Knowlege is Power for Real Estate Investors

Author of the “Cash Flow Quadrant” book, Robert Kiyosaki, says his “Rich Dad” maintains that investing is not “brain surgery”. Rich Dad said it’s simply a matter of using common sense. But we all know that sound judgment isn’t, in fact, terribly common.

According to “Rich Dad”, the ”worst” investors are people who have simply not studied the process. They assume that investing is either too risky or a scam. Others skip their do-diligence and end up suffering a loss.

The best opinion anyone can have having to do with investing in real estate is simply to educate oneself. If, in your rush to “get rich”, you take action without an education, you’ll be doing yourself a tragic disservice. One of your most valuable resources is time and if you waste that, you’ll usually find that the money will be lost as well - money you have in hand that you wind up losing, equity you could’ve earned if you had just invested the time to learn the techniques of successful investors.

“That is great,” you may say. You presumably will agree that studying good information is typically a helpful thing. At the end of the day, information is power. “What training should I get?” may be your biggest question. Your 2nd question is probably, “How do I go about getting it?”

The very 1st thing you might want to study is some essential accounting, which isn’t as ambiguous as it sounds. Accounting is the language of money. If you are going to invest in a company or an investment property or what have you, you will want to be able to check up on it to see if it will be a benefit (earn you money) or a liability (cost you money). It looks like common sense when you ponder it, doesn't it? But in order to be able to ascertain these things, you’ll want to be able to understand balance sheets.

There are 4 basic kinds of financial statements: balance sheets, income statements, cash flow statements, and statements of changes in shareholder equity. The latter is fairly self explanatory, and addresses the difference between at 2 individual points in time. A shareholder’s equity is the net worth of a business, or it’s total assets minus its expenditures.

Your “cash flow statement” is a form that details the cash needed to make a company run, together with where the money originated. Wikipedia relates a corporation to a large kettle of H20 which holds more of the liquid and also has pipes running out of it - into the investor’s pockets and others to whom the business is in debt. The cash-flow-statement attempts to explain the activity of the liquid – or in other words the movement of your cash.

The income (or profit-and-loss statement) keeps track of a company's income and expenses over a given time period, while the balance sheet provides accounts for the same thing for 1 distinct window of time and presents your assets and liabilities.

It may seem very straight-forward until you think about “Rich Dad’s” words on telling your liabilities and assets apart from one another. He said that the bank, for example, will list your house as an asset. It seems rational. After all, it’s some thing you own, right? But as stated by Kiyosaki's rich dad's statement of assets and liabilities, your house is in fact a liability. It’s a liability because it ultimately costs you money in dues and updates. It undoubtedly isn't making income for you, and up to the time it starts doing that (say, you buy another house and are able to charge enough rent to make a profit), at this point it still is not an asset on your balance sheet.

Not that the bank is lying to you outright. The house you are living in is an asset on THEIR balance sheet because it is making money for THEM.

That is the kind of thing you can decide for yourself and determine whether you are earning or losing money on an investment, if you take the time to educate yourself education. Don’t forget: Knowledge is power.

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