Date: Mon, 12 Jul 2004 13:46:02 CST
From: michael@bcect.com (Michael Sullivan)
Newsgroups: misc.invest.financial-plan
Subject: Re: What are cash flow investments?
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sid  wrote:

> I heard an interview this weekend with Robert Kiyosaki, author of "Who Took
> My Money."
 
> Actually, it was a little hard to tell if it was a true interview or more of
> an infomercial, but the main topic was "cash flow investing."
 
> I am not familiar with this term.  And while both the interviewer and the
> author were enthusiastic and adamant about the benefits of cash flow
> investing, they did not say what opportunites there are for cash flow
> investing, other than real-estate.

I think it's an invented term by him.  The gist is assets that can both
appreciate *and* generate cash-flow.  Almost anything that meets this
definition qualifies as a business to run (including rental real-estate)

> So what is "cash flow investing?"  What forms might it take?  Other than
> owning rental properties, I can't imagine what other "cash flow investments"
> might exist, unless they are talking about owning small businesses such as a
> laundromat or a vending machine company or something like that.

That would pretty much be it.  Well, you could certainly buy REITs or
dividend paying stocks.  Those provide both some equity appreciation and
some income (cash flow).    They are not as risky, nor as much work as
owning real-estate or your own businesses, so naturally the upside is
much smaller.

Kiyosaki (this is the Rich Dad, Poor Dad guy, right?) is a crank.  I
don't think he's a scam artist, but he's like every other "Make a
million dollars in 5-10 years" character out there.  It's certainly
possible to do what he talks about, but the key to success is in the
details, and he doesn't give 'em.  Most of these guys are not actually
successful at what they espouse, they are merely successful at selling
books.  Most of them (including Kiyosaki, IIRC) *tried* to do what they
advise others to do, and ended up bankrupt.  

It takes a lot of work, talent, and a certain kind of temperament to
make money his way.  Not only that, but you can have all that and still
get hosed. It's a very risky game.  You pays your money (and time!) and
you takes your chances.  Make good choices and in the long run, that
risk pays, but in the long run we are all dead.  Some people who do
everything right will never get paid for their big risks, they will just
lose.

If you have what it takes, and aren't unlucky, you will probably make
more money running a business or buying and selling investment
real-estate or other private assets than you can make investing in
stocks or other standard vehicles, but there's a very good chance you'll
end up at zero before you get a large enough portfolio together to
moderate your risk.  Kiyosaki, like many before him, implies that anyone
can and should be willing to try this.  The facts say: Well over half of
people who do just get eaten alive.  It doesn't matter how many books or
seminars they go to, either the balls don't bounce right, or they just
don't have what it takes, and they figure this out a couple years and
many thousands of dollars after they start down that road.

The number one thing that has to be there for you to be successful in
business (including a rental real estate business) is to be willing and
able to work your ass off for as much a year or two at low, no, or
*negative* pay.  

When you're a business owner, in times of stress, it's like the ads
about the army -- you will do more before 9 am (or after 5pm if you're a
night owl) than most people do all day.  And sometimes you'll be doing
it for a vapor paycheck: *probable* appreciation a year or two down the
road may be the only compensation you get.  If that doesn't sound worth
it, and even exciting to you, *STOP RIGHT NOW* and don't *ever* consider
running your business or owning rental real-estate.

Anyone who advises people to run their own business (and make no
mistake, rental real estate *is* a business) without making that caveat
clear as day is not doing their audience a service.



Michael