Is cashflow king?
May 8th, 2006 by KenricRobert Kiyosaki has always stressed cashflow. However, if you actually play the boardgame Cashflow you will soon realize that to win at the game you should start by going for cashflow. You should actually go for capital gains.
This brings me to the question which I posted on the Richdad forums, “Is cashflow really king?” You can read the responses here.
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Which is a better measure of financial independence, Networth or Cashflow?
If you compare a person with high cashflow with low networth to a person with low cashflow and high networth, which one is better off? I would much rather be the person with high networth and low cashflow. I argue that a person with high cashflow and low networth will have a more difficult time increasing his networth than a person with low cashflow and high networth will have increasing his cashflow.
For those who play Cashflow, isn’t it true that you build up your networth via capital gains and then convert it to cashflow at a latter point to exit the rat race? Isn’t that faster than accumulate low cashflow properties over the course of time and eventually exiting the rat race?
As Les Gee said, “I like cashflow too, I just like it in one big check at a time!”
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In my experience increasing cashflow does not guarantee increasing networth. In today’s bubble talk world, while you may have purchased a property for cashflow it may decrease in value thus reducing your networth but improving your cashflow.
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An example that comes to mind is someone who owns alot of property in small towns which do not appreciate much. In an area where $50,000 homes rent for $700/mo, I can see how someone could accumulate substantial cashflow using no money down and interest only mortgages. This person may have $5,000/mo in cashflow with 12-15 homes but little or no equity. I don’t see how this person could convert that $5k/mo to a high networth.
On the other hand, someone who has $500,000 in the bank and has just realized that he needs cashflow could go buy a CD, lend money out, purchase a property free and clear, etc… Or he could do nothing and just withdraw money. $500,000 is like getting $5,000/mo for 100 months!
Posted in Real Estate | 3 Comments »
Stumble it!
I’ve been thinking the same thing lately. In fact, Eugene Vollucci’s book How To Buy And Sell Apartment Buildings really emphasizes appreciation and he flat out says you aren’t going to get rich from cash flow. I think RK’s emphasis on cash flow is to help protect people. If you buy an investment that has positive cashflow, it’s hard to go wrong. Any appreciation that may happen is good, but if it doesn’t happen you still won’t be losing money.
By Shaun on May 9, 2006
i think it depends on how the cashflow is generated. if i had a website that generated 5k/mo with no work i’d prefer that over a 100k equity position with no cashflow.
By Empty Spaces Inc. on May 9, 2006
I think we need to define “rich”. If $60K passive cash flow annually buys the life you want, why is that wrong?
By Susan on Sep 13, 2006