Investment Insights

Rich Dad Poor Dad Author’s Debt – Robert Kiyosaki Debt Explained!

Robert Kiyosaki

Robert Kiyosaki, as you probably know, is the author of the world-famous book “Rich Dad Poor Dad,” which has shaken the minds of people worldwide. However, recently there was news that Robert Kiyosaki, who taught the world to keep more assets and fewer liabilities, confessed himself to be in $1.2 billion worth of debt. This revelation came during an interview when he was asked about rumors suggesting he had around $600 million in debt. He confidently corrected the information, stating that it was $1.2 billion. This caused a significant stir on social media, with media reports covering the story and attempting to instill fear in people, suggesting that someone who preaches financial wisdom isn’t following it themselves.

Robert Kiyosaki
Robert Kiyosaki

My initial reaction, like many, was a mix of surprise and skepticism. However, before jumping to conclusions, it’s crucial to keep our minds open and conduct thorough research. So, I attempted to uncover the exact situation and implications. In the end, you’ll have to share your thoughts in the comments about whether Robert Kiyosaki is smart or foolish. Let’s delve into the recent years of Robert Kiyosaki.

If you watch recent interviews, one constant theme is Kiyosaki’s view on equities, bonds, and the belief that inflation will eventually lead to a collapse of these markets. Is there truth in this? It’s possible. First and foremost, artificial intelligence (AI) has raised concerns about job security. With AI rapidly advancing, there’s fear that jobs might be replaced, impacting job security in both the private and government sectors. Job security, as we knew it, may not exist due to AI potentially replacing the work of ten individuals effortlessly.

Robert Kiyosaki believes this is a significant threat and has mentioned it in several interviews. According to him, it’s a massive threat because AI can easily consume the jobs of ten individuals. Mechanized work might get replaced sooner or later. Kiyosaki suggests that this is a substantial threat and has expressed his concerns in various interviews.

When Warren Buffett came to India, after obviously taking 3040 lakhs, he gave quite a few interviews and shared various insights. One consistent piece of advice he emphasized was to invest in silver. His rationale was that anything that can be printed, such as money or ETFs, lacks intrinsic value. Anything that can be printed is not of interest to him. This is because when something is not under your or my control and is under the control of another authority, they can manipulate demand and supply as they see fit.

An example of this manipulation is the fall seen in 2020. The panic in the market due to the liquidity crunch, the Federal Reserve’s interventions, and their decision to hold onto certain assets led to a reversal. In this scenario, the conventional thought of maintaining a 60:40 ratio of equities to fixed assets or bonds, as suggested by conventional wisdom, is challenged by Robert Kiyosaki. He argues that it is incorrect because if a crash bigger than the last one happens, the bond market could be in significant danger. Bonds, being such a massive market, might not even be bailed out by any government.

Now, the question arises: How can you justify the $1.2 billion debt? If mental math is challenging, you can write it down or seek help, but so far, we all understand the magic of compound interest. When talking about interest and applying compound interest, the doubling of money accelerates a bit. This happens in both scenarios – when you borrow and when you lend. For this, a simple rule, the Power of 72, has been discussed on our channel a couple of years ago. If you are unfamiliar with it, let’s take a quick example. Suppose you are investing in any asset class that is providing a 10% return.

When Warren Buffett came to India, after obviously taking 3040 lakhs, he gave quite a few interviews and shared various insights. One consistent piece of advice he emphasized was to invest in silver. His rationale was that anything that can be printed, such as money or ETFs, lacks intrinsic value. Anything that can be printed is not of interest to him. This is because when something is not under your or my control and is under the control of another authority, they can manipulate demand and supply as they see fit.

Robert Kiyosaki
Robert Kiyosaki

An example of this manipulation is the fall seen in 2020. The panic in the market due to the liquidity crunch, the Federal Reserve’s interventions, and their decision to hold onto certain assets led to a reversal. In this scenario, the conventional thought of maintaining a 60:40 ratio of equities to fixed assets or bonds, as suggested by conventional wisdom, is challenged by Robert Kiyosaki. He argues that it is incorrect because if a crash bigger than the last one happens, the bond market could be in significant danger. Bonds, being such a massive market, might not even be bailed out by any government.

Now, the question arises: How can you justify the $1.2 billion debt? If mental math is challenging, you can write it down or seek help, but so far, we all understand the magic of compound interest. When talking about interest and applying compound interest, the doubling of money accelerates a bit. This happens in both scenarios – when you borrow and when you lend. For this, a simple rule, the Power of 72, has been discussed on our channel a couple of years ago. If you are unfamiliar with it, let’s take a quick example. Suppose you are investing in any asset class that is providing a 10% return.

They are taking it at a rate of 7.5, so at 7.5, now you have already taken ₹80,000, and you had ₹20,000 already. So, how much is it now? My dear friends, it’s ₹1 lakh. Now, when you invest in that XYZ entity, asset, or stock at a rate higher than 10, what will be the benefit for you? If it increases from 10, then how much profit will you make? If it’s ₹1,000,000 at %, you’ve already made a return of ₹10,000. Now, you have to pay back the bank, right? In terms of interest, it’s ₹6,000. How much will be left? ₹4,000 is the return you made initially. But now, as you’re taking a loan, you’re taking it at a lower interest rate. So, here you’re netting ₹4,000 on ₹2,00,000, which is double what you initially wanted to make. In simple terms, if you understand this example, like it because I try to explain in the easiest way possible.

Now, let’s see another benefit. You might have taken a loan to buy real estate, putting in some of your own money, but most of it is borrowed. After borrowing, the interest on it, and what it’s making from the property, they are earning. Property values are appreciating, and they are pushing it further because they are also earning rent. Property when you leverage it and increase its value, rentals also increase, and you will earn correctly. Then, they are earning tax benefits because if you earn without a loan in any normal business, you’ll fall completely into the tax bracket. So, here they are earning tax benefits as well. Appreciation is happening, they are earning from it, and on top of that, whatever they do separately, like mortgages or anything else, they are also earning from there.”

So, basically, Robert Kiyosaki is saying that he has strategically borrowed 1.2 billion dollars, and in case he defaults on the loan, it’s not his problem but the bank’s problem. Here comes the interesting part, as someone might have heard this, and excitedly, people might say, “Wow, Abhishek Bhaiya has shared something amazing. I will go and take a loan, start a business, and roam around here and there.” No, please don’t do that because the dynamics and demographics of India are entirely different.

Now, let me help you understand why. Consider a real-life example in the retail sector around 2006. The real estate prices were soaring in locations like Noida and Gurgaon, and prime locations were offering expensive properties. Many people borrowed money, thinking they would earn rental income and become financially independent. However, in 2008, during the Lehman Brothers crisis, the reality check happened. The inflated property prices led to difficulties in selling, and loans became burdensome.

In contrast, when we talk about commercial properties and corporate real estate, there are two types of deals – Recourse and Non-Recourse. In the case of Recourse, like retail loans, banks can ask for substantial collateral. If you default, they may warn you a few times, but eventually, they will auction off your property and recover their money. On the other hand, non-recourse deals, commonly found in corporate real estate, have a different structure.

Now, many of you who listen to Robert Kiyosaki might say, “Good debt, bad debt, I am not discussing that.” I am discussing Recourse and Non-Recourse. In Recourse, like retail loans, the bank will take your property if you default.

Robert Kiyosaki has strategically used non-recourse loans for commercial properties. In a simplified scenario, let’s say a bank offers him a $200 million commercial property, and against that, he takes a non-recourse loan. Now, he approaches other banks with this property as collateral and says, “I want a loan of $50 million.” The bank might say, “Alright, we can give you the loan, but the collateral will be the same property worth $200 million.” Robert Kiyosaki then takes this $50 million loan, invests it elsewhere, and repeats the process.

In this way, he leverages the value of the commercial properties, using them as collateral for multiple non-recourse loans. If there’s a market crash or if some properties fail, it won’t affect him personally because the loans are non-recourse. The banks would scrutinize the property’s value rather than holding him personally responsible.

It’s important to note that this strategy involves high-level commercial properties and large-scale loans. Kiyosaki has been known for predicting market crashes and emphasizing financial education, but this specific method may not be suitable for everyone, especially considering the risks involved. Always seek professional advice before making financial decisions.

Because if I sink, you will also sink. I have cash, and I will come out. The entire bank will sink. What face will you show to management? What face will you show to stakeholders? So, somewhere, Robert Kyosaki is making sure that I have acquired assets that will appreciate first. They will make money for me, and if it’s time to sink, the banks, with their brightest minds, Stanford, Oxford, and business school graduates from everywhere, will sit down and try to save me. Somewhere, they have got free labor there, someone who has done research for them and is trying to help. So, you need to understand something important here. This is what the candidate is there for – to put assets. Now, there are two types of assets.

One is an income-generating asset that will generate income only once, and the other is one that will generate consistent income. Now, many people make the same mistake here, and here, you’ll understand that there is no good, bad, or dead date. It’s a very interesting aspect. If you haven’t liked it yet, please like it. So, one aspect is to understand it like this – Let’s take an example. Suppose I take a loan today because I have to run a business, a digital marketing company. I believe that I can run ads, and from there, I can get a very good return. I will run ads; how many times can I withdraw in returns? I can withdraw only once, whether I double it, withdraw at 30 or 40; whatever I do, I can withdraw only once because I invested money in an ad, and the return came. Now, to run ads again, I have to put the money back, or I have to put back the profit that came. So, this is a single-time income-generating option. But if I invest the entire amount…”

Please note that the translation may not be perfect due to the complexity and context of the original text. If you have specific phrases or sentences you would like me to focus on or clarify, please let me know.

And after putting that money, I say, ‘Boss, okay, now all these things have been set.’ So, somewhere, in real estate, if I invest in it, the prices of real estate are increasing. Commercial properties’ prices are rising; rent is coming in every month. Rent agreements are being revised every year based on market conditions. I am increasing it according to new tenants coming in. I am signing big agreements for two or three years, keeping advances. So, somewhere, I am more secured. That’s why Robert Kiyosaki is investing in income-generating options, but think and understand in this way. Due to this major reason, my dear friend, I got a $1.2 million loan, which is a big burden, and the mountain of debt has become a Rai for me.

This danger is real for banks. If Robert Kiyosaki goes, the banks will completely go. So, the banks will insure somewhere. Now, we don’t know the risk in this. You don’t know; I don’t know what Robert Kiyosaki has done. Maybe he has invested all the $1.2 billion only in real estate because I am afraid that as many times they say ‘crash, crash, crash,’ if they have kept some negative votes by mistake, what does that mean? Let’s say, as we say ‘Put’ in our country, buy the option. Similarly, he might have taken some kind of insurance or something on which he is paying premiums. If something significant happens to this $1.2 billion, then, brother, it won’t affect him because he has lived his life, he has lived his age. But the problem will come to those banks. Now, you will tell in the comments how smart Robert is, understanding all this. After understanding all this, if you like the Article Don’t forget to share. Let me know in the comments what you want the next Article on. Till then, keep learning, keep growing.

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