Borrowing when you don’t have to

For many people, borrowing is a necessity. But when you have significant cash, investments or property behind you, debt can become a strategic choice. Choosing to borrow can allow you to put your wealth to work while keeping more options open.

Borrowing can increase your capacity to invest, preserve liquidity and, when structured appropriately, form part of a tax-effective strategy. But debt still needs to earn its place. 

The value of keeping your options open

Using cash may seem like the simplest option. There is no loan application, no interest bill and no debt sitting on the balance sheet. But once cash has been spent, it is no longer available for something else.

Borrowing can allow you to make a purchase while retaining cash for future opportunities or unexpected needs. Depending on the circumstances, that cash may also be used to reduce the interest payable on a loan while remaining accessible if plans change.

That flexibility can become increasingly valuable as financial lives become more complex. A business opportunity may arise. An unexpected expense might appear. Retirement plans may change. Sometimes, simply knowing that cash remains available provides valuable peace of mind.

There can also be tax considerations when borrowing to invest. How the loan is structured and how the borrowed funds are used can affect its tax treatment, making it important to get the structure right from the outset. Using cash now and borrowing later may not produce the same outcome as borrowing at the time of purchase.

Where are you in your wealth journey?

The role debt plays in your financial strategy can change depending on where you are in your wealth journey. 

Building wealth
Borrowing can increase your purchasing and investment capacity while allowing you to retain cash and flexibility. The right level of debt will depend on the return you are seeking, your financial position and your appetite for risk.

Funding retirement
The objective can shift from accumulating assets to making your existing wealth work for you. Strategic borrowing may provide liquidity, delay an asset sale and allow investments more time to generate income or growth.

Borrowing instead of selling

When you need access to cash, selling an asset may seem like the obvious solution. While a sale can provide immediate liquidity, it can also trigger tax and transaction costs and bring an end to the asset’s potential future income and growth. 

In some circumstances, borrowing against it can provide another way to access funds without giving up the asset itself. But this doesn't mean borrowing is automatically the better choice. The cost needs to be weighed against what you stand to retain by not selling.

Consider a retiree who owns several investment properties but needs additional funds to support their lifestyle. Selling one may provide the money immediately; however, borrowing could meet those needs while allowing the property to remain invested for longer.

The same thinking can apply to someone who is asset-rich but cash flow poor. Their family home may represent a significant proportion of their wealth, but selling may not suit their lifestyle or personal goals. Lending options may allow them to access a relatively small amount of that wealth without giving up the home.

Higher rates change the calculation, not the principle

With borrowing costs higher than they were several years ago, debt deserves closer scrutiny. Ideally, the income and growth generated by an investment will outweigh the cost of borrowing over the period it is held. But investment returns, asset values and interest rates fluctuate, making a one-year snapshot of costs and returns of limited use. 

For assets intended to be held over five, ten or more years, the longer-term position matters. The amount borrowed matters too. Using debt strategically does not necessarily mean borrowing at the maximum available level. A lower loan-to-value ratio may provide some benefits of leverage while keeping repayments and risk manageable.

Ultimately, the right balance depends on both the numbers and the people behind them. A strategy that produces a stronger projected return but leaves you uncomfortable every time interest rates move may not be right for you.

Getting the structure right

How debt is structured can be just as important as how much you borrow. The right approach will depend on who owns the asset, whether it is purchased personally or through another entity, the purpose of the borrowing and how the funds will be used.

For business owners, asset finance can fund equipment or other major purchases over time, helping preserve working capital and cash flow. 

For property buyers, bridging finance can make it possible to buy before selling, reducing some of the logistical pressure of moving, although temporarily holding two properties can mean higher interest costs.

This is where coordination matters. Financial advisers, accountants and finance brokers each bring a different perspective. Bringing those perspectives together early can help ensure the lending structure supports both your immediate needs and broader financial strategy.

Helping adult children without giving up your own flexibility

For parents in a strong financial position, lending strategies can also help the next generation into the property market.

A cash gift towards a home deposit is straightforward, but that money is no longer available to the parents. Depending on their circumstances, gifting can also have implications for government pension eligibility.

A family guarantee offers another option. Rather than contributing cash, parents may use their property as additional security for their child's loan, potentially allowing them to buy with a smaller deposit.

That can preserve more of the parents' cash, but it is not without consequences. A family guarantee can expose the parents’ property to financial risk if the borrower cannot meet the loan obligations. It may also restrict the parents’ ability to sell or refinance their property until the guarantee is released. Parents should understand the extent and duration of the guarantee and consider obtaining independent legal and financial advice before proceeding

Debt still has to earn its place

Debt can be productive or unproductive, depending on its purpose, cost and associated risks.The distinction is not simply whether you have enough money to avoid borrowing.

Debt can serve a purpose when it is manageable and improves your financial position, preserves flexibility or supports a lifestyle outcome that matters to you. The goal is not to borrow simply because you can, but to understand what debt allows you to achieve.

If you are considering a significant purchase, asset sale or need for liquidity, speak with your Apt finance broker and, where appropriate, your financial adviser, accountant and legal adviser to consider whether borrowing has a suitable place in your broader financial strategy.

General Advice Warning

The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs.  It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Group of Companies which includes Apt Wealth Partners (AFSL and ACL 436121), Apt Wealth Finance (a Trading name of Apt Wealth Partners), Acceptance Finance (ACL 391715) and Acceptance Finance Australia Pty Ltd (a Corporate Credit Representative of Acceptance Finance - Credit Representative Number 580562) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.

Apt Wealth Partners is an incorporated financial services licensee. Our partners or their associated entities are shareholders in the Apt group parent company.