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Chapter Three

Why Are So Many People in Trouble? FAQ Why are so many people in trouble with debt? Short Answer They use debt to buy liabilities. The rich use debt to buy assets. Explanation In Rich Dad Poor Dad, I stated that your house is not an asset. The reason most homes are not assets is simply because the owner pays the mortgage, taxes, insurance, and upkeep. With our properties, the tenants pay for those expenses, plus our profit. We use debt to finance assets, things that put money in our pockets. It doesn’t have to be real estate. For example, Kim and I own a 58-foot sailboat. For most people, a boat is a big liability, a hole in the water you pour money into. Our boat is an asset because the boat is in a charter business, so tourists pay for the debt, insurance, upkeep, and boat slip rental. We make money every month and use the boat when we please. Remember, it is not the asset class that determines if something (a house, boat, business, oil, or gold) is an asset or a liability. What determines if something is an asset is the direction of the cash flow. If cash flows into your pocket, it’s an asset. If cash flows out of your pocket, it’s a liability. It’s that simple, in theory. In practice is where the challenge lies.

Real-Life Real Estate FAQ Would you give us a real-life example of how you achieve 100 percent debt and still have positive cash flow? Short Answer Sure.

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Profile for Jamiel Cotman

Unfair advantage ebook  

by Rich Dad, Robert Kiyosaki

Unfair advantage ebook  

by Rich Dad, Robert Kiyosaki

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