Robert Kiyosaki - New Rules of Money, Part 5/7: Good Debt Vs. Bad Debt

[roniepao]

mortgage came from the word morgue

debt came from the world death

[drf7at1]

Also, anything that is highly leveraged (borrow everything with no money down) as he is suggesting is obviously highly risky. Another thing he should teach is risk versus return. Obviously, the more leveraged and more money you borrow, the higher the expected return because if e.g. the GFC happens, then you are left with didly squat stuck with an nonincome producing asset where no one is renting and worth half the value.

[Bowzer19]

We should teach this is schools man!!!

[hongkongstyleable]

l would like to know where r u gonna live if u only hold one property and that property is in mortgage and u have rent to a tenant?

[bolognadetector]

6:20 So his 'rental rates went up' after the real estate crash because people who lost their homes needed to rent so badly that he was able to stick it to them and raise his rents? I really hope that is not what he just said.

[takenote77]

One Smart Man, Real Knowlege. Thank You Mr.Kiyosaki.

[equanimousgray]

It's funny how people bad mouth Robert, but I want them to show me how they earn $360,000 a year with no money down... losers

[MEv1551]

Theres all kinds of shit you can learn on the internet :D

[gutrp]

"Because Im basing all of my investments not on capital gains or appreciation , I base all of my investments on cashflow": Great point Robert

[anonymousQ45]

where is the debt in owning a house and renting it to a tenant?

[societytravels]

If U understand TAX LAW. DEBT is tax FREE.. Wow... Keep educating us Rob. These darn colleges refuse to make this critical information a prerequisite for us before graduating. Hmm.. wonder why??

[LeongGlobal811]

MASTER/COACH/MENTOR teach me more! your humble student

[rayme4raw]

Thank you:)

[ganeshjks]

Great Robert. Thank you so much for sharing the wisdom.

[MisterQuebec]

The financial education should not be done only at school but at home! Of course, parents need to be financially educated themselves to do that. Counting on school to do that is a waste of time and whishful thinking that will lead you nowhere. Parents: Learn about money and teach your kids about it. That's what good parents should do.

[MisterQuebec]

I trust the government to take care of me. They're working for every day people!

[EMPIRE0FLIES]

Savers are losers and debtors are winners. Dont tell that to the govt or they will go ballistict with QE.:)

[jasmineonline08]

It's hard for him not to laugh at the simplicity he's teaching...lol

[frankqio]

savers are losers ! thanks Robert !

[jasdaman2]

this should be shown in econ classes

[Cyrus992]

@jasdaman2 You mean "financial." There is a difference..

[jasdaman2]

@Cyrus992 right, right. thank you for the correction! i guess what  im saying is that some degree financial education should be incorporated into public education.

[Cyrus992]

@jasdaman2 Amen! I have been a slave to this NASTY, CONTROLLING, INSANE, public school system for 13+ years and most of the valuable info I have learned was NOT from those maniacs!! Those are "public" run institutions and its those creeps who want us to get in debt in the first place..!! Get it!!??

[ricklansdown79]

I love this

[bookskamaki]

the rents are usually average price. The prices of houses do usually go up. The rents (profit after taxes and house repairs) are usually 1/900 to the price of the house. How are you going to pay the mortgage with the rent you are getting? it is insane.

I know many people who invested on rents. The got broke in 20 years. Because you cannot expand with rents .

This guy sell books to people who do not have microsoft excel. A simple test to excel proves him very wrong

[crazywaters]

Your argument although true does not always apply in real life. There are MANY exceptions. Say I get a construction loan. I build a parking lot, it is SUPER CHEAP property to own, and I collect RENT, every single HOUR, every week, every month, by the hundreds. The mistake most people do, is that they get a loan, build a 3 story house, live in one of the 3 apartments, pay the loan+expenses+repairs with the rest 2 rents, so they barely break even. Scaling while keeping costs down is the key

[bookskamaki]

so you say, instead of renting house, renting place for parking. I do not know whether you are right. if i own a hotel, or a dozen of hotels it is by far different from renting a house. hotels charge very much by the night. hotels are great investment, thank you very much. if you rent houses by the month, then you only get a fraction of your investment. Robert says big words with no value. I almost bought 3 of his books, but i canceled my order.

[bookskamaki]

if his good soul who is giving rent was a little more clever than a monkey he would have bought the house and pay the mortgage and own the house. this is stupid philosophy he is teaching. "you get rich when you give to people something that they need." Thats the rule. He is deceiving us with programs that do not work.

[GrandPatzer]

Really? Are you rich? How did you become rich? What is your philosophy to refute his? Please share.

[bookskamaki]

@GrandPatzer if i was rich already , i wouldnt go to youtube and learn how to be rich. You think i am Bill Gates?But i did one simple thing. I wrote down what he said and calculated . It is not hard. All you need is an office excel. Calculate the mortgage and the rents and they are quite un even. You may get rich this way after 30 years. If after 30 years do not need to work , it is not so good strategy.

[maximusTLP]

@bookskamaki I agree with robert for the most part, but in this case i agree with you, the mortgage of a house is at least 900 plus so its about 1300 a month, how can anyone make money of that, you would have to rent out your house for like 2000 to make any money, most people cannot afford that. the only way i see robert's point is if i bought 10,000 in silver and put it on my credit union at 5% interest, then yea i could make some money of that, but not of a house.

[crazywaters]

Thats why Donald Trump only owns property that makes more money than it seems. A hotel makes money by collecting mini-rents. A casino on the other hand does the same, but also includes venues that include several income streams, therefore the gap is not only covered, but always cashflow possitive. This is why most hotels in the world today are not just rooms to let, which is wrong as ANY single-income-stream based business. If it goes bust, there is no counterbalance from other income streams.

[megadeathx]

@GrandPatzer Philosophies do not win arguments. Facts do.

Making a profit is his point. All the other details are summarized in this video. Reading the book series will provide elaboration on those details as this exact example comes up several times in his literature.

To elaborate on your questions in your defense, "You get rich when you give people [who don't know better] something they need.". It is a very sound policy to bet in the ignorance of others.

[mikatan12]

can someone please explain the point of this Bad Debt vs good debt concept? I understood the assets and liabillites video before this.

[BMWg84]

Here are a couple examples of good debt:

1) I took out a student loan for my higher-education in order to learn a skill/trade that will pay me for the rest of my life.

2) I use credit to purchase products for my business that I will resell at a later date for profits.

Bad Debt:

1) Take out a bank loan for a vacation or jet skis (liability)

2) Buying a house thinking that when it appreciates in value you will become wealthier. A house can be good debt if you use it for a home business or rent

[equanimousgray]

@mikatan12 It's simple. You borrow someone else's money and you use it to buy yourself an asset. Not only does the asset pay back the money you borrowed with interest, but there is enough left over for you to pocket i.e., "net income/money in the pocket"

For example, you can use $30,000 to buy a brand new car or you can use that same money to buy an asset that will pay for your car, and that will continue to pay you for as long as you have it and run it effectively.

[drf7at1]

@equanimousgray I swear these videos are made for idiots. $30 000 income in his pocket from a $7 million investment? not only is that a 0.42% rate of return (Shares in the good times as this video is suppose to be in were 10%) , his "investment property" is now probably worth $3 million. Inflation is at 3.6% in the US which is eating $252 000 a year. if he earns less than that, he is actually loosing money.

[kktech04]

@drf7at1 You don't get it. First, the 10% isn't realistic. 5% before fees is closer to reality. Second, the hidden fees will eat your margin. You're left with 1% And third, you will then have to pay taxes on your capital gains. Now you have 0.5%. And fourth, stocks can go down too. Kiyosaki's thinking is different: the focus in cash flow, not in the value of the asset. No matter if the stock goes up or down, the asset must generate a positive cash flow to support itself.

[don6119]

@drf7at1 i think what he was trying to say is that he has $30,000 NET income after the mortage and all other expenses are paid. so he actually is making money

[roniepao]

@drf7at1

your genius. you should write a book.

[goldenvisionforyou]

This brief financial educational video is fantastic. Everyone in the rat race should watch it.

[themuthasback]

I am! I am!...

[KiraPepelu]

Thank you very much Mr. Robert. I deeply appreciate your teachings.

[lcbaudar]

Amen, not everyone is a stranger to commercial real estate. The success of a commercial building is based on tenants. The commerical real estate industry has a glut just like the personal real estate. What about the building of tenants that all refused to pay unless large reductions were granted, bet that affected positive cash flow eh?

[themuthasback]

You'd have to be an insane person to believe in your strategy if you kept granting apartments to tenants who refuse to pay. Good analysis of credit history, willingness to keep up with payments, type of job(s) tenant posseses, their ability to make money, etc. should all be good indicators of whether or not they're going to pay you. But you cannot be 100% sure, right? R.Kiyo has an answer for that in his 1st book.People who are good at making PROFITS in this business know how 2 manage the risks

[lcbaudar]

@themuthasback, True but you would equally have to be an insane person to invest in real estate in a depression. Deflationary forces cause asset values to fall. This creates downward pressue on rental incomes which reduces your margin due to the stagnant overhead of servicing the building loan. Most states have a 12 month glut of homes & commercial buildings based on a buying rate likely never to return. Does rising unemployment for the last 23 months straight sound like an opportunity for rent?

[themuthasback]

Again, that's the mistake that MOST people make in the market! A depreciated market is the perfect condition for growth. Yet, the depreciation is accelerated by people backing out... You have to believe that the market will be back. Why? That is how the governers of this economic market INFLUENCE the market. Just like a department store; it makes no sales when the prices are high, but when they start giving sales left & right, the business is right back booming. It happens time after time!

[themuthasback]

I used to think the same way. The problem was I was 2 impatient to see. The market goes up and down. Greedy, uneducated people usually invest in the market when it's about tapped out (ex. McAfee owner). Educated people who do their homework know when to get back in the market, or know not to pull out too soon if the downward trend's not too serious. Key thing to study??? POLITICS!!! Watch how Congress moves, then see how people react (ex. DTV). When they move, you move! R.K. mentions this too..

[lcbaudar]

@themuthasback Aye, I'm familiar with the whole mentality. Permabulls are always preaching about buying on the low. Buildings however don't appreciate. That's why they are ammortized to annually depreciate on your tax return. Only land appreciates. So let's say it takes 10 years for the market to double the value of your asset (land). Will that doubling of equity offset the building maintenance, property taxes & capital gains tax over a 10 year period? And that's IF there is a buyer. Tricky...

[themuthasback]

Those are definitely all valid points. In fairness of the argument, I've never sold to anyone or upheld maintenance of a building of my own (besides my apartment), but I do realize and believe in the volitility of markets (which are everywhere). Make no mistake about it, there is skills AND a bit of luck involved. Investing in a depressed market isn't 100% counter-productive; there will be a time where buyers will be > than sellers again in real estate. Just be ready. Best of luck, Ic...

[themuthasback]

P.S.--- Who's Permabulls??? Sounds like someone to research...

[lcbaudar]

@themuthasback Perma(ment) bulls (Bullish investor vs. bear). Investing in real estate is itself a misnomer. It's factually a form of gambling, as the net appreciation is never really 'created'. Only shifted from one party to another. For example you buy a house freshly built. The land appreciates and you sell on on a profit. The land depreciates and the next bloke loses. You've only shifted his capital to you. In the end there will always be a loser to represent the prior gain. Such is debt.

[themuthasback]

I get it... and you know what? This is something that is never advertised when people sell the notion of the "American Dream". The reality of the economy is that it's built off of scarcity (plus) pyramid schemes galore. In an unbalanced socioeconomic system, the idea of "anyone can do it" is only half of the notion. "Anyone can get jerked like a mugg" is the other part of it. lol. But you seem to know these things already...

[themuthasback]

The ironic thing about this (that irks me) is that there is really, truly a solution to offset intentionally-constructed unequal markets. Of course, it doesn't help to be the only one of a few of the entire socioeconomic population who're willing to "LIVE" it. If you had the FINANCIAL POWER to get involved in these Permabull-like activities (if it meant your "financial freedom"), would you consider it??? We'd have to answer that on our own....

[lcbaudar]

@ themuthasback Yes, I wonder myself. In the end there will be the blue and red pill. What is financial freedom but a never ending dependence on money itself. Money to represent trade, money to fuel our goals & aspirations, money to define our social class. And yet it is but money, paper and metal assigned a notional value. These objects bear nor deliver love. Like all other classes of species, we need not abide by the rules of money to enjoy the natural freedom of life. Sounds religious, eh?

[themuthasback]

Yes, religious, but RIGHTEOUS!!!... Right on key!

[themuthasback]

I once shared with a professor of mine that both the rich man AND the poor man worries about money; the poor man worries about FINDING it, and the rich man worries about PROTECTING it. They are still both enslaved by the same game, experiencing the same "magnitude" of anxieties... Alas, do you know who's FREE from the game in this kind of society??? The RETIREE (who keeps his daily "monetary expenses" LESS THAN his overall "monetary savings"). Kiyosaki, a RETIREE, attempts to show us how...

[themuthasback]

...then, in the mean time, you may find CREATIVE WAYS to exit your life (your desires, your needs, your dependencies) from the monetary slave game, and let the rest of the uninformed / undisciplined world play that game all around you. Worry about YOUR freedom! If they don't care to do the necessary work to be free, let "them" slave!... Can you see your financial invincibility? I... I.... I said CAN YOU "SEE" YOUR FINANCIAL INVINCIBILITY???!!!

[lcbaudar]

@themuthasback, Rofl. Yes I've heard of people on welfare expressing similar freedom, although I don't exactly support the idea. What Robert is seeking to do is laudable given the few that will actually seek financial 'gain' from it. But he ignores the multitude of poor made poorer from it. This is best typified in his example of hedging gasoline costs by leveraging in oil. It might make him a profit, but it raises the gasoline price of every other user. How selfish. Poor dad would be ashamed.

[lcbaudar]

You see Rich Dad Poor Dad represented more than class struggle. It represented the glorification of money over ideals. Poor dad was a teacher helping educate. While Rich dad was a real estate developer. You want to INVEST in your community, build a school. Your profit - zero. Support your local church (Your profit - zero.). You want to make a PROFIT, lease out parking meters, give private loans at usury rates, out-source jobs to minimize overhead and escape emission regulations. Long live profit

[themuthasback]

Well, Ic, you seem to have all the answers. The great thing about that is you'll be very attractive to "lost souls"... When you stated "What is financial freedom but a never ending dependence on money itself", it let me know that you have decided to only see the side of living that you WANT to see. I need not to attempt to motivate or educated you any longer. As long as you're ok with your situ, that's all that matters. Yet, each day you're alive on this earth, you have a chance... to "SEE"...

[lcbaudar]

@themuthasback Well I don't know about you, but I'm a product of my generation. Just another guy who bought into the multi level marketing scheme of real estate and how reading '101 things rich people think', won't get you anywhere. Those people got rich selling books on 'how to get rich'. Robert glazes over the true factors that strain our economy. The draining of capital from our labor into paper instruments that vanish in losses, creating no domestic investment in our standard of living.

[lcbaudar]

@lcbaudar The only reason you can even get a mortgage on a house right now is because the FHA is guaranteeing it at mounting losses. 90% of the mortgage would otherwise be FROZEN and will be at the current rate of losses. Study the full scene. There is a symbiotic relationship with China that funds the US' ability to issue credit to buy a home (via US Treasury's). When consumers are not buying Chinese products, there isn't a sufficient amount of dollars to recylce back into the US. The END.

[Fr0sbeule]

Fine.... and what will happen when the cash-flow is interrupted because payers for my good debt are bankrupt ?

Debt is always a risk.

[denisewyllie]

Robert has insight and clarity of vision and is generous to share this

thanks for helping me make sense of this

[Thesunalwaysshines1]

This guy is a genius!!!

[songcovers]

great info

[chadgresham]

Thankyou Robert