Chapter Three To most people, $200 a month, a 1 percent monthly return, looks sickly, certainly not exciting. Yet if you own 100 of these small deals, that is $20,000 a month in cash flow. And 1,000 properties is $200,000 a month. That is more money than most doctors and lawyers make in a month. When Kim started out, her goal was 20 units. She accomplished that in 18 months because the economy was terrible. It’s not that different today. Once she had her 20 properties, she sold them tax-deferred. With her tax-deferred capital gains, she purchased two larger apartment houses, one 29 units and one 18 units. Today, following the infinite-return formula, she has nearly 3,000 apartment units, commercial buildings, a luxury resort and five golf courses—all with positive cash flow, even in down markets. Her goal is to add at least 500 more units every year, using the same formula—the formula most real estate agents say does not exist. This difference in mind-set underscores the difference between real estate education in the S quadrant and the I quadrant. The real irony is that real estate agents pay taxes on the income they earn, and investors receive massive tax breaks on their income. On most of our investments, we have no money of our own in the property. If we do have money in the property, we are always in the process of getting that money back. In most cases, it takes a year to five years for our money to return. Once we get our money back, we move it to acquire more assets. This is a formula known as “the velocity of money.” I wrote about the velocity of money in greater detail in Rich Dad’s Who Took My Money? Why Slow Investors Lose and Fast Money Wins!, published in 2004. Our formula has not changed, and it has picked up velocity in this horrible economy. If you had taken the action suggested in Who Took My Money? before the crash, you might be getting your money back today.
Ken McElroy Shares How to Use Debt Have you ever wondered why your checking account is free? Banks need your deposits so they can lend money. Banks can’t make money until they have your money to lend. At this point, you have two choices: Use bank debt to make you rich, or use bank debt to make others rich. 108
by Rich Dad, Robert Kiyosaki