Rich Dad Poor Dad

[BradleyT]

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The author says a better route for home ownership would be to build assets first and then use the income they produce to buy the nice house and car.

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Since home ownership at a proper (good) price helps you build your net worth (assets) faster, his advice is to stay poorer for a longer period of time? I've got to read this book.

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If I'm living in a $50K dump but investing $100K into an income producing asset (say real estate that brings $500/month into my pocket) how is that worse than living in a $150K house but with no income producing assets?

And how does the $150K house help me build my net worth faster than the first situation?

[Sniper]

Cat,

He's also got a website...
you can start here for more info.
http://www.richdad.com/pages/richdadbasics.asp

[DesertCat]

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If I'm living in a $50K dump but investing $100K into an income producing asset (say real estate that brings $500/month into my pocket) how is that worse than living in a $150K house but with no income producing assets?

And how does the $150K house help me build my net worth faster than the first situation?

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First, you only have to invest $30k (or less) to live in a $150K house. So you can put the rest in your income producing investment. Now you are diversified, with an income stream combined with long term capital appreciation from your house.

Presumably your "income stream" is from real estate. How is it always a good idea to buy investment real estate, but always a bad idea to invest in the real estate you are going to live in?

And if you are happy living in a $50k dump, then congratulations, you will probably do very well at saving and acumulating wealth. But shouldn't you still own, not rent, that dump, assuming the price is right?

[DesertCat]

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Cat,

He's also got a website...
you can start here for more info.
http://www.richdad.com/pages/richdadbasics.asp

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Thanks

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Assets vs. Liabilities

Assets - something that puts money into your pocket

Liabilities - something that takes money out of your pocket

Is the home in which you live an asset or a liability?

In Rich Dad's world, your house is a liability. Even if you own the property with no mortgage, you still pay property taxes, utilities, maintenance, etc. Therefore: money is being taken out of your pocket. It is not until you sell that property – at a profit and realize capital gains – that it becomes an asset.

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This is horrible advice. If you rent, you also pay property taxes, utilities, maintenance, your landlord doesn't pay these out of his pocket, he pays them out of your rent. And your landlord gets to keep all the appreciation. Which is why RDPD recommends being a landlord. But not your own landlord. My head just exploded.

And remember my prior example of my neighbors. Once their home values had grown, they always had the option of a refinance to pull that cash out and invest it elsewhere. You don't have to sell the home to benefit from it's appreciation.


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Accelerator #10 – Hedge Funds
Hedge funds allow me to invest with insurance. They have the benefits offered by mutual funds in that they are “easy,” but without the downside risk. There are many different hedge fund strategies but their primary goal is to reduce volatility and risk while preserving their investors’ capital and delivering positive returns under all market conditions

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I find this advice also mind numbingly bad, there is down side risk to all investment funds. In the last two months two multi-hundred million dollar hedge funds have blown up and turned out to be frauds. Because of their secrecy, it's difficult to separate truth from fiction with hedge funds. They aren't even supposed to be accessible unless you are an "accredited investor", i.e. million dollar net worth or multi hundred thousand dollar income. Not the typical reader.

His investment plan goes on to recommend private placements, options and IPOs. This is all high risk stuff, Warren Buffett has recommended never buying an IPO because you are buying at the exact moment insiders have chosen as their opportunity to get the highest price for their shares.

I'm sure his book has good advice. There is nothing wrong with the advice to save so you can invest. But so far his advice on how to invest your money looks amateurish at best.

[Sniper]

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I'm sure his book has good advice. There is nothing wrong with the advice to save so you can invest. But so far his advice on how to invest your money looks amateurish at best.

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The advice is pretty amateurish, nothing thats going to blow YOU away (and probably a bit that YOU will disagree with, because of your knowledge).

But thats kinda the idea behind his books... to get people with little education in financial matters to look at things like an "accredited investor" would. The subtitle of the book is "What the rich teach their kids about money -- that the poor and middle class do not!".

Cat, for $11 on amazon, pick up a copy of the book!

[BradleyT]

I picked up the rich dad poor dad guide to investing. It's pretty much required reading if you read the first book.

It talks about how the rich get to invest in things the poor can't (by law) because the rich are accredited investors.

[Peter666]

He is not recommending renting versus owning, he is telling you the downside of owning.

Where I live, there are many young couples who just bought expensive houses at the top of a market bubble because the "mortgage rates are low." The banks are making all sorts of commercials saying that one's home is an "investment" as well. Having a $300,000 mortgage that is not producing more than it costs is not an investment. On top of that one must consider the monthly expenses of maintenance, taxes etc. These young people will be hit very hard by reality in a short while, as their low salaries will not match the price of inflation.

I plan to take full advantage of this situation by buying up nice homes at bargain prices within the next few years.