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Rich Dad Real Estate

Module one

Think Like the Rich

Module One - Think Like the Rich

Objectives

In this lesson you will:

Understand the Successful Investor Mindset

Chance, circumstance, position, or luck alone do not determine your opportunity
for success in life. Rich Dad said, Financially, with every dollar you get in your
hands, you hold the power to choose your futureto be rich, poor, or middle
class. Most people chhink being rich is too much of a hassle. So they invent
sayings such as Im not interested in money or Ill never be rich. All of us have
a choice. To be rich, you must choose to be rich, and you must make that choice
every day. It requires more than just an understanding of financial principles. Ultimately, the way you think and what you believe in will determine your success.

Learn the Fundamentals of Personal Finance

For most people, the subject of personal finance is summed up in one question,
Can I pay my bills? In order to answer, and then move past that question, you
must re-examine the nature of income, expenses, assets and liabilities. Conventional wisdom may create a false sense of securityand may actually keep you
middle class or poor for the rest of your life. If you want to change your position
in life, youll have to expand your context. As you look at your personal finances
closely, youll have to see possibilities and opportunities the way the rich do.

2009 Professional Education Institute and CASHFLOW Technologies, Inc.

Module One - Think Like the Rich

Understand the Successful Investor Mindset

Becoming a real estate investor requires more than just an understanding of real estate
principles. Knowledge is vital, but it is your work ethic and beliefs about your personal
success that will largely determine whether or not you are successful. You need a reason greater than reality. If you ask most people if they would like to be rich or financially
free, they would say yes. But then reality sets in. The road seems too long, with too
many hills to climb. Its easier to just work for money and hand the excess over to a
stockbroker, which is what the poor do.
Those who learn the laws of the mind forge their own success and destiny. They take
control rather than being controlled. The rich work in smart ways and pass both their
money and lifestyle on to their children. They are free to travel the world and live in
the lifestyle the poor and middle class only imagine. They are free. Their money works
for themnot the other way around. They teach their children this powerful way of
seeing moneyand this is truly what enables their families, generation after generation, to be rich.
Challenge and change your mental programming. The secret of success is that the human mind can accomplish whatever it believes. To be a successful real estate investor,
you must think like one. Part of this includes seeing yourself as a resource for people
selling their properties. If you can see yourself as a problem solveras a successful
real estate investoryou are much closer to the success you desire than you think.

Before you invest in real

estate, invest time learning about real estate. Im
always shocked at people
who invest in real estate,
but never invest in their
greatest asset, their mind.

Explore Your Internal Success Factors

Investing in real estate requires focus. You must be patient enough to make things
happen in their own time, while working toward your goals each and every day. Can
you stick with a schedule day after day until your goals are met? Only five percent of retirees are financially independent and able to maintain their standard of living. Knowing
this, are you prepared to begin a plan today that will ensure a comfortable and enjoyable financial life for yourself and your family? You need to understand the amount of
time that is required each week to complete the necessary investment tasks and then
commit to spending that time. Ask yourself the following questions:

Do I have a profound desire to achieve financial freedom?

Do I have a plan of action?

Do I believe I can accomplish this plan of action?

Do I have a definitive timetable for reaching these goals?

Is the time frame realistic?

Does the end result compel me to make sacrifices today?

Am I willing to spend several hours a week working toward this goal?

Am I committed to educating myself in order to succeed?

2009 Professional Education Institute and CASHFLOW Technologies, Inc.

Module One - Think Like the Rich

To be wealthy, you must think like the rich. This section is designed to help you take a
look at how you think and behave, then make changes where necessary. If you positively change your thinking, you will positively change your life.

Personal Dynamics
Nine out of 10 new businesses fail during the first two years of operation. There are
plenty of reasons why: poor management, lack of knowledge, not enough cash flow,
economic conditions, fads or industry conditions, partnerships gone awry, and family
problems. Yet the single greatest challenge in business success lies in the way a person thinks and what he or she believes.

FEAR

Ill lose all my money if I invest in anything riskier than CDs, bonds, and
mutual funds.

FACT

If you lose some money, you can learn from the failure. Once you become an educated investor youll be positioned to reap potentially huge
rewards.

FREEDOM

Financial failure can be transformed into financial gain.

How can you prevent your business from failing? You cantat least, not entirely. You
will make mistakes. Losers let their mistakes keep them down. Winners learn from
their mistakes and turn the situation around. They actually create success out of their
mistakes.
Some people try to blame the market. Some people try to make excuses rather than
take personal responsibility. Researchers at the University of Mississippi conducted a
study to discover why people fail. In over 90 percent of the cases they examined, a
persons chosen behaviora reflection of their thinkingcaused their failure. Simply
stated, most people have the skills, knowledge, experience, and education to succeed.
In the cases where they fail, they simply lack the personal belief that theyre capable of
success.

You cant help but get

older physically, but that
doesnt mean you have to
get older mentally.

Establish Personal Accountability

Your life experience is reflective of your context. Your behavior grows out of your context and produces resultsand they may or may not be the results you desire. Your
context affects how you see the world around you and dramatically affects your ability
to solve problems. Often the way you see a problem is the problem. An inaccurate view
of yourself, others, or circumstances may actually be creating the problem. Your view, if
unaltered, will create a negative self-fulfilling prophecy. However, if you take the insideout approach to problem solving, you can very often correct the problem and do what

2009 Professional Education Institute and CASHFLOW Technologies, Inc.

Module One - Think Like the Rich

others say is impossible. Losers cant face that theyre the problemthat their views
are distorted and causing them grief. Winners see what they can and cant control and
take personal responsibility for the outcome.
Could you have a limiting context or could your views be inaccurate? Is there another
way to look at things to provide a fresh perspective? While addressing problems from
the outside in (whats wrong with the other guy) is the norm, resolving problems from
the inside out (whats wrong with me) is a more accurate and successful approach.
Losers spend their time saying something is wrong over and over again. Winners ask,
What can I do differently?
For example, many people unknowingly plan to become poor. They enter the workforce planning on working all of their lives and then retiring on much less than they were
earning during their working years. They work, save a little, hope their 401(k) grows,
and pray they can pay off their house before they begin receiving Social Security payments. This approach is a result of seeing income, success, and retirement from a
limiting context or point of view.
On the other hand, the rich have a strong sense of self-worth. They are unwilling to
rely on others or circumstances to determine their financial future. They gain an understanding of the financial world, obtain the assets, and create the circumstances for their
own success. They make things happen rather than simply waiting for something to
happen.

The world is full of smart

poor people.

You must take responsibility for your current context, then change and expand your
context as necessary to achieve your goals. Your eventual level of success will be a
product of how you think.

FEAR

I have friends whove made lots of money and then lost it all investing.
Why should I follow this path?

FACT

You dont have to follow this path. People who swagger into the I
quadrant flush with cash and lose it are putting their egos ahead of their
financial intelligence. Knowledge, experience, and a healthy dose of
caution can prevent this sort of mishap.

FREEDOM

Reining in your ego will help keep you from veering off the path to
financial freedom.

2009 Professional Education Institute and CASHFLOW Technologies, Inc.

Module One - Think Like the Rich

Ignore the Chicken Littles of Life

Your current context for success may be self-limiting. For example, if youve experienced challenges in the past, you may unconsciously think that its not possible to
succeed. Believing that success is impossible, you stop trying, fearing that you will fail.
This fear of failure creates championship excuse-makers. As a result, you blame the circumstances around you for your lack of success. If you change your context from This
cant be done to How can I do this? you open the door to success.
The following individuals had to rise above the odds and their detractors to change the
course of history:

Beethovens music teacher once said of him, As a composer, he is hopeless.

When Thomas Edison was a boy, his teachers told him that he was too stupid
to learn anything. He later went on to endure 10,000 unsuccessful attempts
before perfecting the incandescent light bulb.

A newspaper editor fired Walt Disney because he had no good ideas.

Carusos music teacher told him, You cant sing, you have no voice at all.

Wernher von Braun, chief engineer for NASAs Moon Program, flunked ninthgrade algebra.

Abraham Lincoln entered the Black Hawk War as a captain and came out as a
private. He later lost eighteen elections before finally becoming President.

Louisa May Alcott was told by an editor that she could never write anything that
had popular appeal.

Leo Tolstoy, author of War and Peace, flunked out of college.

Admiral Byrd was retired from the Navy as unfit for service until he flew over
both poles.

While attending Royal College, Louis Pasteur was rated by his professors as
mediocre in chemistry.

FEAR

Ive been disappointed one too many times. Never again.

FACT

Instead of running from disappointment, prepare for it. That doesnt

mean preparing to accept failure passively. It means getting ready mentally and emotionally to learn.

FREEDOM

If youre prepared, youll react to failure with calm, learn from it,
and move on.

2009 Professional Education Institute and CASHFLOW Technologies, Inc.

Module One - Think Like the Rich

There will always be those who say that something cant be done, or worse, that you
cant do it. Fulfilling your dreams requires an unwavering commitment to a goal that
cannot be shaken by the negative, often uneducated and misinformed, comments of
others.
Develop Personal Confidence

You must believe in yourself to reach your full potential. Eliminate excuses. Recognize
and dispose of your self-limiting beliefs to maximize your performance.

Real Estate Talk

You might feel most comfortable talking to people already in the business, including other
real estate investors, real estate investment brokers, real estate developers, and property
managers. Many successful people are happy to share their knowledge with those who
are truly interested in learning. Take advantage of this! When talking with brokers and
property managers, seek out those who actually invest in real estate themselves. Dont
hesitate to ask them for their expertise. People like to talk about what they know, and you
are a potential client. Take them to lunch and pick their brains!

If you want to be rich,

you need to be financially
literate.

What you think and what you believe tend to materialize in your life. If you continuously
focus on problems, you will grow new problems. If you focus on solutionson the
positivethen prosperity will follow. The power of a solution-focused, positive context
is illustrated in the following story:

George Washington Carver and the residents of Coffee City, Alabama., were
nearly starving as a result of the boll weevils destruction of the cotton crop in
1915. Choosing to work on solutions rather than to focus on problems and
circumstances, Carver suggested growing peanuts instead of cotton. A brilliant chemist, Carver set about developing soaps, plastics, inks, chemicals, and
cosmetics from peanut-derived substances. The community prospered and
turned the cotton crop failure into an opportunity. Carvers winning philosophy
resonates in his statement, Ninety-nine percent of the failures in life are the
people who have the habit of making excuses.
Success in any life endeavor comes to those who see possibilities where others see
difficultiesthey adjust their thinking.
Soichiro Honda, chairman of the Honda Corporation, made this statement about some
severe problems his company faced:

When days become dark and gloomy, it means the treasure I am looking for
is about to be discovered. The great flash of light and hope that eventually
bursts forth makes me instantly forget my long hours of tedious work.

People who lack control of

their cash flow make people
who are in control of their
cash flow rich.

Success in life isnt handed to you; you have to take action, challenge old beliefs, and
risk failure. Rich Dad said, There is plenty of money in the world. If you want to be rich,

2009 Professional Education Institute and CASHFLOW Technologies, Inc.

Module One - Think Like the Rich

you need to first expand your reality (context) in order to hold onto your share of that
abundance. Remember, small changes in your thinking can create significant changes
in what you do every day. Changing what you do every day adds up over timeeven if
the changes are smalland can make huge difference in achieving your goals.

Exercise:

Complete the Personal Commitment Assessment and email or fax a copy to your Coach.

Learn the Fundamentals of Personal Finance

Fundamental financial literacy is the basis for the financial intelligence required to chart
your course to financial freedom. This section is designed to help you review or discover the fundamental principles of personal finance so that you can begin thinking like
the rich. With that understanding, you will be better prepared to assess your personal
situation and move forward with the think-it, learn-it, and do-it process.

CASHFLOW Quadrant
The CASHFLOW Quadrant describes the four different types of people represented in
the world of income: the employee, the self-employed, the business owner, and the
investor.

E Employee

B - Business Owner

S - Self-Employed

I Investor

Employees (E) and self-employed individual(s) reside on the left side of the CASHFLOW
Quadrant. The right side of the Quadrant is for individuals who receive their income
from businesses (B) they own or investments (I) the have/make/own.
Each of us resides in at least one of the four quadrants of the CASHFLOW Quadrant
and may reside in two or more. Where we fall within the Quadrant is determined by
what types of efforts generate our income.

Types of Income
Income can be categorized as one of three types: earned income, passive income, or
portfolio income.

You want to learn how

to convert earned income
into passive or portfolio
income.

Earned Income
Earned income is usually W2 income derived from a job or some form of
laborpaycheck income. It is the highest-taxed income, and the income

2009 Professional Education Institute and CASHFLOW Technologies, Inc.

Module One - Think Like the Rich

most dependent on, or controlled by others. As a result, earned income is the

hardest income with which to build wealth. This is true even with a large or
modest salary, whether an important executive or entry level employee. A job is
a job and it produces highly taxed earned income.

Passive Income
Passive income usually flows from real estate. It can also be royalty income
derived from patents or license agreements. Since most passive income is generated by real estate, it is important to note that the tax advantages afforded
real estate investment provide investors the best opportunity to retain passive
income.

Portfolio Income
Portfolio income usually results from holding or trading paper assets such as
stocks, bonds, and mutual funds. It can also include notes payable. With the
advent of Internet trading, portfolio income is, by far, the most common form of
investment income. Paper assets offer easy management and high liquidity (the
ability to sell/convert to cash quickly). Paper assets also offer better tax treatment than earned incomethough not as favorable as real estate

Assets and Liabilities

The Rich Dad concept of assets and liabilities is not difficult to understand, but it makes
all the difference in determining whether a person becomes rich, middleclass, or poor.
An asset is something that generates money, something that actually puts money in
your pocket. A liability is something that feeds on money, something that actually takes
money out of your pocket.
As a result, if you own a home, it is a liability because it doesnt generate money to go
into your pocket; it takes money out of your pocket. Even if you own the property with
no mortgage, you still pay property taxes, utilities, maintenance, etc. Therefore money
is being taken out of your pocket. It is not until the property is sold at a profit that it
becomes an asset.

Types of Asset Classes

Assets can be categorized as one of three types: paper assets, real estate, or businesses.

Paper Assets
Paper assets include stocks, bonds, mutual funds, insurance, and notes receivable. Paper assets create portfolio income (see above).

Real Estate
Real estate includes non-owner-occupied residential properties (single family
homes, condos, and small one-to-four-unit properties), commercial properties
(large residential properties of five units or more, warehouses, retail or office
space, mobile home parks, etc.). Real estate creates passive income (see
previous page).

2009 Professional Education Institute and CASHFLOW Technologies, Inc.

The reason most people

suffer financially is because
they purchase liabilities,
but list them in the asset
column.

Module One - Think Like the Rich

Businesses
The business category includes any enterprise you either own entirely, or of
which you own a part (ownership besides simply holding stock). Businesses
create passive income (see previous page).
As you can see, earned income from a job is not represented in an asset class. Since it
is passive and portfolio income that will make you rich and create financial freedom, the
key is to replace your earned income with portfolio and passive income.

Determine Your Personal Cash Flow

The Rich Dad Financial Statement has two components: a Balance Sheet (assets and
liabilities) and an Income Statement (income and expenses). The Rich Dad version of a
financial statement combines the two onto one simple form with income and expenses
on the top and assets and liabilities on the bottom. Understanding your personal
financial statement and the relationship of its parts is the foundation for taking control
of your personal finances. The tracking of cash flow links the balance sheet and income
statement. As a result, the relationship between the Income Statement and the Balance
Sheet is everything; it describes your cash flow pattern. An individuals cash flow pattern may show a combination of the following three types

FEAR

Im afraid to see where all my money goes.

Broke is temporary, poor is

eternal.

FACT

If you save your records, youll be better able to fill out your financial
statement. This will give you an accurate picture of your expensesthe
first step toward reining them in. And you may find that some of your
expenses are deductible for tax purposes.

FREEDOM

Knowledge is power. Knowledge reduces fear.

Cash Flow Pattern of the Poor

The poor spend every penny they make and they have no assets and only liabilities.
This may also apply to a young person still living at home. The cash flow is limited to
income and expenses and the cash flow pattern of the poor reflects income from a job
that is used to pay expenses like rent, food, clothes, transportation, and taxes. Earn it,
then spend it, with nothing to show for it.

2009 Professional Education Institute and CASHFLOW Technologies, Inc.

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Module One - Think Like the Rich

Cash Flow Pattern of the Middle Class

Individuals in the middle class accumulate more debt as they become more successful.
Their spending inflates to and exceeds the size of their paycheck no matter how large
it becomes. A pay raise qualifies them to borrow more money so they can buy more
personal items like newer cars, vacation homes, boats and motor homes. This is what
Rich Dad refers to as Doodads.
Their wage income comes in and is spent on current expenses and then on paying
off this personal debt. As their income increases, so does their personal debt. This is
what we call the Rat Race. Earn it, then spend it, with toys or Doodads and a growing
mountain of consumer debt to show for it.

Cash Flow Pattern Of The Rich

The rich have assets working for them. They have gained control over their expenses
and focus on acquiring or building assets. Their businesses pay most of their expenses
and they have few, if any, personal liabilities. They receive it, then put it to work. With
growing income producing assets, financial freedom, and no consumer debt to show
for it, their money works for them, they are not working for their money!

Exercise:

Complete the Financial Statement & Analysis Worksheet and email or fax a copy to
your Coach.

My banker has never

asked me for a report card.
My banker wants to see my
financial statement.

Activity Summary
Exercise:

To maximize the time with your Coach and increase what you accomplish between
sessions, complete the Activity Summary and email or fax a copy to your Coach.

2009 Professional Education Institute and CASHFLOW Technologies, Inc.

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