Robert Kiyosaki: Why the Rich Get Richer
Thinking Big Is The Best Plan
Years ago, when I was just starting my real estate investing career, I came across a property with a for-sale sign on it. I called the broker and asked, "What can you tell me about the property, and how much does it cost?"
The broker politely and patiently said, "It's a commercial building with six tenants. There's a chiropractor, a dentist, a hairstylist, an accountant, and a bail bondsman. The price is two million dollars."
Losing Big
I almost choked. "Two million dollars?! That's way too expensive!"
Thirty years ago, $2 million was a lot of money. And instead of looking at the property, I let the price frighten me off. I never looked at the deal, and just assumed that the seller was crazy, greedy, and out of touch with the market.
Today, there's a luxury hotel on the same site. It's spectacular. I estimate the property to be worth at least $150 million, and maybe more.
Cheap Lessons
Not seeing the potential of that deal taught me many lessons. Here are two important ones:
• Sometimes you learn more by being stupid and making mistakes.
• The person with the better plan wins.
In the above example, my plan was just too small. In fact, the only plan I had at the time was to collect the rent money from the tenants, cover my mortgage and expenses, and put a little in my pocket. And 30 years ago, I knew that the rent from six small tenants couldn't possibly pay for a $2 million property.
I later learned that the property's eventual owner bought it for full price – with terms. He put $50,000 down as an option and asked for 180 days to put the rest of his plan together. During those 180 days, he gathered his investors, a builder, and his tenant, a major hotel chain.
If he hadn't been able to put his plan together, he would've lost his option money. Instead, before the 180 days were up, his investors paid the $2 million in cash, and he spent the next three years getting the project through the city planning commission and finally began construction. He won because he had a better plan.
Mind Expansion
Donald Trump often says to "think big." He definitely does so, but by nature, I don't. My excuse is that I come from a small town in Hawaii. My family wasn't rich, so when it comes to money, I tend to think err on the side of caution. Over time, my thinking has become medium-sized when it comes to spotting opportunities, but I'd still like to think bigger.
One of the reasons I enjoy doing business in New York and having Trump as a partner on different projects is that he makes me do just that – because if you don't think big in New York, you get kicked out. If I thought small, I wouldn't be on television, cutting book deals with major publishers, or talking in front of tens of thousands of people in arenas like Madison Square Garden.
Currently, I'm working on a real estate project to present to Donald. Consequently, I find myself pushing my thinking, expanding my context, and thinking of luxury, not just price. Even if Donald doesn't like the project and we don't partner on it, just preparing to present the project to him has required me to think bigger and come up with a better plan.
A Blast from the Past
About a year ago, someone called to say that there was a spectacular condominium that had just come up for sale. She wanted to know if I was interested in looking at it. Of course I said, "Yes." I wanted to see what her definition of spectacular was, and trust me – it was spectacular. She then said, "And the price is only twenty-eight million dollars. But I believe you can pick it up for twenty-four million. At that price, this condo is a steal."
Once again, I heard myself saying what I said so long ago: "That's too expensive." But, as I said, that lesson from 30 years back proved to be priceless: After hearing the think-small person in me comment on the condo price, I took a deep breath and asked myself, "What's my plan?" Then I asked myself, "What's wrong with my plan?"
I didn't buy the condo, but I did come up with a better plan. Over the next few days, I realized that the reason I couldn't afford the condo was because my business was too small. If I wanted to afford such a luxury residence, I needed to come up with a better plan for my business. Today, I'm working harder than ever to improve it – not because I want the condo, but to be able afford such a condo if I someday decide I want one.
Plan Ahead
In many of my Yahoo! Finance columns, I've written about my concern over the devaluation of the U.S. dollar. As the dollar drops in purchasing power, it often pushes up the prices of real assets – quality real estate and equities. My fear is that many people may not be able to afford tangible assets and become poorer as the dollar declines. This drop in purchasing power also widens the gap between the rich and everyone else.
One method of staying ahead of rising asset prices and the declining dollar is to think bigger and come up with better plans. As important as financial and business planning is a plan for personal development and self-improvement. I'm often asked to invest in people's business plans, and one of the reasons I turn many of them down is because a big plan requires a big person who's spent time on personal development. In a lot of cases, a business plan is far bigger than the person with the plan – that is, the dream is bigger than the dreamer.
Today, I'm glad I missed out on that $2 million property all those years ago. The best lesson I learned from it is that I can have a better life if I have a better plan – and a plan to become better person. So what's your plan?
Sunday, November 29, 2009
An Essential Guide To Buying Your First Car
An Essential Guide To Buying Your First Car
By iFAST Editorial Team
We've all heard about how buying a car is not one of the smartest financial moves to make. A car is after all, a depreciating asset. But we can't deny that having a car brings other intangible benefits - convenience, accessibility, freedom etc.
Damien Fong, from Singcapital Pte Ltd., tells potential car buyers what they need to know before signing on the dotted line for a new car purchase, and offers tips on how to source for a suitable car loan.
iFAST: What are the main factors to take into consideration when deciding whether to purchase a car?
DF: Many car owners around in the world, and especially in Singapore, do not have a full understanding of the financial implications of one's car purchase. In Singapore, it is important for a potential car buyer to note that there are some very specific factors that affect the value of a car and the overall cost of ownership. As Singapore is still one of the most expensive places in the world to buy and maintain a car, it is well worth one's time to understand the basic elements that make up the costs of owning a vehicle here.
OWNING A VEHICLE IN SINGAPORE
The 2 main factors that impact the cost of car ownership in Singapore are:
The vehicle tax regime including import duties, additional registration fees (ARF) and road tax.
The Vehicle Quota System which limits the vehicle population growth in Singapore to approximately 3% per annum. The tool which is used to limit the number of cars registered in Singapore is the Certificate of Entitlement or COE. Each vehicle registered in Singapore must have an accompanying COE which is "attached" to the vehicle throughout the vehicle's lifespan. For more information on the Vehicle Quota System and COEs, please visit www.lta.gov.sg (The Land Transport Authority) and www.onemotoring.com.sg.
RECURRING MAINTENANCE COSTS
In addition to incurring the cost of acquiring a vehicle, there are other costs associated with keeping the vehicle on the road. Here are some of those costs:
COMMON MISCONCEPTIONS
One of the most common misconceptions on the affordability of a car is the "low monthly installment" syndrome. This happens when prospective buyers are enticed into buying a car on the premise that the monthly installment is low. However, many consumers do not factor in other "costs" and can end up in a horrendous situation from a financial perspective.
Many car buyers also do not take enough time to consider their length of ownership and therefore do not make the best purchase decisions from a financial perspective. Unlike a property, a car is usually a liability as its value depreciates the moment you purchase the car. Therefore, when buying a car, it is important to take time to consider how much it will cost you overall, your intended ownership period and of course, your motoring needs.
iFAST: If an individual were to purchase a car, what would be the maximum percentage of the individual's salary that should be allocated for the monthly installments and other related expenses?
DF: To work out your Income and Expenses when deciding on a car purchase, one will need to work out his/her Debt Servicing Ratio (DSR) which is often used by banks to assess whether a loan application can be approved. DSR is the percentage of the borrower's total monthly financial commitment (including car loan, home loan repayment, and other financial commitments such as unsecured borrowing, etc) against his monthly income and it will determine the loan quantum to be granted. The acceptable DSR varies from bank to bank, but is usually between the region of 40% to 50%.
SOURCING FOR A SUITABLE CAR LOAN
There are three basic factors to think about when sourcing for a new car loan: interest rate, loan principal and loan period. Knowing these three items will enable you to understand how much loan you are able to obtain. Using these to make your loan calculation will help you establish your budget for making the monthly payments.It will be good to bear in mind that most lenders will want you to take out as much loan as you can possibly afford, since they will make more money, the larger the loan amount is. Therefore, always check the terms and conditions for the car loan before you commit to a loan. Below are the key items one needs to take note of, when it comes to car loans.
The Loan PrincipalLoan principal is a term used in finance that refers to the original amount of the debt or the original amount of money borrowed. Your total interest charges at the end of the loan period depend on the amount of the loan principal and the loan period. The higher the principal amount you borrow, the more money you will ultimately be paying back over the course of the loan.
Interest RateThe interest rate is usually expressed in percentage terms and is referred to as the amount of money charged outside the loan principal amount.
There are two common car loan interest schemes, i.e. the flat interest rate and the monthly rest schemes. Flat inter¬est charges are also known as "flat add-on rate". The interest rate is fixed throughout the loan period and it uses simple interest calculation. This means the total interest payable for the whole loan period is already added into the principal loan amount at the beginning. Borrowers pay equal monthly installments over the period of the loan. Currently, most car loans in Singapore are based on this scheme.
Monthly rest schemes are repayment schemes with floating interest rates. These rates are usually pegged at a certain percentage below or above a benchmark rate, such as the lender's prime lending rate or board rates. The interest is calculated on a monthly rest basis, meaning that the principal amount is reduced every month as the monthly installment is paid. The monthly instalments are a fixed amount, but the reduction in the principal and the interest payment vary according to changes in the interest rate.
Loan PeriodThe loan period refers to the life cycle of the loan. The longer the loan, the more expensive the loan will be.
Car loan calculation is an important part of sourcing for the right car loan. You can determine how much your loan is going to cost, by utilising good car loan calculation.By regulation, car loans have a maximum repayment period of 10 years and a financing limit of 100% of the car purchase price or market value, including COE, whichever is lower. The loan period added to the age of the car cannot exceed 10 years.
Terms and Conditions - DefaultFor hire purchase loans, if you default on the monthly installments, the lender has the right to repossess the vehicle. Upon the sale of the vehicle, you have to pay for the shortfall between the sales proceeds and the loan outstanding, including the costs arising from the repossession.
Late Fees and PenaltiesDifferent lenders charge different fees for late payment of installments. Make sure you check out all these fees before you commit to the loan.
iFAST Central provides services to more than 50 financial advisory companies, exempt financial advisers and financial institutions, and over 2,500 financial adviser representatives. Damien Fong is Financial Advisor Director at Singcapital Pte Ltd, a financial advisory company.
By iFAST Editorial Team
We've all heard about how buying a car is not one of the smartest financial moves to make. A car is after all, a depreciating asset. But we can't deny that having a car brings other intangible benefits - convenience, accessibility, freedom etc.
Damien Fong, from Singcapital Pte Ltd., tells potential car buyers what they need to know before signing on the dotted line for a new car purchase, and offers tips on how to source for a suitable car loan.
iFAST: What are the main factors to take into consideration when deciding whether to purchase a car?
DF: Many car owners around in the world, and especially in Singapore, do not have a full understanding of the financial implications of one's car purchase. In Singapore, it is important for a potential car buyer to note that there are some very specific factors that affect the value of a car and the overall cost of ownership. As Singapore is still one of the most expensive places in the world to buy and maintain a car, it is well worth one's time to understand the basic elements that make up the costs of owning a vehicle here.
OWNING A VEHICLE IN SINGAPORE
The 2 main factors that impact the cost of car ownership in Singapore are:
The vehicle tax regime including import duties, additional registration fees (ARF) and road tax.
The Vehicle Quota System which limits the vehicle population growth in Singapore to approximately 3% per annum. The tool which is used to limit the number of cars registered in Singapore is the Certificate of Entitlement or COE. Each vehicle registered in Singapore must have an accompanying COE which is "attached" to the vehicle throughout the vehicle's lifespan. For more information on the Vehicle Quota System and COEs, please visit www.lta.gov.sg (The Land Transport Authority) and www.onemotoring.com.sg.
RECURRING MAINTENANCE COSTS
In addition to incurring the cost of acquiring a vehicle, there are other costs associated with keeping the vehicle on the road. Here are some of those costs:
COMMON MISCONCEPTIONS
One of the most common misconceptions on the affordability of a car is the "low monthly installment" syndrome. This happens when prospective buyers are enticed into buying a car on the premise that the monthly installment is low. However, many consumers do not factor in other "costs" and can end up in a horrendous situation from a financial perspective.
Many car buyers also do not take enough time to consider their length of ownership and therefore do not make the best purchase decisions from a financial perspective. Unlike a property, a car is usually a liability as its value depreciates the moment you purchase the car. Therefore, when buying a car, it is important to take time to consider how much it will cost you overall, your intended ownership period and of course, your motoring needs.
iFAST: If an individual were to purchase a car, what would be the maximum percentage of the individual's salary that should be allocated for the monthly installments and other related expenses?
DF: To work out your Income and Expenses when deciding on a car purchase, one will need to work out his/her Debt Servicing Ratio (DSR) which is often used by banks to assess whether a loan application can be approved. DSR is the percentage of the borrower's total monthly financial commitment (including car loan, home loan repayment, and other financial commitments such as unsecured borrowing, etc) against his monthly income and it will determine the loan quantum to be granted. The acceptable DSR varies from bank to bank, but is usually between the region of 40% to 50%.
SOURCING FOR A SUITABLE CAR LOAN
There are three basic factors to think about when sourcing for a new car loan: interest rate, loan principal and loan period. Knowing these three items will enable you to understand how much loan you are able to obtain. Using these to make your loan calculation will help you establish your budget for making the monthly payments.It will be good to bear in mind that most lenders will want you to take out as much loan as you can possibly afford, since they will make more money, the larger the loan amount is. Therefore, always check the terms and conditions for the car loan before you commit to a loan. Below are the key items one needs to take note of, when it comes to car loans.
The Loan PrincipalLoan principal is a term used in finance that refers to the original amount of the debt or the original amount of money borrowed. Your total interest charges at the end of the loan period depend on the amount of the loan principal and the loan period. The higher the principal amount you borrow, the more money you will ultimately be paying back over the course of the loan.
Interest RateThe interest rate is usually expressed in percentage terms and is referred to as the amount of money charged outside the loan principal amount.
There are two common car loan interest schemes, i.e. the flat interest rate and the monthly rest schemes. Flat inter¬est charges are also known as "flat add-on rate". The interest rate is fixed throughout the loan period and it uses simple interest calculation. This means the total interest payable for the whole loan period is already added into the principal loan amount at the beginning. Borrowers pay equal monthly installments over the period of the loan. Currently, most car loans in Singapore are based on this scheme.
Monthly rest schemes are repayment schemes with floating interest rates. These rates are usually pegged at a certain percentage below or above a benchmark rate, such as the lender's prime lending rate or board rates. The interest is calculated on a monthly rest basis, meaning that the principal amount is reduced every month as the monthly installment is paid. The monthly instalments are a fixed amount, but the reduction in the principal and the interest payment vary according to changes in the interest rate.
Loan PeriodThe loan period refers to the life cycle of the loan. The longer the loan, the more expensive the loan will be.
Car loan calculation is an important part of sourcing for the right car loan. You can determine how much your loan is going to cost, by utilising good car loan calculation.By regulation, car loans have a maximum repayment period of 10 years and a financing limit of 100% of the car purchase price or market value, including COE, whichever is lower. The loan period added to the age of the car cannot exceed 10 years.
Terms and Conditions - DefaultFor hire purchase loans, if you default on the monthly installments, the lender has the right to repossess the vehicle. Upon the sale of the vehicle, you have to pay for the shortfall between the sales proceeds and the loan outstanding, including the costs arising from the repossession.
Late Fees and PenaltiesDifferent lenders charge different fees for late payment of installments. Make sure you check out all these fees before you commit to the loan.
iFAST Central provides services to more than 50 financial advisory companies, exempt financial advisers and financial institutions, and over 2,500 financial adviser representatives. Damien Fong is Financial Advisor Director at Singcapital Pte Ltd, a financial advisory company.
Investing in Better Research
Investing in Better Research
A few days ago, a reporter asked me if I was losing money in real estate. My reply was, "No, I'm making money."
Confused, he asked, "How can you be making money during the subprime disaster?" I explained that since the real estate market took a downturn, there were more people renting rather than buying, which is great for my apartment business. I also informed him that I'm raising rents since demand for affordable apartments is so high. When someone moves out, I increase the rent and new tenants line up, which means my cash flow is increasing.
He then asked, "Are you looking for new investments?"
A shocked look came over his face when I said, "I've been investing heavily in the stock market since August 2007. I've moved several million dollars into the market."
"The stock market?" he stammered. "Stocks are crashing. Why are you in the stock market? Besides, I thought you were a real estate investor?"
Ignorance Isn't Bliss
As Warren Buffett has said, it's important for society to have accurate and informed sources of information. While I agree, I sometimes wonder about the intelligence of many financial journalists, both in print and the electronic media.
For example, lately on financial TV stations, the reporters have been talking about the run-up in gold and asking, "Is it time to invest in gold and gold stocks?" What a ridiculous question. Now isn't the time to be investing in gold or gold stocks -- that time was 10 years ago, when gold was below $300 an ounce. Investors should've taken substantial positions when gold was cheap. For reporters to be talking about gold today is no different than them reporting on the hot real estate market in 2005, just before the top blew off.
I had dinner with a friend of a friend the other night and he was telling me about the Rothschild formula for investing. According to him, this involves not participating in the first 20 percent or the last 20 percent of an investment run-up. Instead, it's investing in the middle 60 percent, when risks are low and the direction of the price is determined. As the asset value approaches what appears to be the last 20 percent, you sell and move on to another asset class.
As we all know, most amateurs (and, possibly, many reporters) only participate in the last 20 percent.
Take Notes
I wondered if the reporter who asked why I was investing millions in stocks was an investor himself. I did my best to explain to him that there are two things professionals invest for: 1) Capital gains, and 2) Cash flow.
I said, "The amateurs who come in at the top 20 percent of a market are generally investing only for capital gains. In the last real estate boom, the 'flippers' who got no-document, zero-down loans paid very high prices, and hoped for a greater fool than them to take the property off their hands.
"These are some of the people being faced with forecloses today. They're the investors who make the news -- not the investors who are making money."
The reporter then asked me, "So what do you invest for?"
My reply? "Both. If I can, I want both capital gains and cash flow."
I went on to explain that I was investing millions in stocks that were paying a high dividend -- cash flow -- and also had their prices battered down by the market crash, a loss of capital gains.
Spelling It Out
He wasn't the brightest reporter, since he had trouble with the idea of investing for both cash flow and capital gains. After about an hour of explanation, he finally began to understand that I'm not just a real estate investor -- I'm someone who invests for capital gains at a great price, or cash flow at a great price, regardless of the asset class. If the deal is right, it doesn't matter if it's in real estate, commodities, a business, or paper assets.
Here's an example of capital gains for a great price: Back in the 1990s, every time I had some extra cash I would buy some gold or silver. Although I didn't receive any cash flow from gold or silver I knew I was purchasing the metals at a great price, and that someday those prices would rise again.
An example of buying for cash flow at a great price is when I buy a stock that pays a dividend. I wait until the stock market dips and then buy, which is what I'm currently doing. One of the better companies I've been buying is a bulk cargo shipping company that's hauling U.S. grains to India. The more the dollar drops in value, the more grains we export. Every time the market drops, I buy more of this stock at a great price, because I love the cash flow from dividends.
Finally, an example of buying both capital gains and cash flow at a great price is when I find an apartment building at a bargain, and then increase the rents. By doing so, I increase the cash flow and the property value, which translates into capital gains.
Leave It to the Pros
When I watch professional football, I love listening to John Madden because I know he knows what he's talking about. He's been both down in the trenches and in front of the bench as a coach. He knows the game. By that token, one financial reporter I respect is Bloomberg's Kathleen Hayes. She's a savvy reporter who knows what she's talking about. I wonder about some of the other financial reporters.
The problem with much of the financial news in print and on the web, radio, and television is that it comes from journalists who may not be investors. When I listen to most journalists whine and cry about the subprime mess, the slowdown in the economy, and the volatile stock market, I can all but tell that they're not really investors. None of these events really has much impact on professional investors, who follow market trends and are familiar with the underlying fundamentals of the assets they investing in.
So the next time you hear a reporter ask, "Is this the time to be getting into stocks, bonds, real estate, gold, silver, or oil?" remember that it's probably the time to be looking elsewhere. And keep in mind the Rothschild formula of investing. You never want to be too early -- and you also never want to be too late.
A few days ago, a reporter asked me if I was losing money in real estate. My reply was, "No, I'm making money."
Confused, he asked, "How can you be making money during the subprime disaster?" I explained that since the real estate market took a downturn, there were more people renting rather than buying, which is great for my apartment business. I also informed him that I'm raising rents since demand for affordable apartments is so high. When someone moves out, I increase the rent and new tenants line up, which means my cash flow is increasing.
He then asked, "Are you looking for new investments?"
A shocked look came over his face when I said, "I've been investing heavily in the stock market since August 2007. I've moved several million dollars into the market."
"The stock market?" he stammered. "Stocks are crashing. Why are you in the stock market? Besides, I thought you were a real estate investor?"
Ignorance Isn't Bliss
As Warren Buffett has said, it's important for society to have accurate and informed sources of information. While I agree, I sometimes wonder about the intelligence of many financial journalists, both in print and the electronic media.
For example, lately on financial TV stations, the reporters have been talking about the run-up in gold and asking, "Is it time to invest in gold and gold stocks?" What a ridiculous question. Now isn't the time to be investing in gold or gold stocks -- that time was 10 years ago, when gold was below $300 an ounce. Investors should've taken substantial positions when gold was cheap. For reporters to be talking about gold today is no different than them reporting on the hot real estate market in 2005, just before the top blew off.
I had dinner with a friend of a friend the other night and he was telling me about the Rothschild formula for investing. According to him, this involves not participating in the first 20 percent or the last 20 percent of an investment run-up. Instead, it's investing in the middle 60 percent, when risks are low and the direction of the price is determined. As the asset value approaches what appears to be the last 20 percent, you sell and move on to another asset class.
As we all know, most amateurs (and, possibly, many reporters) only participate in the last 20 percent.
Take Notes
I wondered if the reporter who asked why I was investing millions in stocks was an investor himself. I did my best to explain to him that there are two things professionals invest for: 1) Capital gains, and 2) Cash flow.
I said, "The amateurs who come in at the top 20 percent of a market are generally investing only for capital gains. In the last real estate boom, the 'flippers' who got no-document, zero-down loans paid very high prices, and hoped for a greater fool than them to take the property off their hands.
"These are some of the people being faced with forecloses today. They're the investors who make the news -- not the investors who are making money."
The reporter then asked me, "So what do you invest for?"
My reply? "Both. If I can, I want both capital gains and cash flow."
I went on to explain that I was investing millions in stocks that were paying a high dividend -- cash flow -- and also had their prices battered down by the market crash, a loss of capital gains.
Spelling It Out
He wasn't the brightest reporter, since he had trouble with the idea of investing for both cash flow and capital gains. After about an hour of explanation, he finally began to understand that I'm not just a real estate investor -- I'm someone who invests for capital gains at a great price, or cash flow at a great price, regardless of the asset class. If the deal is right, it doesn't matter if it's in real estate, commodities, a business, or paper assets.
Here's an example of capital gains for a great price: Back in the 1990s, every time I had some extra cash I would buy some gold or silver. Although I didn't receive any cash flow from gold or silver I knew I was purchasing the metals at a great price, and that someday those prices would rise again.
An example of buying for cash flow at a great price is when I buy a stock that pays a dividend. I wait until the stock market dips and then buy, which is what I'm currently doing. One of the better companies I've been buying is a bulk cargo shipping company that's hauling U.S. grains to India. The more the dollar drops in value, the more grains we export. Every time the market drops, I buy more of this stock at a great price, because I love the cash flow from dividends.
Finally, an example of buying both capital gains and cash flow at a great price is when I find an apartment building at a bargain, and then increase the rents. By doing so, I increase the cash flow and the property value, which translates into capital gains.
Leave It to the Pros
When I watch professional football, I love listening to John Madden because I know he knows what he's talking about. He's been both down in the trenches and in front of the bench as a coach. He knows the game. By that token, one financial reporter I respect is Bloomberg's Kathleen Hayes. She's a savvy reporter who knows what she's talking about. I wonder about some of the other financial reporters.
The problem with much of the financial news in print and on the web, radio, and television is that it comes from journalists who may not be investors. When I listen to most journalists whine and cry about the subprime mess, the slowdown in the economy, and the volatile stock market, I can all but tell that they're not really investors. None of these events really has much impact on professional investors, who follow market trends and are familiar with the underlying fundamentals of the assets they investing in.
So the next time you hear a reporter ask, "Is this the time to be getting into stocks, bonds, real estate, gold, silver, or oil?" remember that it's probably the time to be looking elsewhere. And keep in mind the Rothschild formula of investing. You never want to be too early -- and you also never want to be too late.
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