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#212: Really? Yes. I unpackage it all. In fact, these are the words of the Top-Selling Personal Finance Author Of All-Time, Robert Kiyosaki. *[Complete transcript far below - you can follow along]* Look, I have no savings account. I own no stocks, bonds, mutual funds, nor ETFs. I have no plans to pay off my home, though I could. Instead, it's about durable passive cash flow. Either you can be conventional, or you can be wealthy. Pick one. I tell you how savers can be losers and debtors can be winners. Inflation amplifies this notion. Keep a high velocity of money. You wouldn't tolerate a lazy employee, so why tolerate lazy money? Then I discuss how high real estate prices and higher interest rates will affect you. More Americans believe renting is cheaper than owning their own home. I tell you why your ROTI increases throughout your life. __________________ Want more wealth? 1) Grab my free E-book and Newsletter at: GetRichEducation.com/Book 2) Actionable turnkey real estate investing opportunity: GREturnkey.com 3) Read my best-selling paperback: getbook.at/7moneymyths __________________ Listen to this week's show and learn: 03:30 Convention says: "Save money and pay off your house before retirement." 06:20 I have millions in debt. 08:46 How savers can be losers and debtors can be winners. 10:41 Inflation. 13:10 Debt and equity. 18:04 Mortgage rates should rise 1% in the next year - how this affects you. 23:08 How higher rates affect your tenant. 25:48 Today, more people think it's wiser to rent than own their own home. 30:31 National homeownership rate. 31:06 Return On Time Invested. Resources mentioned: WSJ: Renting Cheaper Than Owning CNBC: Renting vs. Buying Mortgage Loans: RidgeLendingGroup.com Cash Flow Banking: ProducersWealth.com Turnkey RE: NoradaRealEstate.com QRP: TotalControlFinancial.com Find Properties: GREturnkey.com GRE Book: GetRichEducation.com/Book Complete transcript: Welcome to Get Rich Education. I'm your host Keith Weinhold. "Savers Are Losers. Debtors Are Winners." Could that be true? Well, that's a quote from none other than the Greatest Selling Financial Author Of All-Time. We're going to break that down. and... What do higher interest rates mean to your future as an investor? Today, on Get Rich Education. Hey, welcome to Get Rich Education, I'm your host Keith Weinhold. Savers are losers. Debtors are winners. Really, how can something that sounds so absurd to most people - be true? Well, those are actually the words of the Greatest-Selling Personal Finance Author Of All-Time - Robert Kiyosaki. Let's unpackage this paradox, "Savers Are Losers, Debtors Are Winners." Now, one night recently, I was invited to a housewarming party by my friend, Jeff. Jeff & I have done running races together for years… ...he had just married, so Jeff and his wife had us and a number of friends over to "warm their new house". Jeff had a lot of friends at the party that I did NOT know, and so I ended up meeting and striking up a conversation with these two older men. One of the two men was a retired Engineer, and the other one still had an active work life - to some extent - he told me - as being a mutual fund salesperson. So...this was about to get really interesting. Now, I often enjoy talking to people decades older than I. As the three of us were standing around, I asked them how a younger person like me should prepare for retirement… just kind of to see what would happen. I figured that their answer to me would be rather predictable… and it sure was. And these guys don't know what I do. I had just met them for the first time. The first thing that they said, is, they told me to save money. Right after that, the other guy added, "And pay off your house before retirement!" Now, you probably know that the advice that they just dispensed to me is nearly the polar opposite of how I think about wise financial management - and achieving a good ROI, and managing your equity well. I just sort of quietly kept eye contact with them as they told me to save and pay off my house. Next, they asked me, well what do YOU do? Now, it's hard to explain to some people what I do, so - rather getting than detailed about that right away - I started replying to them by telling them… ...well, I don't HAVE a job. In fact, I quit my job years ago, because it took too much of my time. Now - just between me & you - running Get Rich Education isn't so much a job - but it is work. It's work that I enjoy. Anyway, moving on about my chat with these two older gentlemen, since they told me to SAVE money... I added that, I don't even have a SAVINGS account actually. And then I said: "As far as paying off my home by retirement - well, I do happen to own my home - though I often wonder if I would be better off paying rent instead. In fact, if I did move, it's fairly likely that I would become a renter, and not own again." But as long as do I own, I expect to keep my mortgage balance high into retirement age. In fact, if equity accumulates in my home, I'm always quick to yank it out." By now… this was piquing some interest in these two guys that I had told them this. Since one of the guys was a mutual fund salesperson, I just respectfully added in that, "Yeah, you know, I don't own ANY stocks or bonds - or anything like them - no ETFs, no mutual funds." Now, I'll just tell you - though that's true, it's likely that I'll have some exposure to stocks again soon once that stock market feels more adequately valued. Based on what I told them so far, maybe they were thinking that I couldn't afford to be invested in stocks. But anyway, by this time, I am demonstrating to these two guys that I am financially pretty divergent from the mainstream - and certainly far from their concept of financially secure. They might have even been feeling a little sorry for me at this point. Now, the next thing I told them, since we were on the topic of savings and debt - was just merely another fact in my life. And this one was like I completely detonated a verbal bombshell right there in front of their faces - in Jeff's living room - when I told them - "Yeah, actually, I have millions of dollars in debt that I'm frankly… never going to get paid off." At this point, the two older guys might have even wondered why our mutual friend Jeff invited me over to this house party in the first place. Maybe they thought that it's a wonder that I'm not homeless… or wondered if I own a car or ever go on vacations. Well, I sure didn't tell them that "Savers are losers, debtors are winners at this point." But I started to explain my investor life to them, without trying to tell them that they're wrong, and without pros - hell-I-tie-zing or trying to get them to adopt my point of view.. I think I just opened them up when I told them, that, well, actually, I don't want to accumulate equity in my home because it has no return, and it's actually illiquid, and unsafe - and that I reinvest those dollars that aren't in my home into cash-flowing real estate around the country - and beyond. ...and that I have substantial RE income such that I don't need a conventional day job. The millions of dollars in debt could be paid off - and, in a sense - they really are paid off on my balance sheet since the equity across all the properties easily exceeds the debt balance incurred. And that renting one's own home often provides them with better cash flow than owning one's own home...and and on. Now, were the two older guys DATING THEMSELVES by telling me to save money, put money in a 401(k), and get a paid-off home? I guess some people would say they're dating themselves if they're thinking of dollars as money - back when there was still a gold standard. But I don't know that one is dating themselves simply by thinking that way - because there are still a ton of younger people - I'd say the majority - that think that saving and having a retirement account is THE way. But no one ever got rich saving money… but many acquire wealth by investing it. By the way, I like to think that I'm still too young to ever say or do something that dates myself. In fact, I did all the dating of myself back in high school - because you see - I couldn't get a girlfriend so I HAD to date myself. (Haha!) See what I did there? Well, you don't listen to GRE for the humor - thank goodness. Yes, when I got my high school diploma at age 17, I still looked like a 13 year-old, so there was no girlfriend, and dating myself was the only option, so..getting back here... Savers are losers debtors are winners - is more sophisticated than one's conventional notions of saving and debt. When you talk about accumulating 50% of your assets in a savings account or CD that has an interest rate that yields you a return that's one-quarter as much as the rate of inflation - that's losing. That's the "losing" that we're talking about here. If you have substantial consumer debt that you have to pay yourself that's tied to a worthless or depreciating asset - plus you have to pay back that debt yourself - and tenants aren't doing it for you - THAT'S losing. When Kiyosaki says, "Savers Are Losers, Debtors Are Winners", he's talking about how... When he borrows money from the bank to buy a rental property, he effectively borrows money that SAVERS have first placed into the bank. Now he just arbitraged the savers low-yield dollar into his high-yield dollar. Then on top of that, he gets tenants to pay the bank back over a period of time. And he gets the property. That's what I do. "Savers are losers" criticizes the practice of saving as a way of accumulating wealth. You can store your liquidity in something other than a savings account. Now, with millions in good debt tied to cash-flowing real estate, why would I want to get involved with paying that down? I would only lose leverage. Tenants and inflation are paying that debt down for me - that's pretty great - but I need to pay attention to that because tenants paying down my debt for me actually means that it s-l-o-w-l-y makes me lose leverage too. Think about that. Now, with inflation, this amplifies the "Savers are losers and debtors are winners" mantra. Look, think of it this way. Think about your best friend - a friend so good, that they would hypothetically loan you money. Which is actually the best way to lose a friend fast. But let's just say you borrow $10K from this great friend of yours. Now you're a debtor. Your best friend is the lender and you are the borrower. This friend of yours is so nice and so trustworthy of you - and so gullible and "not inflation conscious" as well - that they tell you that you can pay them back the $10,000 that you borrowed in one lump sum 30 years from now, interest-free. 30 years from today, in the year 2048 / 2049. Sticking with the hypothetical here, you're a person of your word and you pay them back their $10,000 thirty years from now, just like they asked. At a 4% inflation rate over those three decades, their $10,000 just had its purchasing power diminished to $3,080. NOW, can you see how savers are losers and debtors are winners? Remember, you are taking out interest-free loans when you buy cash-flowing real estate. How is it interest-free - because your tenant pays the interest. That's why it's interest-free to you. Of course, they're also paying down your principal on top of that - and some cash flow on top of that yet - so it's a deal that's substantially better for you than when you struck the deal with your best friend and you had the benefit of using their $10K for thirty years. Leveraged, cash-flowing real estate makes this even better for you. It's better than the deal with your best friend. (Or former best friend now that you borrowed money from him.) Inflation's winners are any form of debtor, particularly governments. The losers are those with cash holdings, bonds, pension savings and welfare claimants. Most debtors are actually unintentional winners. Most debtors don't understand this inflation- profiting benefit that makes them winners. That's why I practice equity harvesting from my home and other properties. I make equity transfers, which do, in fact, position me for more leverage and debt - at the same time it boosts my cash flow. This reinforces the velocity of money concept too. I'm practicing keeping my money moving - that high velocity of money - like we're supposed to keep. Realize that in your home - your primary residence - when you pay down principal - you convert your cash to your equity monthly. When you convert your cash into equity that way, you've just transitioned from a higher use dollar of yours - because it had been liquid - into a lower use dollar of yours - because not it's illiquid - it's trapped as equity. A dollar is not a dollar is not a dollar. Each dollar in the asset column of your net worth statement could have a different value, for that very reason. Now in a rental, consider that your TENANTS' cash flow becomes your equity. That's a substantially better deal. Equity that accumulates in a home is much like money sitting in a ceramic piggy bank on your bookshelf, gradually being eaten away by inflation. Instead, keep it moving. Keep that velocity. Don't let it get lazy. Lazy money is like a lazy employee. If you're someone's boss and you've got a lazy employee, why would you tolerate their late show-ups and two-hour lunch breaks? You wouldn't tolerate lazy money just the same way you wouldn't tolerate a lazy employee. So, it's about repositioning dead money, underperforming money. You sure wouldn't keep paying a DEAD employee! If you put $20K down into your rental SFH years ago, but now you have $50K equity in it, you have to ask if you would re-buy it with $50K of equity in it. You probably wouldn't! If you don't hold up your leverage ratio, then your RE ROI will soon approach that of a government bond! Your ROE drops, drops, drops over time. In this context, savers are losers. Debtors are winners. So… I probably got the two older guys at Jeff's party thinking differently if nothing else. But most people would really rather be affirmed rather than informed. Information challenges people. Affirmation comforts people. Some people just want to hear whatever fuels their confirmation bias. Whatever fuels their confirmation bias is the easiest thing to hear. Well, now inflation is on the uptick - that's a long-term positive trend for leveraged real estate investors. But interest rates are also on the uptick, meaning that things aren't QUITE as good for debtors. In fact, the last time that macroeconomist Richard Duncan was here on the show, he told us why there's a positive correlation: higher inflation means higher interest rates. So let's talk more about what higher interest rates mean to your future as a real estate investor - or even as a homeowner. That's next. You're listening to Get Rich Education. Welcome back to Get Rich Education. Mortgage interest rates are now about 1% higher than they were one year ago at this time. In fact, there have been 8 quarter-point increases over the last three years. Now, among other things, these rate increases have proven to me that the future rate increases expected really are going to happen. In fact, it's not what I think, it's what the Fed has come out and SAID. They plan to raise rates one more time here at the end of THIS year, and 3 more times next year.…
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