Property News, Insights & Education

    The One Investment Secret that keeps the Rich, Rich

    • The rich overwhelmingly use others' money to build their wealth
    • Banks will lend up to 95% of the value of a property to investors in residential real estate

    Recently, one of my friends drove from Melbourne to Sydney and back to Melbourne again with his three children.

     

    I asked him how he’d managed to stay sane on the drive.

     

    “We stopped a couple of times for food and to let them burn off some steam in a playground”, he said.

     

    He also told me each kid kept themselves busy playing Roblox on their iPads. 

     

    As an added incentive not to complain, he and his wife also bribed them.

     

    At the halfway point in each direction, the kids got 400 Robux each.

     

    It cost him about $50.

     

    For those who don’t know, Roblox is an online gaming platform, and Robux is the currency you use to buy virtual accessories for your character in the games.

     

    My employee was essentially spending real money to buy his kids fictitious money.

     

    It made me think.

     

    The people behind Roblox are geniuses, and, undoubtedly, very rich.

     

    And they’re making parents, like my friend - poor.

     

    It reminded me of a quote from Robert Kiyosaki’s “Rich Dad, Poor Dad”.

     

    “The rich invent money”

     

    To illustrate his point, Kiyosaki describes how he seized an opportunity to invest in real estate in Phoenix, Arizona, in the early 1990s, when the city was gripped by economic turmoil. 

     

    He’d go down to the bankruptcy attorney’s office and offer to buy a house worth $75,000 from distressed sellers for $20,000.

     

    As a down payment, he’d offer a cheque for $2000.

     

    This was money he’d borrowed from a friend for 90 days at a cost of $200.

     

    While the sale was still being processed, he’d advertise the same house for sale for $60,000 with no deposit required.

     

    He’d find a buyer and charge them a $2,500 “processing fee”, with which he would pay back his friend.

     

    And his $40,000 profit came in the form of a promissory note from the buyer.

     

    (Example on p184-5 of “Rich Dad, Poor Dad” - 25th-anniversary paperback edition)

     

    I guess you could say Kiyosaki had “invented’ $40,000, but it’s probably more accurate to say he used other people’s money.

     

    And that is the stunningly simple secret of the rich.

     

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    The rich use other people’s money

     

    How often on the nightly news do you see the TV news cameras staking out the home of a wealthy individual whose dodgy company has gone belly-up, leaving hundreds of shareholders, customers and creditors with empty pockets?

     

    Ever notice a “For Sale” sign on the gates of their mansion?

     

    Of course not.

     

    They’ve run their dodgy company with other people’s money, and put very little, if any, of their own wealth on the line.

     

    How do you think kings and queens of yore expanded their wealth and power?

     

    They didn’t use any of their own money.

     

    They simply levied a tax on the poor to wage a new war to seize new territory that they could exploit.

     

    The good news is that you don’t have to be a rich shonk, a robber baron, or hover around people who are bankrupt like a vulture to take advantage of other people’s money.

     

    All you need is a bit of equity and some good advice.

     

    You see, when it comes to property investment, you can use other people’s money to build your portfolio and achieve financial freedom.

     

    Banks and other financial institutions will lend up to 95% of the value of a property to an investor who has all of their ducks in a row, and, importantly, the right type of property.

     

    One that is in a desirable area with good capital growth prospects, a low rental vacancy rate, and positive cash flow to help you pay the bank back.

     

    And when the bank can see that your investment is paying for itself, they’ll often be happy to let you use more of their money to buy another property, so you can build your wealth further.