Author of the Rich Dad book series, Robert Kiyosaki, says his "Rich Dad" swore that investing isn't "brain surgery". Rich Dad said it was simply an issue of using sound judgment. But we all know that reasoning isn't, in fact, terribly typical.
According to Kiyosaki, the "worst" investors are those who have simply not educated themselves about the process. They adopt the point of view that investing is either a scam or just too risky. Others leap before they look and wind up suffering a loss.
The smarted opinion anyone can have having to do with buying investment property is simply to educate oneself. If, in your haste to make money, you jump in without an education, you'll be doing yourself a great disservice. Time is your most important resource and if you squander that, you'll often find that your money will follow - money you have in hand that you wind up losing, money you could've earned if you'd simply invested the time to master the process.
"That's just fine and dandy," you may say. You presumably will agree that getting a good education is invariably a helpful thing. Knowledge is power, after all.... "What instruction do I need?" might be your first question. Your second is probably going to be, "Where do I go about getting it?"
The very 1st thing you can do is learn some essential accounting, which isn't as ambiguous as it appears to be. Accounting is the vocabulary of finance. If you are investing in a company or an investment property or what have you, you'll need to be able to check up on it to see if it will be an asset (earn you money) or a liability (cost you money). It sounds like logic when you look at it, doesn't it? But if you want to be able to determine these things, you'll have to be able to evaluate balance sheets.
There are 4 common kinds of financial statements: balance sheets, income statements, cash flow statements, and statements that express changes in a share holder's equity. The last is pretty self-explanatory, and deals with the difference surrounded by equity at 2 different points in time. Shareholder equity is it's total assets subtracting it's total expenses, essentially the net worth of a company.
A "cash flow statement" is a certificate that depicts the cash needed to make a company function correctly, together with where the money came from. Wikipedia equates a company to a enormous kettle of liquid that catches more of the liquid and also has pipes running out of it - into the investor's pockets and those to whom the company is in debt. The cash flow statement tries to explain the displacement of the liquid - or in other words the flow of that cash.
The earnings (or P&L statement) keeps track of a businesses earnings and losses due to expenditures over a given time period, while the balance sheet provides accounts for the same thing for a single window of time and deals with assets and liabilities.
It all seems quite straightforward until you consider "Rich Dad's" words on discerning your assets and your liabilities apart from one another. He says that your bank, for example, will list your house as an asset. It sounds reasonable. After all, it is a thing you own, right? Yet according to Kiyosaki's rich dad's statement of assets and liabilities, your house is generally a liability. It's considered a financial obligation because it will eventually cost you money in monthly fees and updates. It definitely isn't earning money for you, and until it starts doing that (say, you move out and are able to rent the first property out to make a profit), at this point it still isn't an asset.
Not that the bank is lying to you outright. Your house is an asset on THEIR balance sheet because it is making money for them.
That is the kind of thing you can figure out for yourself and ascertain whether you are making or losing money on an investment, if you make the time to get an education. Don't forget: Knowledge is power.
