it somehow in the future for unforseen reasons. I'm a bit stuck in thought.

  • Well Picasso is dead, and modern art is trash. It makes sense that if you are not naturally artist to try to become artist by paying 300,000. And for natural artist it would not make sense because he already has it. So art degree is for wannabes or any other similar endeavor, like moving grass degree or breast feeding baby degree, if don’t have breasts, don’t go to college to get the degree in feeding babies, but if you have breasts but getting a degree on how to use them then you have a bigger problem than getting a degree. 🤓

    Oh by the way just learned something new today. The Vikings and IRS are synonym.

  • I think the real gem here is being able to have a discussion with one another while producing content for your viewers. How you all disagreed with each other then came to an agreement without yelling or getting angry (at least from what you show here) was awesome. My wife and I are very similar in how we communicate. I love your content, and I would love to have you bring the family to a game sometime.

  • Love the advice but have a question! We have student debt and a mortgage. Our current “draft” plan is to pay off “bad debt” ( student and car) first living like Dave Ramsey. Then invest in rental while maintaining our home for possible HELOC or rental on future. (In he interim learn and know markets) Debating to start out with turn key property as more of a learning starting point. Would love to hear your thoughts!

  • I'm a pharmacist so I feel like you were speaking to me personally. =) Any time I have a question about real estate, Youtube just seems to point me to your channel with the answer I'm looking for. Thank you!

  • I went to college. I learned two things which I already knew going into it.
    1. Don't go to college.
    2. Don't get student loan debt.

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