Real Life?
In real life, I pay off my credit cards every month. I consider them "bad debt". I do not have any car loans (I own 7 cars, all paid off). So I certainly practice the "paying off your debts" approach.
But I also have several houses, used for a variety of things (one as a business rental, two for a developing business, and one to live in). That's better debt, because I'm using the leverage (OPM-- other people's money) to get ahead faster, through appreciation and all of the wonderful tax advantages of RE ownership.
I used to play the cashflow game as I live my life-- take it slow and easy, look for the really good deals, start with small deals (sure things like $1 stocks) and build them into cash for bigger deals.
But when I played in the San Francisco CF game, I found that some of the guys used massive leverage and borrowed like crazy. They were often out of the rat race in less than 45 minutes-- something I had thought was nearly impossible.
So the next time I played, I tried it. I borrowed from the bank at 120% interest, and bought everything I could find. This is not a real world strategy for most, since most banks won't lend you unlimited funds. But it opened up a new reality for me--one where *I* am not the qualifying reason for a loan-- rather, the *business* (or rental) is the main qualifier. That IS real world-- and it opened my eyes to the possibilities.
The next time I played cashflow I did it as an unemployed teacher (i.e., a teacher with all of the expenses, but no income). The only way I could survive was by borrowing massively, since when I'd hit payday, I would have expenses but no income.
I got out of the rat race in less than an hour.
This was an epiphany to me. No, I didn't go out and borrow millions of dollars*. But I did start looking at money differently. I started to see it as leverage, and I was no longer as afraid of the big numbers, since I had an investment strategy (and through borrowing and planning ahead, it was almost impossible to go bankrupt).
As a result, I now look at things in my own life a bit differently. No, I'm not getting loans at 120% interest, but I'm also not as afraid to look at deals that are over $1,000,000.00-- which was hard for me before.
My point? That by playing cashflow, I learned how to look at the world of money differently. Doodads are costly, but once you have thousands of dollars in passive income, they almost don't matter. By the same token, getting downsized or having kids, two things that set me back big time when I first played cashflow, are now no longer impediments. My focus has changed from paying off debts and building cashflow slowly, to worrying less about debt, and focusing more on what opportunities are available. The way to win -quickly- at cashflow is to get as many opportunities as possible, as quickly as possible. Sell off the winners when the market cards come up, and you quickly have enough cash to pay off your bank loans and start swinging bigger deals. At that point, my focus changes-- I no longer take as much risk and borrow as much money; I focus on buying lots of big deals that give me massive cashflow.
I hope this makes sense. It's kinda hard to describe, and much easier to see when playing the game. It goes back to my original points about "buying" children-- cashflow taught me to take scary things (added costs of kids and doodads), and offer to subsidize them for other players in exchange for getting first right of refusal when they landed on "opportunity". By doing this I helped out another player, and got more frequent access to big deals. A win-win for both parties.
Cashflow is a brilliant game. It has taught me more about how money and leverage works than anything else I've ever done. And more important, it has shown me that by working *with* other people on win-win deals, we both get out of the rat race faster.
That's huge.
-Russ H.
* Actually, I did! I wrote this in July of 2003-- just 2 months before we got our first $1,000,000+ loan. We now have over $3,000,000 in loans, and $600K more in reserve (HELOCs).
In real life, I pay off my credit cards every month. I consider them "bad debt". I do not have any car loans (I own 7 cars, all paid off). So I certainly practice the "paying off your debts" approach.
But I also have several houses, used for a variety of things (one as a business rental, two for a developing business, and one to live in). That's better debt, because I'm using the leverage (OPM-- other people's money) to get ahead faster, through appreciation and all of the wonderful tax advantages of RE ownership.
I used to play the cashflow game as I live my life-- take it slow and easy, look for the really good deals, start with small deals (sure things like $1 stocks) and build them into cash for bigger deals.
But when I played in the San Francisco CF game, I found that some of the guys used massive leverage and borrowed like crazy. They were often out of the rat race in less than 45 minutes-- something I had thought was nearly impossible.
So the next time I played, I tried it. I borrowed from the bank at 120% interest, and bought everything I could find. This is not a real world strategy for most, since most banks won't lend you unlimited funds. But it opened up a new reality for me--one where *I* am not the qualifying reason for a loan-- rather, the *business* (or rental) is the main qualifier. That IS real world-- and it opened my eyes to the possibilities.
The next time I played cashflow I did it as an unemployed teacher (i.e., a teacher with all of the expenses, but no income). The only way I could survive was by borrowing massively, since when I'd hit payday, I would have expenses but no income.
I got out of the rat race in less than an hour.
This was an epiphany to me. No, I didn't go out and borrow millions of dollars*. But I did start looking at money differently. I started to see it as leverage, and I was no longer as afraid of the big numbers, since I had an investment strategy (and through borrowing and planning ahead, it was almost impossible to go bankrupt).
As a result, I now look at things in my own life a bit differently. No, I'm not getting loans at 120% interest, but I'm also not as afraid to look at deals that are over $1,000,000.00-- which was hard for me before.
My point? That by playing cashflow, I learned how to look at the world of money differently. Doodads are costly, but once you have thousands of dollars in passive income, they almost don't matter. By the same token, getting downsized or having kids, two things that set me back big time when I first played cashflow, are now no longer impediments. My focus has changed from paying off debts and building cashflow slowly, to worrying less about debt, and focusing more on what opportunities are available. The way to win -quickly- at cashflow is to get as many opportunities as possible, as quickly as possible. Sell off the winners when the market cards come up, and you quickly have enough cash to pay off your bank loans and start swinging bigger deals. At that point, my focus changes-- I no longer take as much risk and borrow as much money; I focus on buying lots of big deals that give me massive cashflow.
I hope this makes sense. It's kinda hard to describe, and much easier to see when playing the game. It goes back to my original points about "buying" children-- cashflow taught me to take scary things (added costs of kids and doodads), and offer to subsidize them for other players in exchange for getting first right of refusal when they landed on "opportunity". By doing this I helped out another player, and got more frequent access to big deals. A win-win for both parties.
Cashflow is a brilliant game. It has taught me more about how money and leverage works than anything else I've ever done. And more important, it has shown me that by working *with* other people on win-win deals, we both get out of the rat race faster.
That's huge.
-Russ H.
* Actually, I did! I wrote this in July of 2003-- just 2 months before we got our first $1,000,000+ loan. We now have over $3,000,000 in loans, and $600K more in reserve (HELOCs).