THE RICH INVENT MONEY

It is not gambling if you know what you’re doing. It is gambling

if you’re just throwing money into a deal and praying. The idea in

anything is to use your technical knowledge, wisdom, and love of

the game to cut the odds down, to lower the risk. Of course, there is

always risk. It is financial intelligence that improves the odds. Thus,

what is risky for one person is less risky to someone else. That is the

primary reason I constantly encourage people to invest more in their

financial education than in stocks, real estate, or other markets. The

smarter you are, the better chance you have of beating the odds.

The stock plays I personally invested in were extremely high-risk for

most people and absolutely not recommended. I have been playing that

game since 1979 and have paid more than my share in dues. But if you

will reread why investments such as these are high-risk for most people,

you may be able to set your life up differently, so that the ability to take

$25,000 and turn it into $1 million in a year is low-risk for you.

As stated earlier, nothing I have written is a recommendation. It

is only used as an example of what is simple and possible. What I do

is small potatoes in the grand scheme of things. Yet for the average

individual, a passive income of more

than $100,000 a year is nice and not

hard to achieve. Depending on the

market and how smart you are, it could

be done in five to 10 years. If you keep

your living expenses modest, $100,000

coming in as additional income is

pleasant, regardless of whether you

work. You can work if you like or take time off if you choose and use

the government tax system in your favor, rather than against you.

My personal basis is real estate. I love real estate because it’s stable

and slow-moving. I keep the base solid. The cash flow is fairly steady

and, if properly managed, has a good chance of increasing in value.

The beauty of a solid base of real estate is that it allows me to take

greater risks, as I do with speculative stocks.

It is not gambling if

you know what you’re

doing. It is gambling

if you’re just throwing

money into a deal

and praying.

If I make great profits in the stock market, I pay my capital-gains

tax on the gain and then reinvest what’s left in real estate, again further

securing my asset foundation.

A last word on real estate: I have traveled all over the world and

taught investing. In every city, I hear people say you cannot buy real

estate cheap. That is not my experience. Even in New York or Tokyo,

or just on the outskirts of the city, prime bargains are overlooked by

most people. In Singapore,with their high real estate prices, there are

still bargains to be found within a short driving distance. So whenever

I hear someone say, “You can’t do that here,” pointing at me, I remind

them that maybe the real statement is, “I don’t know how to do that

here—yet.”

Great opportunities are not seen with your eyes. They are seen

with your mind. Most people never get wealthy simply because they

are not trained financially to recognize opportunities right in front

of them.

I am often asked, “How do I start?”

In the final chapter of this book, I offer 10 steps that I followed

on the road to my financial freedom. But always remember to have

fun. When you learn the rules and the

vocabulary of investing and begin to

build your asset column, I think you’ll

find that it’s as fun a game as you’ve

ever played. Sometimes you win and

sometimes you learn. But have fun. Most

people never win because they’re more

afraid of losing. That is why I found school so silly. In school we learn

that mistakes are bad, and we are punished for making them. Yet if

you look at the way humans are designed to learn, we learn by making

mistakes. We learn to walk by falling down. If we never fell down, we

would never walk. The same is true for learning to ride a bike. I still

have scars on my knees, but today I can ride a bike without thinking.

The same is true for getting rich. Unfortunately, the main reason most

people are not rich is because they are terrified of losing.

Great opportunities

are not seen

with your eyes.

They are seen

with your mind.

Winners are not afraid of losing. But losers are. Failure is part of the process of

success. People who avoid failure also avoid success.

I look at money much like my game of tennis. I play hard, make

mistakes, correct, make more mistakes, correct, and get better. If

I lose the game, I reach across the net, shake my opponent’s hand,

smile, and say, “See you next Saturday.”

There are two kinds of investors:

1. The first and most common type is a person who buys a

packaged investment. They call a retail outlet, such as a real

estate company, a stockbroker, or a financial planner, and they

buy something. It could be a mutual fund, a REIT, a stock or

a bond. It is a clean and simple way of investing. An analogy

would be a shopper who goes to a computer store and buys a

computer right off the shelf.

2. The second type is an investor who creates investments.

This investor usually assembles a deal in the same way a

person who buys components builds a computer. I do not

know the first thing about putting components of a computer

together, but I do know how to put pieces of opportunities

together, or know people who know how.

It is this second type of investor who is the more professional

investor. Sometimes it may take years for all the pieces to come

together. And sometimes they never do. It’s this second type of investor

that my rich dad encouraged me to be. It is important to learn how to

put the pieces together, because that is where the huge wins reside, and

sometimes some huge losses if the tide goes against you.

If you want to be the second type of investor, you need to develop

three main skills. 1. Find an opportunity that everyone else missed.

You see with your mind what others miss with their eyes.

For example, a friend bought this rundown old house. It was

spooky to look at. Everyone wondered why he bought it.

What he saw that we did not was that the house came with

four extra empty lots. He discovered that after going to the

title company. After buying the house, he tore the house

down and sold the five lots to a builder for three times what

he paid for the entire package. He made $75,000 for two

months of work. It’s not a lot of money, but it sure beats

minimum wage. And it’s not technically difficult.

2. Raise money.

The average person only goes to the bank. This second type

of investor needs to know how to raise capital, and there are

many ways that don’t require a bank. To get started, I learned

how to buy houses without a bank. It was the learned skill

of raising money, more than the houses themselves, that

was priceless.

All too often I hear people say, “The bank won’t lend me

money,” or “I don’t have the money to buy it.” If you want to

be a type-two investor, you need to learn how to do that which

stops most people. In other words, a majority of people let their

lack of money stop them from making a deal. If you can avoid

that obstacle, you will be millions ahead of those who don’t

learn those skills. There have been many times I have bought

a house, a stock, or an apartment building without a penny in

the bank. I once bought an apartment house for $1.2 million.

I did what is called “tying it up,” with a written contract

between seller and buyer.

I then raised the $100,000 deposit, which bought me 90 days

to raise the rest of the money. Why did I do it? Simply because

I knew it was worth $2 million. I never raised the money.

Instead,the person who put up the $100,000 gave me $50,000 for finding the deal, took over my position, and I walked

away. Total working time: three days. Again, it’s what you

know more than what you buy. Investing is not buying. It’s

more a case of knowing.

3. Organize smart people.

Intelligent people are those who work with or hire a

person who is more intelligent than they are. When you

need advice, make sure you choose your advisor wisely.

There is a lot to learn, but the rewards can be astronomical. If you

do not want to learn those skills, then being a type-one investor is highly

recommended. It is what you know that is your greatest wealth. It is what

you do not know that is your greatest risk.

There is always risk, so learn to manage risk instead of avoiding it.