Wisdom of Rich Dad

By Robert Kiyosaki 

Allow me to be politically incorrect: The No. 1 reason people aren’t rich is because they’re lazy. This is purely my opinion and no one else’s, and I have no scientific proof to back it up.

Why the sudden honesty? I’ll tell you.

One of the things I loved most about the Marine Corps was that I never had to worry about what anyone was thinking. When I was preparing to be an officer, there was no sensitivity training. When superior officers spoke to you, they didn’t have to wrap their words in ribbons and bows, and didn’t worry about hurting anyone’s feelings.

In fact, we often went out of our way to hurt others’ feelings just to test their core toughness. (I’d repeat some of the more choice comments I’ve treasured over the years, but I’m not writing for a military audience.)

When I returned from the war and entered the civilized world of business, I was shocked by the phoniness, the covert hostility (disguised as caring), and the fake smiles that are rampant to this day. It’s been over 30 years since I was discharged from the Marines, and I still haven’t adjusted.

Today, I’m still hesitant to let my employees know exactly what I’m not satisfied with for fear of being sued, or to compliment a pretty woman for fear of being accused of sexual harassment.

But I’m happy to say that things are changing. We now have reality TV instead of Father Knows Best, a phony show about fake family harmony from my era. Today, commentators like Bill Maher and Jon Stewart rip into politicians under the guise of humor.

We also have Donald Trump, who has millions of people from all over the world tuning in just to hear him say the magic words “you’re fired” to an apprentice wannabe. And of course there’s Simon Cowell of American Idol, the critic of all critics, whose book of brutally honest dismissals I was recently tempted to buy.

An Honest Assessment

All of this overt honesty, while sometimes contrived, encourages me to be more honest about my favorite subject — getting rich, and who’s most likely to do so.

Most of you who follow my books and this column know how I make my money. First of all, I’m an entrepreneur. I’ve been starting companies since I was a kid. I never wanted to be an employee — I always wanted to be in control. I didn’t want someone like me telling me what to do. Consequently, I now have companies, agencies, or strategic partners all over the world.

Second, I love real estate. Not only do I think it’s the best investment in the world, I can prove it. What other investment is there that has bankers lining up to lend you money? They won’t lend you millions of dollars for years at a time to buy stocks, bonds, or mutual funds. And what other investment will your insurance company insure against losses? Surely not mutual funds or a 401(k).

Third, I love commodities like oil and gas. Why do I love them? Because they’re in short supply and in great demand. Wars have been fought over oil and gas for years. What do you think the war in Iraq is about?

Finally, I’ve loved gold and silver for years. Why? Because I don’t trust the U.S. government to be good stewards of money. As you may know, the Bush administration has printed more funny money — over a trillion dollars’ worth — in six years than all past U.S. presidents combined.

Wars have been fought over gold and silver, too. Why do you think the Incas lost their empire to the Spaniards, or the American Indians lost their land to the European settlers? The conquerors may have said that they were acting in the name of God, but remember — there’s only a single letter’s difference between “God” and “gold.”

No More Political Correctness

The recent outbreak of honesty also inspires me to be more forthcoming in general, and less politically correct. This is the web, after all, where honesty is respected, not suppressed, censored, or forced to be “sensitive” like our old, more traditional forms of media.

You wouldn’t be reading Yahoo! Finance if you weren’t serious about being rich or becoming rich. So I owe it to you to be more truthful. And I’m not worried about offending the financial losers of the world, because financial losers don’t read this column.

So, rather than tell you week after week about real estate, entrepreneurship, gold, silver, oil, and gas, I’ve decided to occasionally run a less-than-politically-correct column and tell you exactly what I think about the subject of getting rich.

The L Words

It’s in this spirit that I opened by saying that lazy people don’t get rich. I also said that the difference between “God” and “gold” is a simple “L” — as in “lazy,” or “looting.” The conquistadors who looted the Inca Empire in the name of God weren’t lazy. They were thugs with guns, but they had ambition.

Another word that begins with “L” is “loser.” Over the years, I’ve met many losers who pray to God to give them gold. They’ll never get it that way because, as the Sunday school I went to taught me, God helps those who help themselves. Again, the conquistadors may have been killers and thieves, but at least they knew how to help themselves.

I do, too. As some of you may be aware, I wasn’t born rich. And I’ve written openly about my failures as an entrepreneur and my losses as an investor. I haven’t hidden my horror stories. The reason I don’t keep them secret is because my failures are the best learning experiences of my life. We learn by making mistakes — except in school, where we’re punished for making mistakes. This may be why most schoolteachers aren’t rich.

I’m not recommending that you become an ambitious looter, as Ken Lay and Jeff Skilling were convicted of being. I only want to point out that if you’re not a lazy loser, you may find yourself with more gold in your life without having to resort to looting.

This is a 20 min video of Robert Kiyosaki explaining about the secrets of the riches

A classic video which you don’t want to miss! 

(Just see how different he is on the video and how he looks now!)

By Robert T. Kiyosaki 

In 1983, the Harvard Business School published “A Perspective on Entrepreneurship,” a paper that defined the differences between entrepreneurs and employees. This paper, written by Professor Howard H. Stevenson, is one of the most articulate articles on this particular subject that I have read. While many differences were examined, I found two in particular to be especially insightful.

The first difference between entrepreneurs and employees is:

1. Employees are resource-oriented. Entrepreneurs are opportunity-oriented.

A person with an employee mindset might say, “I would start my own business but I don’t have the money.” Or “I’d love to invest in that piece of real estate, but I don’t have the down payment.” In both of these examples the person focuses on their resources–in this case their lack of money, rather than the opportunity.

In a similar situation, a person with an entrepreneur’s mindset might say, “Let’s start the business and we can finance the business from the cash flow.” Or “Tie up the property and we’ll find the money later.

“My poor dad was a man who saw many opportunities, but failed to act on them simply because he was resource-oriented. Instead of taking action, he often said, “I wish I could do it, but I can’t afford it.” Or “I would go into business for myself, but I need a steady job. I have a mortgage and you kids to feed.

“My rich dad (my best friend’s father, an entrepreneur who taught me a lot about how the rich think about money) was a man who started with nothing, but eventually became one of the richest men in Hawaii. Today, when you look at Waikiki Beach, you see some of the biggest hotels along the ocean on land his family owns. He said, “If you do not have resources, you need to become resourceful.” That is why he forbade his son and me from saying the words “I can’t afford it.” He said, “Poor people say ‘I can’t afford it.’ That’s why they’re poor.” Instead he insisted we learn to say, “How can I afford it?” He believed that when we said, “I can’t afford it” our minds were turned off and went to sleep. When we asked ourselves, “How can I afford it?” our minds, our greatest resource of all, were turned on and put to work.

The second difference between entrepreneurs and employees is:

2. Employees prefer to manage via hierarchical structures.
Entrepreneurs manage via networks, utilizing the resources of other people and organizations.

This means that employee-type leaders would rather hire people and bring their talent “in-house.” Rather than have an outside firm do their creative work, an employee-type leader would prefer to hire the talent and have them under their control. While there are economic reasons for doing this, the report stated that the primary reason is control. This is because employees gravitate to a leadership style that is more suited to a military command-and-control type of organization.

My poor dad was successful in the hierarchical structure of the government, eventually rising to the top of the educational system as Superintendent of Education and running for Lieutenant Governor for the State of Hawaii. After losing that race–and his position as Superintendent of Education–he tried his hand at entrepreneurship. He purchased a national ice cream franchise that failed in less than a year. Why? While the reasons were many, one reason was his leadership and management style. When he said, “Jump”… no one jumped.

Instead of the military’s command-and-control leadership style, my rich dad used a more cooperative and collaborative style of leadership. He encouraged his son and me to learn to lead and manage people who are not required to follow our orders–people who did not need to jump when they heard the word “Jump.” Rather than hire people and bring them in-house, rich dad networked with other people and organizations, which tended to reduce his costs and at the same time increase his resources and influence in the marketplace.

Today, The Rich Dad Company follows my rich dad’s advice. Instead of becoming a stand-alone publishing house, we choose to cooperate via a joint venture agreement with The Time Warner Book Group, as well as licensed publishers around the world who offer our books in 43 languages. In this way, we keep our core staff small, yet we utilize the thousands of employees of publishers around the world.

But leveraging the assets and resources of partners is not enough. It’s important to choose the right partners–ones who are aligned with your goals and values. Choosing the right partners can make the difference between success and failure–as I’ve learned the hard way.

As The Rich Dad Company has grown, we have worked with partners who have opened doors to opportunities that were much greater than what we could have been able to pursue on our own. In an entrepreneurial spirit, we formed alliances with major media organizations and international promotion firms that leveraged the Rich Dad brand with their worldwide networks.

In doing so, we–as entrepreneurs–stay small, yet increase market share by cooperating rather than competing… by networking rather than hiring employees and bringing work “in-house.

“In 1989 the world changed. That’s when the Berlin Wall came down and the World Wide Web went up. Instead of a world of walls, we became a world of webs… networks of people working cooperatively rather than competitively. It is a special honor for me to be recognized by Amazon.com, a pioneer in the brave new world of the web, founded by a great entrepreneur, Jeff Bezos. We at The Rich Dad Company join in celebrating Amazon’s successes and salute your leadership in this world of webs rather than walls.

There are key, fundamental differences between the mindset of an employee and the mindset of an entrepreneur. One of the great things about this world of webs is that the world is now open for business to billions of people who choose to think as entrepreneurs–rather than employees.
 

By now you would have heard a thousand times that to be finanically successful, one of the ways is to think and act like the rich, and learn to make your money work hard for you by investing them in good opportunities.

But hey, what are good opportunites?  How about 40% return in a year!!!!  Before you empty your pockets and dive straight into this “good” opportunity without much consideration, you might want to be aware that this might be another one of those get-rich-quick scam. 

Bankrate.com listed the top 10 investing scams, which might just help you spot that “too good to be true” investment.  Remember, if an investment is too good to be true, it usually is. 

A promise of 40% returns?

The quest for a safe investment vehicle is the common theme in all the scams. Here are the top 10, ranked roughly in order of prevalence or seriousness:

1. Ponzi schemes. This is an old scam named for Charles Ponzi, a swindler from the early 1900s who conned $10 million from investors by promising 40% returns. His scam has been copied by countless crooks. The formula is simple: Promise high returns to investors and use their money to pay previous investors.

According to the NASAA, Ponzi scammers often blame government intervention for the failure of their system. In Mississippi, two Ponzi scammers pled guilty to a scheme that bilked 41 investors from four states out of $10.2 million. They told investors they were taking part in a money-trading program. The program never existed.

2. Senior investment fraud. Record-low investment rates, rising health care costs and an increased life expectancy have set seniors up as targets for con artists peddling investment fraud — like Ponzi scams, unregistered securities, promissory notes, charitable gift annuities and viatical settlements. In 2003, Pennsylvania securities regulators shut down a Ponzi scheme that bilked $2 million from seniors’ pensions and IRAs.

3. Promissory notes. These are short-term debt instruments often sold by independent insurance agents and issued by little-known or nonexistent companies. They typically promise high returns, upward of 15% monthly, with little or no risk.

Bad brokers and not-really-brokers

4. Unscrupulous stockbrokers. As share prices tumble, some brokers cut corners or resort to outright fraud, say state securities regulators. And investors who have grown more cautious and scrutinized their brokerage statements have discovered their financial adviser has been bilking them via unexplained fees, unauthorized trades or other irregularities.

5. Affinity fraud. Taking advantage of the tendency of people to trust others with whom they share similarities, scammers use their victim’s religious or ethnic identity to gain their trust and then steal their life savings. The techniques range from “gifting” programs at churches to foreign exchange scams.

6. Unlicensed individuals, such as independent insurance agents, selling securities. From Washington state to Florida, scam artists use high commissions to entice independent insurance agents into selling investments they may know little about. The person running the scam instructs the unlicensed sales force to promise high returns with little or no risk.

This scam has made the top 10 list three years running.

Investors approached by an independent agent should first call the state’s securities regulator and ask if the salesperson is licensed. Then ask whether the investment being offered is registered as well. If the answers are yes, the investors should be more comfortable about the product. But investors should review the product with the same healthy skepticism that they would any investment opportunity.

Conspiracies behind every tree

7. “Prime bank” schemes. Con artists promise investors triple-digit returns through access to the investment portfolios of the world’s elite banks. Purveyors of these schemes often target conspiracy theorists, promising access to the “secret” investments used by the Rothschilds or Saudi royalty. In an effort to warn investors, the Federal Reserve pointed out that these don’t exist. But unfortunately, that government denouncement just feeds into the conspiracy mindset linked to this scam.

8. Internet fraud. According to NASAA, Internet fraud has become a booming business. For example, federal, state, local and foreign law-enforcement officials targeted Internet fraudsters during Operation Cyber Sweep in November 2003 — and identified more than 125,000 victims with estimated losses of more than $100 million.

“The Internet has made it simple for a con artist to reach millions of potential victims at minimal cost,” says Lambiase,  NASAA president.  ”Many of the online scams regulators see today are merely new versions of schemes that have been fleecing off-line investors for years.”

Lambiase warns consumers to avoid the infamous Nigerian 419 scam, saying Internet users should ignore e-mails from individuals in need of help who want to deposit money in overseas bank accounts.

“Don’t be dot-conned,” he says. “If you get an e-mail pitching a deal that can’t be beat, hit delete.”

Funds and annuities

9. Mutual fund business practices. Recent mutual fund scandals have made the national news and attracted the attention of investors and launched several investigations.

“These investigations demonstrate a fundamental unfairness and a betrayal of trust that hurts Main Street investors while creating special opportunities for certain privileged mutual fund shareholders and insiders,” says Lambiase. “We will continue to actively pursue inquiries into mutual fund improprieties,” he says.

10. Variable annuities.  As sales of variable annuities have risen, so have complaints from investors — most notably, the omission of disclosure about costly surrender charges and steep sales commissions. According to the NASAA, variable annuities are often pitched to seniors through investment seminars — but regulators say these products are unsuitable for many retirees. Lambiase says variable annuities make sense only for consumers who can afford to have their investment locked up for 10 years or longer.

Think that your kid is too young to learn about financial matters? 

John-Paul Pigeon started reading the Rich Dad books at just 7 years old when he found Rich Dad Poor Dad. Now at a very mature 11 years old, he is one of the most business-aware young investors in Texas.

Robert Kiyosaki was so impressed with John-Paul that he personally interviewed him at a recent Real Estate Wealth Expo. Naturally, John-Paul was there to learn more and brought his mother to learn with him.

John-Paul’s dedication to building his financial expertise has richly benefited his family, too. Here’s the whole interview:

So often, beginning real estate investors focus on techniques that they lose sight of the important issue: Is this a good deal?  Learning to recognize a good deal takes research, education and, above all, experience.

Here’s a good formula to determine whether a potential real estate purchase is a deal.  It’s a simple acronym called C.L.E.A.R.

Cash flow

“Will this property cash flow?” Well, that depends on a lot of factors, such as the strength of the local rental market, the interest rate on the financing, and how much of a down payment you make.

It also depends on whether it is a single-family or multi-family dwelling. All of these factors considered, ask yourself, “Will this property provide income?”

Then ask the question, “How will this property cash flow compared to other potential properties?”  For example, a $150,000 house that rents for $1,000/month has a better income potential than a $300,000 house that rents for $1,600/month.  A four-unit building that costs $400,000 may bring in $3,000/month in the same neighborhood.

Now, of course, whether the property will provide income to you begs the question of whether income is important to you.  Is it?  Do you earn other income?  Do you need more income now, or is future equity growth more important?

There’s no right answer to these questions, but are all factors to consider when looking at a potential purchase.

Leverage

Leverage is important for investors because the less cash you put down on each property, the more properties you can buy.  If the properties go up in value, your rate of return goes up exponentially.  However, if the properties go down in value and you have a lot of debt on the property, this can result in negative cash flow (see above).

Since real estate is generally cyclical, negative cash flow is only a short-term problem and can be handled if you have other income or a cash reserve to handle the negative. “Nothing down” investing is very attractive for the high-leverage investor, but should be approached with caution.

If you are a long-term player, leverage will generally work in your favor if the markets in which you invest appreciate in the long run and your income from the properties can pay for most of the monthly debt service.

Equity

Does the property you are purchasing have equity? Equity can take a number of forms, such as:

• A discounted price
• A potential fixer upper
• A rezoning opportunity
• A poorly managed property
• A foreclosure

There are many ways to create equity, but buying into equity is your best bet.

Find a motivated seller who wants out of his property and is willing to give up his equity for less than full value.  Or, buy a property that needs work that can be done for 50 cents on the dollar or less.

In other words, if the property needs $10,000 in work, make sure you get a $20,000 discount on the price or better.

Appreciation

Buying in the right neighborhoods in the right stage of a real estate cycle will result in appreciation and profit.  However, timing a real estate cycle is difficult and is speculative.  If you buy properties without equity or cash flow solely for short-term appreciation, you are engaging in a very risky investment.

Buying for moderate, long-term (10 to 20 years) appreciation is safer and easier.  Look at long-term neighborhood and city-wide trends to pick areas that will hold their values and grow at an average 5% to 7% pace.  Combine this tactic with reasonable cash flow and buying into equity, and you will be a smart investor.

Risk

Risk is a consideration that too few investors consider.  Now ask yourself, “What if my assumptions are wrong?”  In other words, do you have a “plan B”?

If you bought for appreciation and the property did not appreciate in value, can you rent for positive cash flow?

If you buy with an adjustable rate loan and the rates go up, will this put you out of business?  If you have a few vacancies, can you handle the negative cash flow or will it break the bank for you?  Expect the best, but prepare for the worst.

And remember, whenever you look at a property to purchase, think CLEAR: Cash flow, leverage, equity, appreciation, and risk.

– William Bronchick, J.D. is an author and attorney who regularly presents workshops and do-it-yourself seminars at real estate and landlord associations around the country.