When I start talking to people about building a passive income business by following the teachings of financial freedom guru Robert Kiyosaki, I immediately hear about people’s plans for buying real estate.
Anyone who has read the book Rich Dad, Poor Dad thinks that Robert Kiyosaki is all about investing real estate and buying rental or commercial property in order to achieve the financial freedom of their dreams. So, they instantly start putting all their money into real estate.
Reality check: That’s not book’s message. I try to listen patiently (after all I also believe that real estate can be a great investment vehicle), but the reality is you need a solid plan to achieve financial freedom, not a one off strategy.
Authors Robert Allen, Robert Kiyosaki, David Bach, and many, many talk about building multiple streams of passive income, that means having more than one investment vehicle, and making sure all those vehicles deliver passive income.
For beginners: passive income is income that comes in day in day out without you having to work to get it. Put simply, you are not trading hours for dollars. A true passive income business is one that if you were to leave it alone for a period of time, such as a year, you could return and find it more profitable (or at least generating the same level of income) as before you left. Passive income investments are the true path to financial freedom.
So what is the principle that Rich Dad truly talks about. He calls it the Power Investing Principle.
1 – Start a part-time business for the cashflow & tax advantages.
2 – When the market is right invest in real estate. (Now is not the time.)
3 – Invest your excess cash from the real estate in paper assets.
Unfortunately, a lot of people jump into step 2, real estate, without a lot of background knowledge about how to make that investment a lucrative one.
Here’s a clue, the property needs to generate passive income (that means it should be putting money into your pocket not taking money out). Capital gains (betting on an increase in value) should be a bonus not your sole reason for buying.
One of the first steps in building a solid passive income plan is to identify how you plan to generate passive income. The plan should include a number of sources including businesses, real estate and paper assets. The reason for this is to create a stable platform on which to build financial freedom you need all the elements.
Now, lets go back to the power investing formula and look at number 1: Build a business. Why do you want to build a business first? Simple: businesses provide the financial backing (cashflow) to support real estate investing. Makes sense right?
While there are only three steps in the power investing principle, you need to take the time to understand the systems behind each one. For example, master the business building system then move on to the system for residential real estate investing.
Taking it step by step will lead to prosperity and reduce your risks along the way.