Wednesday, May 17, 2017

Stages of an investment bubble - Be Prepared

“Predicting the future is a loser’s game. It’s easy to be wrong and nearly impossible to be completely right…the hard part about predicting the future is actually following through on the actions that agree with your predictions. There is always more neigh sayers than believers.”

I talked about the Biblical story of Noah. He spent years and years of his life building an ark in the middle of the desert, all the while talking about a coming flood. Everyone mocked him…until the flood came. Then they all wanted on the ark, but it was too late.

In my book, Rich Dad’s Prophecy, I predicted that the biggest stock market crash in world history would happen sometime around 2016. Case in point, it is difficult to predict the future. It’s 2017 and the crash hasn’t happened yet. Many people are happy to point fingers and say, “I told you so.” But I believe the correction will still happen—and like Noah I’m preparing.

Is the crash still coming?

The 75 million baby boomers hold about $10 trillion in tax-deferred savings that they are required to withdraw, and they will do so this year and increasingly in the coming years.

In an interview with MarketWatch, I said:

“I’m not concerned about the professional investor who can short the market, go long, use options, calls and puts,” he said. “It’s the person with a 401(k) or IRA, where all their eggs are in this thing called a retirement plan.”

The professional investors on Wall Street are scared. Things are too calm in the markets. They know that a correction is coming. And when it does, the little guys will be wiped out.

Whether there is a correction this year or in the coming years, one thing is true, corrections always come. The good news is there is always opportunity in every boom and bust—if you prepare well.

Booms and busts

One key to preparing is to understand the nature of market booms and busts. This can be done by understanding history and then seeing the patterns of history in play in our world today.

Over the years, I have read several books on the subject of booms and busts. Almost all of them cover the Tulip Mania in Holland, the South Seas Bubble, and, of course, the Great Depression. One of the better books—“Can It Happen Again?”—was written in 1982 by Nobel Laureate Hyman Minsky.

In this book, he described the seven stages of a financial bubble. They are:

Stage 1: A financial shock wave

A crisis begins when a financial disturbance alters the current economic status quo. It could be a war, low interest rates, or new technology, as was the case in the dot-com boom.

Stage 2: Acceleration

Not all financial shocks turn into booms. What’s required is fuel to get the fire going. After 9/11, I believe the fuel in the real estate market was a panic as the stock market crashed and interest rates fell. Billions of dollars flooded into the system from banks and the stock market, and the biggest real estate boom in history took place.

Stage 3: Euphoria

We have all missed booms. A wise investor knows to wait for the next boom, rather than jump in if they’ve missed the current one. But when acceleration turns to euphoria, the greater fools rush in.

By 2003, every fool was getting into real estate. The checkout girl at my local supermarket handed me her newly printed real estate agent business card. The housing market became the hot topic for discussion at parties. “Flipping” became the buzzword at PTA meetings. Homes became ATM machines as credit-card debtors took long-term loans to pay off short-term debt.

Mortgage companies advertised repeatedly, wooing people to borrow more money. Financial planners, tired of explaining to their clients why their retirement plans had lost money, jumped ship to become mortgage brokers. During this euphoric period, amateurs believed they were real estate geniuses. They would tell anyone who would listen about how much money they had made and how smart they were.

Stage 4: Financial distress

Insiders sell to outsiders. The greater fools are now streaming into the trap. The last fools are the ones who stood on the sidelines for years, watching the prices go up, terrified of jumping in. Finally, the euphoria and stories of friends and neighbors making a killing in the market gets to them. The latecomers, skeptics, amateurs, and the timid are finally overcome by greed and rush into the trap, cash in hand.

It’s not long before reality and distress sets in. The greater fools realize that they’re in trouble. Terror sets in, and they begin to sell. They begin to hate the asset they once loved, regardless of whether it’s a stock, bond, mutual fund, real estate, or precious metals.

Stage 5: The market reverses, and the boom turns into a bust

The amateurs begin to realize that prices don’t always go up. They may notice that the professionals have sold and are no longer buying. Buyers turn into sellers, and prices begin to drop, causing banks to tighten up.

Minsky refers to this period as “discredit.” My rich dad said, “This is when God reminds you that you’re not as smart as you thought you were.” The easy money is gone, and losses start to accelerate. In real estate, the greater fool realizes he owes more on his property than it's worth. He's upside down financially.

Stage 6: The panic begins

Amateurs now hate their asset. They start to dump it as prices fall and banks stop lending. The panic accelerates. The boom is now officially a bust. At this time, controls might be installed to slow the fall, as is often the case with the stock market. If the tumble continues, people begin looking for a lender of last resort to save us all. Often, this is the central bank.

The good news is that at this stage, the professional investors wake up from their slumber and get excited again. They’re like a hibernating bear waking after a long sleep and finding a row of garbage cans, filled with expensive food and champagne from the party the night before, positioned right outside their den.

Stage 7: The White Knight rides in

Occasionally, the bust really explodes, and the government must step in—as it did after the 2008 crash, buying shares in companies like GM and bailing out large Wall Street banks that leveraged themselves too far.

Today, you should ask yourself what stage you think we’re in. The stock market is at an all time high. Investors are running to IPOs like Snapchat even though the company is losing money twice as fast as it did prior to its IPO. The VIX index is at its lowest in nearly 25 years.

And professional traders are saying, “a correction is coming and it will be ugly.”

I can’t tell you what will happen exactly, but I can tell you that you better be prepared.

Wednesday, May 10, 2017

High Student Loans Hurting Students and Small Businesses

College loan debt is strangling many young people in America. There’s no debate about this.

Back in 2013, the U.S. News & World Report reported, “In its ninth annual report on student loan debt, TICAS found nearly 7 in 10 graduating seniors in 2013—69 percent—left school with an average of $28,400 in student loan debt, an increase of 2 percent from 2012.”

These were astonishing numbers. All said and done, in 2012, the Wall Street Journal wrote that student loan debt eclipsed $1 trillion for the first time.

Today, things are only worse. As USA Today reports, “It was big news when outstanding student loan debt surpassed credit card debt and then later exceeded $1 trillion for the first time. That shocking statistic keeps climbing, with no sign of slowing down: Americans now have more than $1.4 trillion in unpaid education debt, according to the Federal Reserve.”

And the average student debt burden today? $30,100.

In the US, the student loan debt crisis is not going away. It’s only getting bigger. And that has big implications for our economy.

How students spend their education loans?

Perhaps you’re slightly shocked by the growth of student debt, but maybe you’re also thinking at least it’s going toward a good college education. That’s a good thing, right?

Well, aside from the fact that many graduates don’t think their degree was worth the debt, the reality is that a lot of student loan money doesn’t even go towards an education.

According to the "USA Today", "About half of students blow some of their school loan money on non-educational expenses, including 3% who spent it on alcohol and drugs, according to a new Student Loan Hero survey."

You read that right. Nearly 50 percent of college kids take out student loan money in order to spend it on things like:
    Vacations (3%)
    Restaurants (13%)
    Clothes (15%)
    Car Expenses (19%)
    Monthly expenses like mobile phones (41%)

As Andrew Josuweit, CEO of Student Loan Help, tells "USA Today", "I think they're justifying it because of future income. They're thinking, 'This is the cost of doing business, this is my overhead.'"

In other words, this is free money.

It’s mentality that money is free that leads to statements like these by debt-ridden graduates:
“I once believed that part of the American Dream was to earn a college education and this would ensure a great career and financial freedom. Unfortunately I am losing hope. I'm a mother of three, and my husband and I have been turned down from purchasing a home due to our income-to-debt ratio.”

“My debt is a life-swallowing, all-consuming, hole in my life. No college degree is worth that.”

“My life revolves around work. I'm barely able to afford rent, I'm cutting back on bills and I'm barely able to feed myself. Why? Because almost half my monthly income goes to Sallie Mae.”

Unfortunately, the student debt problem is an easy one for many to ignore. After all, if you weren’t silly enough to rack up huge amounts of student debt, it has no bearing on you, right?

Turns out that’s not entirely true.

According to the Wall Street Journal:
The higher the student-loan debt in an area, the lower the net creation of very small businesses, says a report from the Federal Reserve Bank of Philadelphia, using data culled from the Census Bureau and Equifax consumer-credit statistics.

In the study, published last year, researchers looked at student debt across the U.S. by ZIP Code and compared it with small-business formation in those areas. Between 2000 and 2010, a one-standard-deviation increase in student debt in a ZIP Code led to an average 25% reduction in the number of very small businesses, those with one to five employees.

The conclusion, the researchers believe, is that prospective entrepreneurs are so burdened with student debt that they simply can’t take on any more debt to start a business.

Perhaps you’re thinking, again, what does this have to do with you?

A ticking small-business time bomb?

Small businesses are the heart of the American economy, making 65 percent of the net new jobs over the last fifteen years according to the SBA Office of Advocacy. Now imagine what will happen to our economy if the rate of new small business creation drops as dramatically as the rate at which student loan debt has increased.

This goes to show that when it comes to economies, things are rarely self-contained and that systemic issues can come from anywhere—and they usually start with financial ignorance.

In light of this, you can begin to see why President Trump believes that tax relief for small businesses is so important.

In this case, the ignorance is regarding debt. The conventional financial wisdom is that college debt is good debt because higher education is important for getting ahead. But how’s that working out for our nation’s graduates? Not that well.

The difference between good debt and bad debt

One of the fundamental principles of Rich Dad is understanding the difference between good debt and bad debt. In my opinion, college debt is bad debt.

A financially sophisticated person understands good debt, good expenses, and good liabilities.

I remember rich dad asking me as a young man, “How many rental houses can you afford to own where you lose $100 per month?”
“Not too many,” I answered.

Then he asked me, “How many rental houses can you afford to own where you earn $100 per month?”
The answer to that question was and is, “As many as I can find!”

This simple example illustrates the difference between good debt and bad debt. In each case, I would have bought the houses with a loan, but in one case that loan and associated expenses outweighed my cash flow income. In the other, it didn’t.

The simple definition of good debt is that it puts money in my pocket. The simple definition of bad debt is it takes money out.

So, a simple question for those thinking of taking on more student loan debt: Is it really putting money in your pocket?

The answer, unfortunately and all too often, is no.

Monday, May 8, 2017

Tax advantaged investments make more sense than a 401k

In 1966, at the age of 19, I was a junior officer on board Standard Oil tankers sailing up and down the California coast. It was then that I became interested in oil. In the 1970s, I worked for an independent investment banker packaging and selling oil and gas tax shelters to wealthy clients. Today, Kim and I continue to invest in oil and gas projects.

We do not invest in stocks or mutual funds of oil companies such as BP or Exxon. We invest in oil exploration and development partnerships, which means we partner with oil entrepreneurs in specific projects, primarily in Texas, Oklahoma, and Louisiana, coincidently where many of our apartment houses are located. If successful, we receive a percentage of income from the sale of oil and natural gas, aka cash flow with tax advantages.

Oil and natural gas are essential for transportation, food, heating, plastics, and fertilizers. If you look around your kitchen, oil is in use everywhere, even in the foods you eat. The reason the government offers huge tax incentives is because drilling for oil is very risky and oil is essential for life, our economy, and our standard of living.

The beauty of some oil and gas partnerships is the ROI, return on investment. The moment Kim and I invested our $100,000 in the Texas project, we received a 70 percent tax deduction. At my ordinary-income tax rate of 40 percent, that is $28,000 cash back. That is a guaranteed 28 percent ROI in the first year, money the government technically gives back to me because they want me to invest in oil.

I mention this $28,000 return on my $100,000 investment because I receive so many calls, especially from stockbrokers saying, “I can get you a 10 percent return.” Why in the world would I want a 10 percent capital-gains return with so much market risk? I’d rather have a 28 percent guaranteed return from the government in real cash flow, and not have to gamble on fictitious possible returns on capital gains.

To me, this type of tax-advantaged investment makes more sense than investing in my 401(k) for forty years, buying, holding, and praying that I have enough money to last the rest of my life.

A Word of Caution: Drilling for oil is an extremely risky venture and that is why such investments are, by law, available only to accredited investors, investors who have the money and knowledge.

Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Thursday, May 4, 2017

Schools dont teach us financial education. We need financial education.

Click here if the above video does not play.

Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Wednesday, May 3, 2017

How I invested in real estate - real life success story

One of my favorite ways to reduce my tax burden is to invest in real estate. I’ve known many people who work in the E Quadrant but invest in real estate, which puts them into the I Quadrant. In the process, they eliminate a lot of tax burden and enjoy substantial cash flow. Many of these folks have gone on to simply invest full time in real estate.

Here's a real-life situation in which I played by the rules of the rich and minimized my taxes through rental property:

-    2004: My wife, Kim, and I put $100,000 down to purchase 10 condominiums in Scottsdale, Ariz. The developer paid us $20,000 a year to use these 10 units as sales models. So we received a 20 percent cash-on-cash return, on which we paid very little in taxes because the income was offset by the depreciation of the building and the furniture used in the models. It looked like we were losing money when we were in fact making money.

-    2005: Since the real estate market was so hot, the 380-unit condo project sold out early. Our 10 models were the last to go. We made approximately $100,000 in capital gains per unit. We put the $1 million into a 1031 tax-deferred exchange. We legally paid no taxes on our million dollars of capital gains.

-    2005: With that money, we purchased a 350-unit apartment house in Tucson, Ariz. The building was poorly managed and filled with bad tenants who had driven out the good tenants. It also needed repairs. We took out a construction loan and shut the building down, which moved the bad tenants out. Once the rehab was complete, we moved good tenants in and raised the rents.

-    2007: With the increased rents, the property was reappraised and we borrowed against our equity, which was about $1.2 million tax-free, because it was a loan—a loan that our new tenants pay for. Even with the loan, the property still pays us approximately $100,000 a year in positive cash flow.

Of the tax benefits that come with real estate investing, you can also include phantom income. Simply put, phantom income comes from things like depreciation, which means that a set portion of my property value is deducted from my taxable income each year to account for value loss as the property ages. This lowers your tax burden but isn’t a real out of pocket cost. Thus, phantom income.

As I mentioned in the example above, you can also pull money through a refinance out of your property and make money tax-free. If you do this correctly, the income from the property pays for the excess debt service. You can then use that money to invest in more property. It’s a virtuous cycle.

Also, as with any business, you can deduct a lot of expenses through your investment activities.

Those are just a few ways investing in rental property can help you reduce your tax burden. There are many more. If you’re interested, I suggest you do a deep dive and learn.

Tuesday, May 2, 2017

Business owners can deduct costs of learning

As Rich Dad Advisor Garrett Sutton teaches, most professions have requirements for continuing education. Even if they’re not required certifications, investment in business education is a must if you want to stay on top of your field.

As Garrett writes:
Internal Revenue Code Section 162 allows you to deduct 100 percent of your expenses for business-related seminars, including your registration, meals, lodging and transportation costs. The corporate entity takes the deduction and the costs are not considered part of your income (so you're not taxed on the benefits.)
Your corporation can also deduct the price of magazine subscriptions, so long as the magazines are for your industry, and you can deduct the cost of membership in professional organizations in your field. If your profession requires periodic testing and licensing, your entity can pay those fees and deduct the costs as well.

If you're looking to learn more about your chosen field, the Internal Revenue Code Section 127 allows you up to $5250 in educational assistance each year for educational expenses, which is also not included in your gross income.

Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Monday, May 1, 2017

Passive income is taxed favorably

The key in whatever you do is to productize. Many consultants have figured this out. For instance, graphic designers might sell posters in an online store. Or an attorney might sell a course online. What these folks have discovered is that if you can make a product that people want to buy, you can scale a business and make money even when you’re sleeping.

One key here is you need to start a business entity. This can be a LLC, a S-Corp or a C-Corp or some other suitable entity. The best thing to do is to consult an attorney and a tax adviser on the best one for you.

The advantage of a tax perspective is that passive income is the lowest taxed income. Also, you can run many expenses through a business that people in the E and S Quadrants simply cannot.

Friday, April 28, 2017

Consultants pay among the highest income tax

Most consultants pay the most in taxes because they don’t make passive income. Their income is earned income, taxed at the highest rate. What is worse, because they are effectively the employer and employee at the same time, they have to pay the full payroll tax on themselves rather than have their employer pay part of their payroll taxes. Yes, they pay more in taxes than employees.

Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Thursday, April 27, 2017

Being Tax pays off over your lifetime

The government knows that the best way to get people to do something is through their pocket book.

As my friend and Rich Dad Tax Advisor Tom Wheelwright says, the most patriotic thing you can do is not pay your taxes!

The key to saving the most when it comes to your tax bill is to change quadrants. This is not something that you simply do in a day. Rather, it is built over time, but the steps begin today. If you take the right steps, the benefits last a lifetime.

Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Wednesday, April 19, 2017

Make Money Grow on Trees

When it comes to getting rich, so-called experts are full of advice on how to save your way there. There’s no shortage of articles about couples who saved their way to $1 million or “expert” tips on how to save more money.

And these articles are true. You can save more money following their advice. But you have to consider the cost. Because the saver mindset is a very different and dangerous mindset about money than how the rich think about money.

All you need is a million?

Take for instance the couple, Carl and Mindy, who saved $1 million on four years. Their instincts were right.
“I was having this horrific day at work,” 42-year-old computer programmer Carl told Farnoosh Torabi on an episode of her podcast. “I was 38 at the time, and I'm like, 'There's no way I can do this until I'mr 62 or 65 or whatever age people normally retire at.”

Many people feel trapped in their jobs but do nothing about it. Congrats to them for taking action. But in the end, it is still the action of a poor-person mindset about money.

The couple started by analyzing their spending habits. 

“My wife and I wrote all of our expenses in a book,” Carl explains on their blog. “Every time we returned from shopping or paid a bill, we logged it.”

Based on their logs, they determined they could live on $24,000 a year. To be safe, they added a $6,000 cushion and bumped that estimate up to $30,000 a year.

To get there, they decided they needed $1 million saved up to retire by age 42. To achieve this, they did the standard saver playbook: they downsized and cut expenses, while working side jobs and investing in their personal residence and the stock market.

Not a future proof-retirement

While it is great for Carl and Mindy to retire today—and having $1 million in the bank is certainly better than most—their retirement plan is not future proof in my mind.

They use what is called the 4% rule, assuming if they take out 4% of their retirement money per year, they won’t run out.

Perhaps this makes sense for them now in their 40s while they are relatively young. But what will happen when they get older and require more medical attention? Or what if their property taxes go up significantly over the next twenty years? Or what if inflation continues to grow over the next forty to fifty years at 2% a year? Or what if they get tired of living so frugally after all?

Without significant income, they won’t be able to stay afloat. They may enjoy life at $30,000 a year right now, but it will not be sustainable for their entire retirement.

The conventional advice is all about saving

This is not Carl or Mindy’s fault. They were raised in a world that teaches them that saving is the best way to be rich.

Take for instance Mic’s “30 easy money hacks to get a little richer every single day this month”. They include things like:
-    Shop generic
-    Check for Health Savings Account eligibility
-    Review your 401(k) fees
-    Grow your own herbs
-    Transfer $10 a week to an IRA
-    Buy a slow cooker (on sale no less)
-    Use cloth napkins

Of the entire list of 30 ideas to get rich, only one has to do with generating income. The rest are all ways to do exactly what Carl and Mindy did: downsize and cut expenses.

Your mindset about money 

As a kid, my poor dad, my natural father, had this same mindset. Whenever we wanted something in life, he would say, “We can’t afford that.” Perhaps your parents said something similar like, “Money doesn’t grow on trees!”

My rich dad, my best friend’s father, asked a very different question. He would ask, “How can I afford that?”

The difference between my poor dad and my rich dad’s mindset about money was fundamentally one of saving versus earning.

My poor dad always looked to be saving money and cutting expenses. My rich dad always looked to be making money and investing in both his wealth and his quality of life.

Now, which person do you think lived a happier, fuller life? Unfortunately, it was my rich dad. I say unfortunately because it was very hard to watch my poor dad later in life when he had no money, struggled financially, and was very bitter. He worked hard his whole life, but his mindset about money did not serve him well in the end.

Savers are losers; spenders are winners

All of this goes to show that the Rich Dad mantra of “savers are losers” is a vital thing to understand if you want to be truly rich. After all in world where Brexit can happen and global currency markets can wipe out $380,000 of a tennis star’s prize money in a day or two, or where the President can say the dollar is too strong and push it’s worth down half a percent in a day, putting your faith in how many greenbacks you have saved versus how many you can make…makes no sense.

In today’s financial world, spenders are winners and savers are still losers. Of course, by spenders, I mean those who use their money to build their business or invest in cash flowing assets. And to spend wisely this way, you need financial intelligence that goes beyond just downsizing and cutting expenses. You need to understand how to create wealth, and in your own way, actually make money grow on trees.

Monday, April 17, 2017

The secret ways the "Rich" stay rich is buying using Tax Laws for their benefit

Your financial adviser will tell you that debt is bad and taxes are inevitable. But the rich understand that both debt and taxes can be used to create immense wealth.

When it comes to debt, there are two kinds—bad and good. When your financial adviser tells you to stay out of debt, she means stay out of bad debt.

Bad debt comes in the form of borrowing money for liabilities such as using credit cards to buy TVs and take vacations, borrowing a line of credit on your personal home, and more.
Better ways to buy a car than buying a brand new car with a high interest loan 

Staying out of bad debt is good advice, but the problem is that your financial adviser won’t tell you about good debt.

Good debt is debt used to purchase assets like rental property.

When you use the bank’s money to purchase cash-flowing real estate, you use less of your own money to secure an asset by paying only a down payment instead of full price, and your tenant’s rent pays off your debt while you own the asset and pocket the profit.

When it comes to taxes, the rich understand that governments write tax codes to encourage specific types of behavior. If governments want you to build affordable housing, they give you a tax cut. If they want to encourage oil exploration, they give you a tax cut. If they want to see higher employment, they give you a tax cut.

The secret is that most tax benefits are made to help entrepreneurs and investors. With the right financial education, you too can utilize the tax code to not only get richer, but also pay nothing in taxes.

Utilizing good debt and getting richer through taxes takes a high level of financial intelligence. But everyone can learn and put these principles into practices.

Friday, April 14, 2017

Knowledge is power and with power comes confidence

When you’re not confident about your knowledge of money, you let others make your financial decisions for you.

You let your broker decide how your money should be invested. You let your bank tell you what interest rate is worthy of your money. You follow whatever investing trend is popular in the news.

The rich don’t follow the crowds. They set the trends and are gone by the time the trends become mainstream. What’s their secret? They think for themselves about money and make their own financial decisions because they have a high financial intelligence.

The key to building great wealth is having great knowledge to act on and great wisdom to know which course of action is the best.

Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Thursday, April 13, 2017

The Rich invest differently from the Poor

Warren Buffett has done exceptionally well with investing

Investing for capital gains is like gambling. You invest your money and hope the price goes up. For instance, many people buy a house hoping they’ll be able to sell it for more money later. In the meantime, they have to pay their mortgage and home expenses. Money goes out of their pocket. It becomes a liability.

The problem is that when you invest for capital gains you have no control over whether the price goes up or down, and the bigger issue is, if you do make a profit, you pay the highest rate in taxes.

Conversely, the rich invest for cash flow. So, for instance, they buy investment real estate with other people’s money, find tenants to pay the expenses, and collect rent each month. It becomes an asset. And if there’s capital gains, that’s a bonus.

By investing for cash flow instead of capital gains, the rich have control over their income and pay the lowest rate in taxes—and sometimes nothing in taxes.

Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Wednesday, April 12, 2017

Your house may be a liability

Many people think they know what an asset is. For instance, you probably think your house is an asset—but it’s not. The truth is that just as there are two definitions of an asset.

Accountants use one definition that requires lots of financial calisthenics to make people and companies feel richer than they really are. This keeps them employed and their clients blissfully ignorant.

The rich use another definition grounded in simplicity and reality. An asset is anything that puts money in your pocket and a liability is anything that takes money out of your pocket.

Your house is not an asset because it takes money out of your pocket each month. Even if you own your house outright, you still have to pay for the taxes, maintenance and more out of your own pocket.

Spending on expensive vacations can be a liability
But if you own a rental property, that can be an asset—if it puts money in your pocket each month in the form of cash flow. When your tenant pays rent, they cover your mortgage, maintenance, taxes, and more.

Tuesday, April 11, 2017

Follow the new rules of money or get screwed

Even Bernie Sanders recognizes what a problem the growing gap in incomes represents: "The issue of wealth and income inequality is the great moral issue of our time, it is the great economic issue of our time, and it is the great political issue of our time.”

But much like I don’t agree with Bernie on how to fix the problem, much of what is labeled out there as financial education leaves a lot to be desired. From my experience, it centers on concepts like saving, investing in a 401(k), getting a college degree, paying down debt, and home ownership. In short, it centers on the old ideas about money.

I’ve said it before, when you follow the old rules of money, you’re screwed financially.

Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Monday, April 3, 2017

Three reasons for market euphoria

What causes people to spend way too much on stocks? It’s an interesting question, especially given the recent euphoria over the IPO of Snap. Most investors today think that the fun will continue. They firmly believe as New Zealand Herald, Mike Taylor writes that “they are in a new paradigm.” Taylor gives three reasons for this mindset:

Anchoring: This is a trait where an investor will "anchor" to a price that is important to them, but may have no relevance at all to the market they are investing in. For example, being focused on doubling your money, and only selling an asset if or when the price reaches this point.

Loss aversion: Recognising a loss is uncomfortable for most people and investors will try to avoid it where possible. That means that if an asset is below the price the investor paid for it, they are prepared to wait in the hope they will get back to break-even. This can prove disastrous if the asset is in terminal decline. At best, it means your capital is stuck in a poorly performing asset when it could be reallocated elsewhere.

Herd behaviour: From a young age, we learn to succumb to peer pressure as the path of least resistance. When it comes to investing, we take comfort if everyone else is doing the same thing. For example, if everyone is buying over-priced internet shares, even if your rational brain tells you this is madness, you justify your decision because, "all my friends are doing it and they are making money, so it must be OK".

Surely, Buffett understands how to avoid the three behaviors Taylor lists. As one of the richest men in the world, he doesn’t get sucked into the euphoria of the markets. He only profits from them. How?

The important caveat from Buffett is that his determination that stocks look cheap based on the current environment of low interest rates. "If interest rates were seven or eight percent, these (stock) prices would look exceptionally high," he said. And of course, by all appearances, interest rates will continue to rise.
Why financial education is a must-have to survive

Unfortunately, the average investor doesn’t understand the fundamentals of the markets, let alone how interest rates impact the value of stocks. They just buy because the market is going up…and everyone else is doing it.

And this brings up an interesting question. What’s the antidote to anchoring, loss aversion, and herd behavior? 

The answer is found in financial education.

By understanding how money and markets work, you are better equipped to see the trends happening…and profit from them. Buffett has built his fortune doing just that. And so have I.

Monday, March 27, 2017

Rich Dad Poor Dad author on Real Estate

Real estate investing, even on a very small scale, remains a tried and true means of building an individual's cash flow and wealth.

Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Wednesday, March 22, 2017

Robots could take away your job

If you’re a real estate investor, you may be scratching your head right now. How in the world do robots relate to investing in property?

It’s simple, really. Once statistic I mention is as follows: it’s estimated that robots “will take the place of 40 to 50 percent of all McDonald’s employees.” What does that mean? It means that many jobs will be eliminated by the rise of robots and AI. And it won’t be just McDonald’s jobs either. According to The Guardian, 6% of all jobs could be lost to automation by the year 2021. That’s just a few years away. And that’s just the beginning.

But again, what does this have to do with investing? As I write in my ebook, “I’m keeping an eye on the robot phenomenon because real estate is based on only one thing: jobs. That’s it. If there are no jobs, there’s no real estate.”

Does this mean that real estate is a bad investment? The answer is only if you buy it wrong. As I point out, it is an illiquid investment. You can’t just back out. So you need to be confident you’re making the right projections based on what is happening in the market. If you get too sunny, you might get burnt.

Employees are screwed in the age of robots

But the rise of robots, as scary is it might be to some folks who made poor investments, is even scarier to those whose jobs will be replaced.

When I was growing up, my poor dad would always tell me that I should go to a good school so that I could get a good job. To him, financial security meant building a career at a big company that paid well.

As I got older and wiser about money, I realized that my poor dad was wrong. Rather than having a good job being the most secure place financially, I learned that it was the least secure.

Why? Because you had no control. You could be fired or let go at the drop of the hat. If the company you work for is mismanaged, you can do little about it. And you pay the most in taxes. The entire employment system is build to benefit the owners and investors and to minimize the power and security of employees. That, for instance, is why a company like Snap can offer an IPO with shares where no one can vote. And because people do not have financial intelligence, they eat it up.

Today, more than ever, being an employee is the least secure position to be in financially. This is precisely because of the rise of automation and AI. Most employees, however, have no idea that their job could be in jeopardy. Many experts are likening the coming wave of robots to the Industrial Revolution.

And as Tyler Cowen, writing for BloombergView points out, the economic impact of the Industrial Revolution was staggering. As he writes:

By the estimates of Gregory Clark, economic historian at the University of California at Davis, English real wages may have fallen about 10 percent from 1770 to 1810, a 40-year period. Clark also estimates that it took 60 to 70 years of transition, after the onset of industrialization, for English workers to see sustained real wage gains at all.

If we imagine the contemporary U.S. experiencing similar wage patterns, most of us would expect political trouble, and hardly anyone would call that a successful transition. Yet that may be the track we are on. Median household income is down since 1999, and by some accounts median male wages were higher in 1969 than today. The more pessimistic of those estimates are the subject of contentious debate (are we really adjusting for inflation properly?), but the very fact that the numbers are capable of yielding such gloomy results suggests transition costs are higher than many economists like to think.
But whose jobs will be affected, really?

Most people would rather not focus on these unpleasant facts. And if I were a betting man, I’d wager that most employees, if polled, would say they do not believe that robots could do their jobs. But they’d be wrong. According to an article in Wired, “Oxford University researchers have estimated that 47 percent of U.S. jobs could be automated within the next two decades.”

And as Martin Ford, the author of “Rise of Robots,” says in the same article:
I see the advances happening in technology and it’s becoming evident that computers, machines, robots, and algorithms are going to be able to do most of the routine, repetitive types of jobs. That’s the essence of what machine learning is all about. What types of jobs are on some level fundamentally predictable? A lot of different skill levels fall into that category. It’s not just about lower-skilled jobs either. People with college degrees, even professional degrees, people like lawyers are doing things that ultimately are predictable. A lot of those jobs are going to be susceptible over time.

In short, we’re not just talking about flipping hamburgers at McDonald’s. 

So what’s the solution?

Many experts, including Ford, believe the answer to all these lost jobs lies in some form of universal basic income.

Personally, I don’t know if such a system could work. If history is any indication, it won’t. Generally, when given handouts by governments, people are less incentivized to work than they were before.

So, what is the solution? To me, it is an increase in financial education that encourages entrepreneurial thinking.

As I mentioned earlier, my poor dad thought having a good job was the most secure thing you could do financially. Conversely, my rich dad, who was my best friend’s father, taught me that being an entrepreneur was the most secure thing you could do.

Many people balk when they hear this since the cultural mythos around entrepreneurship is that it is inherently risky. But my rich dad taught me that for those with the right financial IQ, it was not. The reason for this is that you have more control, pay less in taxes, and aren’t at the mercy of others.

This is why I’ve advocated for years for true financial education in the school system (not just classes on how to put money into a 401(k) and balance a checkbook). 

In a near future where robots will take many jobs, I believe that entrepreneurship is the key to financial security. At its core, entrepreneurship is based in innovation—finding ways to make money solving problems both large and small. This is difficult to automate because it is not predictable. In the future, the highest-paid people will be those who don’t do predicable tasks like lawyers and accountants but instead will be those who create new solutions and opportunities. That will be our entrepreneurs.

At Rich Dad, our goal is to help as many people thrive while others struggle to survive. The robots are coming. If you want to thrive, increase your financial IQ starting today, and start building a future where you kiss being an employee goodbye and can become an entrepreneur. Your financial security might just depend on it.

Tuesday, March 14, 2017

This is how I paid for my new Bentley car

Everyone loves to buy nice things. Those that say they don't…well, they're liars who can't afford nice things.

From before we can even talk, we're wired to follow after the next shiny things. We're also wired to consume as much as we can. It's the principle of scarcity that we've inherited from our hunter-gatherer days. You never know when you won't have what you need, so you better consume as much as you can today.

This explains why so many people have a hard time controlling their spending. And it explains why consumer debt is dangerously close to what it was prior to the 2008 Great Recession. According to CNN Money, in 2016, "household debt ballooned by $460 billion-the largest increase in almost a decade." According to the article, total household debt is now $12.58 trillion-yes, trillion-as of the end of 2016.

It seems that we never learn…and that we're doomed to repeat our mistakes.

Riding high

As it stands today, there is a euphoria going on in the markets that defies fundamentals. Just last week, the Dow Jones Industrial Average surpassed a record 21,000. It's being dubbed the "Trump Bump," with stocks rising 5% since he took office. Apparently, the markets are feeling very good about President Trump's policy agenda…and are banking on it being implemented.

How great are they feeling?

Well according to the Wall Street Journal, "Sales of vehicles made by Volkswagen AG's Bentley, Ferrari SpA, Fiat Automobiles NV's Maserati, Porsche AG and BMW AG's Rolls-Royce jumped an estimated 18% since the Nov. 8 U.S. presidential election through January, compared with the same period in 2016, according to Autodata Corp. That far outpaces the gains these upscale brands had been notching through the prior 10 months."

In the WSJ article, "What Do You Buy When Trump Wins? A Bentley," writer Chester Dawson explains this bump in luxury car sales, "Dubbed the 'wealth effect' by economists, perceived gains in portfolio values can prompt ultrahigh net worth buyers to splurge on hard assets such as fine art, real estate and luxury cars. Some in the auto industry also are seeing a 'Trump bump' based on expectations of fiscal stimulus and potential tax cuts under the new administration that will boost corporate profits and keep stocks on the ascent."

High Net Worth does not equal high financial intelligence

This goes to prove that "ultrahigh net worth" does not equal ultra-high financial intelligence. Buying luxury goods because the market is overheating is the very definition of counting your eggs before they hatch.

In most cases, the folks who are buying these luxury goods aren't doing so because they are actually wealthier. They are doing so because they look wealthier on paper. They have not sold their stocks. They simply hold stocks that, for now, have higher value. But one only has to look at the dot come bubble burst of the early 2000's and the real estate crash of the late 2000's to realize that wealth on paper and true wealth are two different things.

The story in the WSJ about luxury cars caught my attention because it is a good parallel to another story I like to tell about when I wanted a Bentley (whose sales are up 10.8% according to the WSJ since Trump, coincidentally).
How to buy a Bentley

Some years ago, I talked with my wife, Kim, about my desire to purchase a new Bentley. We both agreed that it would be easy for me to pay for the car in cash. We had the money. But having the money wasn't the issue. As big believers in mindset-and delayed gratification-we both agreed there was a better way for me to get in the driver's seat of this new dream.

Both Kim and I sat down and determined what it would cost for the new car on a monthly basis-what our cash outflow would be. We then, together-and this was fun, went shopping not for a new Bentley but instead for a new asset that would pay for the Bentley.

Kim and I found a great asset, and after six months we had enough cash flow from the asset to pay for the monthly costs of my new car-and some. The best part of the whole exercise is not only did I have my new Bentley but I also had a cash-flowing asset that actually increased my wealth, not just made me look richer on paper.
Two ways to view wealth

This is a simple story, but an important one. There are two ways to view wealth. One is on paper. That is how most news outlets, and frankly, most CPAs view it. The traditional balance sheet is smoke and mirrors, accounting tricks to look wealthier than you are.

The other way to view wealth is the Rich Dad way. It is much simpler. It's based on this one important truth. An asset is anything that puts money in your pocket. A liability is anything that takes money out.

Given this definition of wealth, paper assets that grow in value while providing no cash flow are not assets. They are actually liabilities since you had to pay out of pocket for them. They only become assets when you sell them. But that isn't advantageous because then you only have the cash on hand. And cash, like electricity, is a currency. It must move somewhere else to have value. Otherwise it dies. In the case of electricity, it dies quickly. In the case of cash, it dies slowly, eroded over time by inflation.

The ultra-rich who are buying new Porches, Maseraties, and Bentleys in this market bull run are those who are spending wealth they don't truly have. I hope it works out for them. But if history is any indicator, it won't. But, they have good attorneys to bail them out.

What's scarier is when the middle class starts following suit. They are the ones that always get wiped out. And when the middle class starts spending like the rich-running up consumer debt like 2008 levels-it's time to watch out. The markets are ready to crash.

I think the biggest stock market crash is yet to come. The question is, will you be a victim-or will you be ready to thrive?

Sunday, March 12, 2017

Australian housing bubble

It's pretty bad when the Australian property market is making news all over the world.

Foreign investors are queuing up to buy anything they can get their hands on. This is causing average Australian punters to think they need to start buying now. It has created a bubble.

Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Monday, February 27, 2017

Games are a great way to learn about money

Sad news, apparently, for Monopoly fans this week as Hasbro announced that they were removing the classic thimble game piece from the popular board game.

Of course, it's not really Hasbro that made the decision. They opened public voting on what piece to remove in order to make room for more modern game pieces "like the hashtag, the wireless phone, and the rubber duck." After four million votes, the thimble was gone.

I don't really have a horse in the race when it comes to Monopoly game pieces, but this little piece of news did bring up some fond memories of playing the game with my best friend, Mike, and his dad, my rich dad.

Rich dad told us that, "One of the great formulas for wealth is found in this game: four green houses, one read hotel."

This one great formula rich dad spoke of was that of cash flow. Monopoly is a cash flow game. You purchase property, balancing cost and location, and collect rents when people land on your properties. In order to make more money, you develop and improve those properties, building houses and, eventually, hotels.

For example, having one green house on a property you own could make you $10 when someone lands on it. Then, two houses could make you $20. Three could make you $30. And a hotel could make you $50. Basically, more green houses and red hotels means more cash flow. It's a simple game, but an important lesson.

Playing Monopoly in real life

My rich dad didn't just play Monopoly with us on his sunny patio. He also played Monopoly in real life. He built his fortune from the ground up, starting with some small stores and moving into more and more sophisticated investments. Eventually he did own his own hotel right on the beach-and then a few more.

As I shared before , I learned four valuable lessons from my rich dad by watching him play Monopoly in real life:
-    Investing is not risky
-    Investing is fun
-    Investing can make you very, very rich
-    Investing can set you free from the struggle of earning for a living and worrying about money

Games make you a better investor

And this brings to mind a simple truth: games make you a better investor. A lot of people like to read or listen, but it's proven that you learn better by simulating than any other method of education.

A couple years ago, I shared a wonderful TED Talk by Gabe Zichermann called " Changing the Game in Education ." As I wrote then:
    Zichermann talks about how the modern education system is fundamentally opposed to our nature as humans. Asking us to sit down and pay attention does very little for our education, when in reality we learn more by trying, making mistakes, and achieving. Experiencing the chemical benefits of the pleasure we feel when dopamine is released through our achievements helps us remember and learn far more efficiently.
    He then goes on to make the case for why gamification is the future of education-including an amazing example of a teacher using Monopoly at a school in California's Inland Empire to teach kids about money, among other things. The result: a jump of 40 kids in the top rankings of the California Math Test, up from less than 10 at the start of the program. - Robert Kiyosaki

And as R.F. Mackay writes for Stanford University :
We may think we're pretty smart, but in fact we have very little notion of how humans learn. Kids know: They play games. Until, that is, they go to school. That's when the games stop. And often, so does the learning. - R.F. Mackay, Stanford University

This is why, even though we have books and seminars, we've always said the best way to learn how to invest is to play our financial education board game, CASHFLOW. We've seen that those who devote themselves to mastering this game, in addition to reading and hearing great talks, go on to much greater success in investing.

Perhaps this is because as Dan Schwartz, who runs the AAA Lab, "a technology and learning lab" at Stanford, has discovered , "one of the best negative predictors of performance was the act of walking away after failure." Games allow us to keep coming back to the table after we've failed, thereby improving our performance significantly over time.

Learning by doing, not hearing

In 1950, a nun who was a history and geography teacher in Calcutta was called on to help the poor and to live among them. Instead of just talking about caring for the poor, she chose to say very little and helped the poor with her actions, not just her words.

Because of this, when she did speak, people listened.

She had this to say about the difference between words and actions: "There should be less talk. A preaching point is not a meeting point. There should be more action on your part."
Games as meeting points

At Rich Dad, we made a conscious choice to incorporate games into our education methods because they require more action than a lecture. As Mother Teresa said, "A preaching point is not a meeting point." Our games are meeting points.

Games provide a social interaction for learning and helping someone else learn. When it comes to investing, there are too many people trying to teach by preaching. We all know that there are certain things that are not best learned by simply reading and listening. Some things require action to be learned, and games provide this elementary action step to learning.

Creating understanding

Confucius once said: "I hear and I forget. I see and I remember. I do and I understand."

Ultimately, we believe that games create more understanding. And the more understanding people have, the more they can see the other side of the coin. Instead of seeing fear and doubt, the players begin to see opportunities they never saw before because their understanding increases each time they play the game.

There are many stories of people who have played our games and have had their lives suddenly changed. They have gained a new understanding about money and investing, an understanding that pushed out some old thoughts and gave them new possibilities for their lives.

A world of opportunity

Again, rich dad taught me to be a business owner and investor by playing the game of Monopoly. He was able to teach his son and me so much more after the game was over when we visited his business and real estate.

I wanted to create educational games that taught the same fundamental and technical investing skills that rich dad taught me, far beyond what is taught in Monopoly. As rich dad said, "The ability to manage cash flow and to read financial statements is fundamental to success on the B and I side of the CASHFLOW Quadrant."

That is why I developed my first board game, CASHFLOW. And that is also why we continue to develop new games and apps taking advantage of new technologies.

Each game teaches new skills, opens up your mind to a world of opportunity, and drills home the lessons of cash flow. With repetition, those lessons will become ingrained in your psyche and how you approach your financial future.

Games as meeting points

When I was deciding how I wanted to teach financial education and the investment skills my rich dad taught me, I made a conscious choice to incorporate games into my methods. I did this because games require more action than a lecture. As Mother Teresa said, “A preaching point is not a meeting point.” Our games are meeting points.

Games provide a social interaction for learning and helping someone else learn. When it comes to investing, there are too many people trying to teach by preaching. We all know that there are certain things that are not best learned by simply reading and listening. Some things require action to be learned, and games provide this elementary action step to learning.

A world of opportunity

Rich dad taught me to be a business owner and investor by playing the game of Monopoly. He was able to teach his son and me so much more after the game was over when we visited his business and real estate.

I wanted to create educational games that taught the same fundamental and technical investing skills that rich dad taught me, far beyond what is taught in Monopoly. As rich dad said, “The ability to manage cash flow and to read financial statements is fundamental to success on the B and I side of the CASHFLOW Quadrant.”

That is why I developed my first board game, CASHFLOW. And that is also why I continue to develop new games taking advantage of new technologies, like our brand new app, Capital City: The Finance and Strategy Game.

Each game teaches new skills, opens up your mind to a world of opportunity, and drills home the lessons of cash flow. With repetition, those lessons will become ingrained in your psyche and how you approach your financial future.

Friday, February 24, 2017

The rich get richer because they can spot an opportunity better

Most people never get wealthy simply because they are not trained financially to recognise opportunities in front of them. The rich have learned how to recognise opportunities as well as how to create them.

Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Wednesday, February 22, 2017

Keeping up with the Jones is tiring

People think that working hard for money and then buying things that make them look rich will make them rich. In most cases it doesn’t. It only makes them more tired…And if you notice, the Joneses are exhausted.

Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Monday, February 20, 2017

Australia Housing bubble

Foreign investors are queuing up to buy anything they can get their hands on. This is causing average Australian punters to think they need to start buying now. It has created a bubble. It's pretty bad when the Australian property market is making news all over the world.

Tuesday, February 14, 2017

How to finance your real estate investments

When I discuss the idea of OPM or Other People's Money, most people are on board with it-excited even-about the possibilities. But then they become intimidated by the idea of how exactly to find and use OPM.

This is normal for people. When we learn new ideas, our mind does its best to create reasons why the idea is wrong or it won't work. Our mind tells us things like, "No one would ever give you money," "You can't find good enough investments to attract OPM," or, "Using OPM is taking on too much risk. Better off just putting money into your retirement account."

In reality, the hardest part of OPM is knowing how to find the right real estate investment to attract money, but even that isn't difficult if you take the time to learn how to do it.

Once you have the right property, getting OPM becomes quite easy-if you know where to look. And when you begin to build your real estate portfolio, it gets even easier.

Below are six solid sources of OPM you can put to work for you and your real estate investments.

This one should be obvious. If you own a house, you know what it's like to go to a bank to apply for a mortgage. Most people don't think of it this way, but a mortgage is a form of OPM. Generally, with a single-family home, a bank will cover up to 80% of a home's value. You, as the purchaser, will pony up the other 20%.

This isn't always the case, however. For first-time homebuyers, an FHA loan can cover up to 97% of the purchase price with the buyer only having to contribute the other 3%. Of course, there are stipulations on this, such as you have to live in the home for a certain number of years before you can rent it out.

When it comes to real estate investing, when a property gets to a certain size, it no longer is viewed as a residential property but instead as a commercial property. This means that any bank looking to make a loan will base the loan criteria on the operating income of the property, not on the "market value" like they do for a home.

Often times, if you can make the business case for a loan to cover not only a portion of the purchase price, but also for the execution of the business plan to grow the property's value, you can fund a lot of your capital costs with the bank's money.

Banks are notoriously conservative, so if you're looking to have little-to-no money in a deal, a bank might not be your best option. But it can be a good place to start.

Private lenders
While banks are generally public institutions that have high regulatory requirements, you can work with private lenders and equity firms that are willing to invest in real estate. These could be angel funds, investment groups, and more. You'd be surprised how many institutions are out there with the sole purpose of finding good investments to pour money into. You can find these lenders by either asking other investors you know or by doing some searches on the internet, where you can find things like private lender associations. These loans can be a bit more expensive with higher interest rates, so weigh your options.

Seller carryback
A seller carry back is where the seller of a property acts as the lender. There are a number of reasons why a seller might do this. Perhaps they are tired of the work required to operate a piece of property, or maybe they are looking for a steady return by collecting set interest on their money rather than rely on rental income ups and downs.

Because it is a private transaction, there are many options for seller carrybacks, and it just depends on your negotiating skills. The seller could finance all or part of the property. The rate could be at market or it could be higher than market depending on risk. The seller could participate in part of the profit in exchange for a lower rate and you doing the work and management to execute the business plan. The options are nearly limitless.

You never know if a seller will be willing to carryback, but as with all things, it never hurts to ask.

If you have a good investment property, it will be easy to line up private investors who will want to provide the equity money for the property. Often times this is how you can raise the money for the percentage of the purchase price that a bank will require you to pay.

So, for instance, if you are buying a four-plex and the bank requires you to put down 25%, you would use private lenders to raise most or all of the equity money needed for that 25%.

This means you need to put together a solid investment prospectus that shows the potential of return for the investors. Ideally, you would have done that for the bank as well, so it should be ready to shop.

This is how Rich Dad Advisor Ken McElroy does his deals, and he has grown his portfolio from one apartment building to thousands of units in multiple states.

Government Tax Credits
If you are interested in doing investing in properties that the government subsidies, like affordable housing, you can utilize a slew of tax credits to help fund your real estate investment. These types of investments require a high-level of financial intelligence, so you don't want to just jump in. But if you do the work to become a pro, you can make a very good living.

Additionally, you can find tax credits for building or retrofitting properties with environmentally friendly enhancements. It varies from marketing to market, so do your homework and see what you can get.

Cash flow on operations
This is where things get very fun and why I believe real estate is one of the best ways to accelerate the velocity of your money. Once you have a good real estate investment property and a plan for growing its value, you can utilize that property itself as a means to generate cash out of thin air for other real estate deals.

I hit on this in my last post when I talked about how to improve a property for greater cash flow and value:
    As an example, let's talk about Rich Dad investor Ken McElroy. Ken, as you may know, is a real estate mogul specializing in apartments-a real estate class called multi-family housing.

    What Ken and his partners do is find apartment buildings that under-perform. Because the value of a commercial real estate asset like an apartment is based off the Net Operating Income (income after expenses), any opportunity to increase NOI is an opportunity to see a healthy return.

    For Ken and his team, a variety of factors could help with this. For instance, the current landlord could be renting units well-below market rates. Turning those units and raising the rent could dramatically increase NOI. Or perhaps retrofitting units with washers and dryers, as well as a cosmetic facelift could increase rents by anywhere from $25 to $50 a month. Multiply that by hundreds of units and you'll see a lot of lift in income.

Since the bank values a property on the Net Operating Income, not on "market value", a lift in income is a sizable lift in value. You can use this higher value to do a refinance, pull money out of a property tax-free, and then redeploy it into another real estate investment. Continuing the cycle over and over again over many years exponentially grows your portfolio-and your wealth. And it's all done with OPM.