In his book “Cash Flow Quadrant,” Robert Kiyosaki, author of the Rich Dad book series, says his “rich dad” swore that real estate investing is not “brain surgery”. He said it was just a matter of using logic. But we all know that reasoning is not, in fact, terribly typical.
Kiyosaki also says, the ”worst” investors are people who simply have not studied the things that produce positive results. They assume that real estate investing is either a scam or just too risky. Others skip their do-diligence and wind up suffering a loss.
The smarted advice anyone can give you having to do with investing is just to educate oneself. If, in your hurry to make money, you start investing without that education, you’ll be doing yourself a tragic disservice. One of your most important resources is time and if you waste it, you’ll often find that your money will come next - money you have that you wind up squandering, money you would have earned if you had just invested the time to master the techniques of successful investors.
“That’s just fine,” you might say. You presumably will agree that studying good information is invariably a good thing. After all, knowledge is power. “What training should I get?” may be your first question. Your 2nd is probably going to be, “Where do I go about getting it?”
The 1st thing you should do is study some fundamental accounting, which is not as ambiguous as it appears to be. Accounting is the vocabulary of business. If you are planning on investing in a business or a piece of property (or whatever), you’ll need to be able to check up on it to see if it’ll be an asset (earn you money) or a burden (cost you money). It seems like logic when you ponder it, doesn't it? But if you want to be able to ascertain these things, you’ll have to be able to evaluate balance sheets.
There are four common types of financial statements: cash flow statements, income statements, balance sheets, and statements of changes in a share holder’s equity. The latter is fairly self explanatory, and deals with the difference surrounded by equity at 2 different points in time. A shareholder’s equity is the net worth of a business, or it’s total assets minus its total liabilities.
A cash flow statement is a document that details the cash needed to make a company run, including where the money came from. Wikipedia equates a business to a very big vat of H20 which holds more of the liquid and also has pipes pouring from within to the outside of it - into the investor’s pockets and others to whom the business is in debt. The cash-flow-statement tries to describe the movement of the liquid – or the movement of that cash.
The earnings (or profit-and-loss statement) watches out for a company's earnings and losses due to expenditures over a period of time, while a balance sheet gives an account the same thing for 1 single time-period and addresses liabilities and assets.
It all seems very straight-forward until you think about “Rich Dad’s” advice on discerning your liabilities and assets apart from one another. He said that the lending institution, for instance, will declare your property of residence as an asset. It sounds rational. After all, it is something you own, right? But according to Kiyosaki's rich dad's statement of liabilities and assets, your house is actually a liability. It’s a financial obligation because it ultimately costs you money in payments and updates. It definitely is not earning money for you, and up to the time it starts doing that (say, you buy another house and are able to rent the first property out to make you some money), at this point it still is not an asset on your balance sheet.
Not that the bank is lying to you outright. Your house is an asset on THEIR balance sheet because it is making money for them.
That is the sort of thing you can figure out for yourself and determine whether you are earning or losing money on an investment property, if you make the time to educate yourself education. Don’t forget: Knowledge is power.
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