In a recent post where I tackled the frequently asked question: “Are foreclosed properties good deals?”, I mentioned that financial literacy is a prerequisite to real estate investing, and with good reason. I believe that the lack of financial literacy will certainly lead to financial failure! Sometimes we need to fail but not like this!

Let me give you four reasons why I believe we need to be financially literate real estate investors.

Reason #1: You will eventually be able to save enough money to finance your own deals

As I have said in my series on managing finances, you need to learn how to manage your finances to get ready for your first real estate deal, and you do this by taking care of your finances by becoming your own Chief Financial Officer, who is always on top of one’s cashflow by properly tracking income and expenses and proper money management.

Still have nothing to invest? Buried in credit card debt? Living paycheck to paycheck?

As Rich Dad would say, “It’s not how much money you make, it’s how much you keep.”

Why not take a deep hard look at how you manage your money and take the next step?

Reason # 2: You will become trustworthy when it comes to money

Think about it, would you do business with someone who is not trustworthy?

This not only applies if you do decide to get other people’s money or OPM to finance your deals, you also need to be able to trust yourself. If you trust yourself, I’m assuming you really are trustworthy and you act in a trustworthy manner.

As they say, “If you want people to trust you, be trustworthy.”, and you start by being trustworthy with your own money, not with OPM.

If you can’t even trust yourself to handle your own money well, don’t even try to get into real estate investing.

Reason # 3: When you get your own deals, you will be on top of your finances with regard to your investment properties

So you got a deal, finally! But how do you know that you are doing good? You’re an investor and you need to know if you really are making money!

If you are financially literate and manage your finances the way you should, you will know at any given time if you are really making money or losing money, you will be on top of your cashflow.

What if you eventually got your very first real estate deal but never really learned how to manage your money? You might lose track of your expenses and then you end up wondering what’s happening to your cash, or even worse, you might even lose track of important payments like monthly amortizations  or you simply have no money left to settle your obligations and end up facing foreclosure.

On the other end, you might lose track of your receivables and end up NOT getting the money that is rightfully yours, some if which are meant for mortgage payments, maintenance, etc.

Things get even more complicated once you acquire more and more deals, so without financial literacy, you might end up with nothing but a financial mess.

Reason # 4: When you do start earning money from your investments, you will certainly not end up like a lot of Lotto winners

In a recent talk during The Feast at the PICC, Bo Sanchez mentioned stories of Lotto winners who lost all of their money, get buried in debt, ended up with broken marriages, etc. (Actually Bo also wrote an article that mentioned this and you can read it here: How To Use Your Pain To Achieve Great Success). These are perfect examples of what can happen if one who is not yet financially literate gets a big amount of cash. Sad but true.

Earning money from real estate investing, though not as big as Lotto winnings(at least not at the start ), can still be considered as a big windfall of money, especially, if your real estate investing strategy is more focused on capital gains. If you are not financially literate, you might not be able to handle the sudden windfall, and you may end up just like those Lotto winners mentioned by Bo, where money became a curse.

On the other hand, imagine if you were financially literate, and you earned a lot from your real estate deals (or if you won the Lotto), you will be able to handle it well, you won’t go into a shopping spree, you won’t go for instant gratification, you won’t accumulate liabilities, you will focus on real income generating assets, you will be generous, you will spend wisely, you will be in control. You will be able to manage it well and put your new found wealth into good use, it will become a blessing.

There you have it folks…

1. You need to start by working on your financial literacy first, it cannot be just an afterthought.
2. To be someone who can be trusted, you need to become trustworthy, and that definitely applies to money and real estate investing.
3. Financial literacy will let you know if you are really making money with your deals, and help you run your business through proper cashflow management. Yes, real estate investing should be treated as a business. The importance of managing your finances well will get magnified as your business grows.
4. If you are financially literate, more money will be a blessing to you and the people around you, it won’t be a curse.

Remember we are just stewards of the wealth and abundance that come our way, and being financially literate helps ensure that we become worthy stewards.

“From everyone who has been given much, much will be demanded; and from the one who has been entrusted with much, much more will be asked.” – Luke 12:48

What do you think?

To our success and financial freedom!

Jay Castillo
Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Follow me in Twitter:http://twitter.com/jay_castilloFind us in Facebook:Foreclosure Philippines facebook page

Text by Jay Castillo and Cherry Castillo. Copyright © 2010 All rights reserved.

PS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines

PPS. Don’t be the last to know, subscribe to e-mail alerts and get notified of new listings of bank foreclosed properties, public auction schedules, and real estate investing tips. Inbox getting full? Subscribe through my RSS Feed instead!

4 reasons why we need to be financially literate real estate investors is a post from: Foreclosure Investing Philippines

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This is part one of a 3-part series on the types of income one can get through real estate investing.  Rather than write another 3000+ word nosebleed article, I’ll break it down into three parts which should be more manageable and easier to digest.

Through this series, I hope to help beginning real estate investors by sharing my thoughts and ideas for each type of income, based mostly on actual experiences as a real estate investor. Part one tackles portfolio income through real estate investing.  Here goes…

Obviously, real estate investors get into real estate investing because of the income that real estate investing can generate. But what types of income can one get from real estate investing? What are the advantages/disadvantages for each type of income?

There are basically three types of income that one can get from real estate. These are:

• Portfolio income
• Earned income
• Passive income

Let me first try to explain portfolio income.

What is Portfolio Income

Portfolio income in a nutshell is the income or the gain you get in the form of an increase in equity.

What is equity?

Equity is basically the difference between a property’s current appraised value/market value and the loan principal balance as of a particular point in time.

For example, I bought a foreclosed property for Php1Million by putting down 20% downpayment or Php200,000, with a remaining  loan principal balance of 80% or Php800,000. Assuming the property’s current market value at this point in time is really Php1 Million, then my equity can be calculated as follows:

Equity=Php1 Million – Php800,000 = Php200,000

In this example, my equity is equal to my downpayment because I bought the property at market value.

For the example above, there really is still no portfolio income as I still have no gain in equity.

Portfolio Income from properties bought below market value

What if for the same foreclosed property above, which I bought for Php1Million pesos by putting 20% downpayment or  Php200,000, with a remaining loan principal balance of 80% or Php800,000, I had it repainted and got it ready for occupancy. I then had it appraised afterwards and the new appraisal is Php1.5 Million. My new equity can be computed as follows:

Equity = Php1.5 Million – Php800,000 = Php700,000

From an original equity of Php200,000, it increased to Php700,000.  In effect, I now have a portfolio income of Php500,000 in the form of equity that I have gained.

By the way, sometimes the equity can increase even without the introduction of improvements like painting or fixing up the property. This happens when the property was simply sold below market value because the appraised value or market value used by the seller was outdated.

The problem with portfolio income

There is only one problem with portfolio income. The income is just on paper! One still needs to do something to get the income out. In other words, I still need to turn my portfolio income into cash or realized income. Otherwise, it is just on paper and I cannot make use of it.

I also believe that portfolio income is still just an assumption and can be looked at as a form of speculation until the portfolio income is actually turned into cash.

How to turn portfolio income into cash

In order for one to turn the portfolio income into real cash, one would have to either sell the property at a price equal to the appraised value/market value or have the property refinanced at the new appraised value/market value.

1. Sell the property to get cash

For example, I decided to sell the sample property above and it got sold for Php1.5 Million cash. I would then have to pay off the loan principal balance of Php800,000 with the bank. That would leave me with Php700,000 cash on hand. I have already recouped my downpayment of Php200,000 and made an additional Php500,000 in the process, which was the equity I gained or portfolio income.

Of course one should also consider the taxes(Capital gains tax, etc.)  and other closing costs when a property is sold.

By the way, if one just keeps on selling properties, one is really just investing for capital gains. He/she would lose the cashflow the properties would generate, if any.

2. Refinance the property to get some cash out

On the other hand, if I had the property refinanced at the new appraised value/market value, I would be able to get a big chunk of my portfolio income if the new loan is approved.

Let’s say I went to a second bank, applied for a new loan to refinance my existing loan, and they had the property appraised. The new appraised value turned out to be Php1.5 Million as expected and the bank granted me a new loan based on this new appraised value, and they are willing to loan me 80% of the appraised value which is Php1.2 Million. The second bank would then pay off my loan with the first bank, which is Php800,000 and that would leave me with Php400K. This means I pocketed Php400,000 in cash by refinancing the loan.

Sure it was smaller than what I would have gotten if I had just sold the property, but that’s okay for 2 simple reasons:

(1)    I didn’t have to sell the property which means I don’t have to pay taxes related to properties getting sold like capital gains tax, documentary stamps tax, etc., and

(2)    The property remains to be mine and I get to continue enjoying the cashflow it generates(if any if it is tenanted) and any appreciation in its value, just in case I do decide to sell it down the road.

Of course, with refinancing, the new loan amount will translate to an increase in monthly amortization payments, etc. which should always be considered to determine the cashflow a property generates. At least I have taken out some of the cash which used to be portfolio income and I can use this to buy another income generating property, etc.

My thoughts on portfolio income

From my examples above, you will see that one cannot make use of portfolio income unless one takes steps to get the cash out. It looks good but the income is still just on paper.

However, portfolio income gives a good indication as to the potential of a property in terms of capital gains. It can help one see if you are really following the well known advice from Robert Kiyosaki and his Rich Dad which is

“You should make money when you buy, not when you sell…”

because the portfolio income is basically the money you can potentially make the moment you bought a property at a price below market value.

As stated earlier in this article, until you can turn portfolio income into cash by actually selling the property at a price equal to the market value or refinancing it at an appraised value higher than your purchase price, you are just speculating. Remember, we are supposed to be real estate investors, not speculators.

Since portfolio income is only on paper, having a large portfolio of properties that look good on paper is useless if you can’t get any cash out. Instead of being real assets, they are just liabilities that take money out of your pocket, unless these properties are generating passive income through rental or rent-to-own income.

In hindsight, I also believe that by selling a property, one is converting portfolio income into earned income. Earned income will be tackled in the next part of this series on the types of income one can get through real estate investing.

What do you think?

Coming Up Next: Earned income through real estate investing

Coming up in the next part of this series, I’m going to tackle how one gets earned income through real estate investing, how it can make you feel like you are back in the rat race (this should be interesting), and what can be done about it.

If you want to know more about earned income, head on over to part two of this series – Earned income through real estate investing

To our success and financial freedom!

Jay Castillo

Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Mobile phone (Call/SMS): +639178843882
Follow me in twitter:http://twitter.com/jay_castillo
Find us in Facebook:Foreclosure Philippines facebook page

Text by Jay Castillo and Cherry Castillo. Copyright © 2010 All rights reserved.

PS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines

PPS. Don’t be the last to know, subscribe to e-mail alerts and get notified of new listings of bank foreclosed properties, public auction schedules, and real estate investing tips. Inbox getting full? Subscribe through my RSS Feed instead!

How to get portfolio income through real estate investing is a post from: Foreclosure Investing Philippines

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“If only it were this easy in real life!” , a Think Rich Pinoy Seminar attendee exclaimed after buying his fifth property while playing Robert Kiyosaki‘s Cashflow 101 game.

I heard him say this as I helped facilitate the Cashflow 101 game at their table during the afternoon session of the Think Rich Pinoy seminar last February 27, 2010.

If you have played Cashflow 101, you would know that finding opportunities is as easy as picking an opportunity card when you land on an opportunity space during your turn. (Haven’t played Cashflow 101 yet? Learn more about the Cashflow 101 game by reading this article: Top 7 lessons learned from playing Rich Dad’s Cashflow 101 game)

In real life however, how do you find those “opportunities”?

It’s obvious that I get my opportunities from listings of foreclosed properties.

But how does one convert listings of foreclosed properties like this:

Into opportunities like these:

Let us first dissect an opportunity card.

If you will look closely at the opportunity cards above, aside from a brief description of the property, the projected ROI, Cost, Mortgage, Downpayment, and Cash flow are already given.

In real life, the only numbers you will often find on listings of foreclosed properties are the Cost (or the selling price or minimum bid price), Downpayment, Interest Rates, and the maximum loan term. The mortgage amount is usually the Cost less the Downpayment.  You will have to come up with estimates or calculate for the projected ROI, and Cash flow. Without these numbers, you will have no objective way of telling if a foreclosed property has a good potential to be an income generating asset.

Return On Investment or ROI

According to the Cashflow 101 game rules, The ROI or Return On Investment on the opportunity cards can be calculated as follows

monthly cashflow x 12 months

ROI = ——————————————————

Downpayment

In real life, we can also get the ROI using the same formula above but we must first determine the projected monthly cashflow.

Determining Cash flow

An overly simplified way of determining  the monthly cash flow would be to subtract the monthly amortizations from the monthly rental income. We therefore need to determine these two numbers first.

How to determine the monthly rentals

You can get the monthly rental income by asking around the same location of the target property and get rental rates for comparable or very similar properties. This would even be easier for condo units as you just have to check for the rental rates for units in the same building. This can also be done online by checking advertisements of rental properties in the same building or area.

For more information on how to check for rental rates, read this article: How I estimate market values of foreclosed properties

How to determine monthly amortizations

Monthly amortizations can be easily calculated using amortization calculators since we know the loan amount, interest rate, and loan term. You can use our very own amortization calculator which can be found here.

Putting it all together

Let’s use the following foreclosed property from the sample listing above and see if we can turn it into a real “opportunity”.

Let us also use the following assumptions*:

• Minimum downpayment required is 20%
• Balance is payable up to 15 years
• Interest rate is 12% interest p.a.

*Remember that these are just assumptions and are for illustrative purposes only. One should get the actual values by calling the bank.

Step 1: Determine rental rates

For the location of sample property above, I saw an ad for a smaller sized condo in the same building with an advertised rent at Php25,000 per month. I’m not entirely sure if the rental rate on the ad I saw was  not overpriced  but it will have to do for now. It  would really be a big help if you focused in a particular area and became very familiar with rental rates, etc.

Step 2: Determine the monthly amortization

Using our mortgage calculator, the monthly amortization for a property with a minimum bid price of Php2,208,800.00 with a downpayment of 20% or Php441,760.00, and with the balance payable in 15 years at 12% interest p.a would be Php21,207.44 per month, as seen below.

Step 3: Determine the monthly cash flow

The monthly cash flow would be equal to the monthly rent less the monthly amortization.

Monthly Cash flow = Php25,000 – Php21,207.44

= Php3,792.56/month

Step 4: Determine the ROI

Let us use the formula above for ROI:

Monthly Cashflow x 12 months

ROI = ——————————————————-

Downpayment

Php3,792.56/month x 12 months

=  ——————————————————-

Php441,760.00

= 0.10302   or  10.302%

An investment “opportunity” for real

Based on the resulting numbers above, our opportunity card for our sample foreclosed property should look something like this:

You found a bank foreclosed condominium unit in Makati!

10.30% ROI, may sell for ????

Cost: Php2,208,800   Mortgage: Php1,767,040

Downpayment: 20%     Cash flow: Php3,792.56

Points to remember

It really is possible to get opportunities in real life, just like the opportunity cards in Cashflow 101. All you need is just a little know-how in “doing the numbers“.

The “opportunity” we got above is an overly simplified example as we also need to consider property management, maintenance reserves, real property taxes, and other expenses when calculating for cashflow.

As to whether the “opportunity” we got above is a good deal or not still depends on each individual real estate investor’s preference or target ROI. Is 10% a good enough ROI for you?

The ROI can still drastically change when some numbers change and this can turn a mediocre deal into a great deal or  it can also transform a good deal into a bad one.

What if the exit strategy was changed to  rent-to-own  instead of rental and  the monthly  rent-to-own income was Php28,000/month? Or what if the monthly dues plus other incidental expenses turned out to be Php5,000 per month and may thus result in a negative cash flow? I suggest you run the numbers and check the results.

Remember, the numbers don’t lie.

So the next time you come across a listing of foreclosed properties, just do the numbers! The more  consistent you are with doing the numbers, the greater the chances that you may just find that “opportunity” you have been looking for!

Happy investing!

To our financial freedom!

Jay Castillo
Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Click here to contact me via E-mail
Follow me in twitter:http://twitter.com/jay_castillo
Become a Fan in Facebook:Foreclosure Philippines fan page

Text by Jay Castillo. Copyright © 2010 All rights reserved.

PS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines.

How to turn listings of foreclosed properties into opportunities is a post from: Foreclosure Investing Philippines

My wife who has become so obsessed with finding a new house we can call our home shares updates on what we are thinking of doing with our old house that was devastated by Ondoy, what things to consider, our target locations, finding not just a house but also a sound real estate investment by searching foreclosed property listings, and applicable tax exemptions and pending articles about this and other taxes that apply to real estate, which I hope she finishes soon…

I’m just glad that I was able to convince her to buy a property the way true real estate investors looks for a good deal. Knowing how stubborn she is, I was surprised how easy it was for me to convince her that this is a perfect opportunity for us (as a team) to find a really sound real estate investment that will produce a good positive cashflow if we decide to have it rented out, or sell it for a significant profit down the road. This can only happen if we buy a house well below market value and apply Rich Dad’s principle “… You make money when you buy, not when you sell” as often mentioned by Robert Kiyosaki, best selling author of “Rich Dad Poor Dad”.

Our journey to our new house

By Cherry Castillo

As most of you may already know, we are looking for a new house, as our old house was totally devastated by Ondoy. I am sure many of you are in the same boat as ours. Of course, our decision to move entails more decisions with regard to the next steps, such as:

1. What do we do with our old house? Right now, we have a payment holiday until January 15 with Pag-Ibig. But after that date, we have to continue paying the monthly amortizations. Admittedly, the market value of the house is in question, and it’s not practical to continue paying the amortizations which was based on the market value of Provident Village prior to Ondoy. The next question is, do we sell it now, do we let Pag-Ibig foreclose it, or do we surrender it through a dacion en pago (a.k.a. payment in kind – that is, we give the house as payment for the loan)? If we sell it now, we will be selling it at a loss, but we will be cutting our losses since we will stop paying the high monthly amortization. If we let Pag-Ibig foreclose it (or if we surrender it through dacion en pago), how do we go about it? While it is clear that my husband will no longer be able to take out another housing loan from Pag-Ibig, would it also affect my husband’s credit rating and prevent him from taking out a loan from banks?

2. Granted that we will be moving, where do we go? We can  go anywhere! Anywhere where there’s no flood of course. And since we are now so paranoid of natural (and man-made) calamities, if we are to move, we have to make sure that the area is one that was not reached by floods and that there is at least a second floor.  I don’t want to be in the mountainside too for fear of landslides. We are now open to condominiums (unlike before, when I really could not imagine living in one), but not those that are too high, as I am also concerned about earthquakes. You may have noticed that there have been a lot of news about earthquakes in the Asian region and in the Philippines in particular. I have been telling my officemates that the best place to be is in a low-rise condominium, somewhere in the 3^rd or 4^th floor, since it will not be reached by floods, the structure will be strong enough to withstand earthquakes, and if there’s a fire I can jump out of the window and just have broken bones, or, if there’s a swimming pool nearby, I can just go straight to it. I know it’s a bit on the psycho side but you really get to think a lot about these things if you’ve gone through the great flood brought about by Ondoy. Oh, I forgot, I don’t know how to swim. I better join my son in his swimming lessons this summer! And time to turn into reality the Ondoy-related ideas I have thought about.

3. Where are our target locations? I have narrowed down our choices to the elevated portions of Kapitolyo, Pasig, San Juan, and Quezon City near UP. Aside from the earlier-mentioned considerations, it is very important for us to be near to a good co-ed school for our son as he will be turning five in January 2010 already and it won’t be long before he enters elementary school. I have sort-of developed loyalty to Mother Goose  Playskool and Grade School (This is my son’s school in Provident Village, Marikina which was also devastated by Ondoy. Because they have several branches, they allowed my son to finish the rest of the school year in their Makati branch. Mabuhay ang Mother Goose!) so I want to find a house near a Mother Goose branch. As for my work, I am currently working in Makati but I am open to moving to Ortigas or QC, or maybe if my husband’s business picks up, I might just help him in the business. One of the best lessons I learned in the past years is that TIME is the most precious commodity. There are only 24 hours in a day and spending it on the road is totally useless. So the house should be near the place of work and study. In the course of my research, I have learned that prices are really so steep in the good areas.

4. This of course led me to search our site for foreclosed property listings (In the right side of the this page, you can use the “search” function to look for listings in this site.) I have also called several banks so I have updated listings with me, which my husband will be posting soon. I have also revisited my husband’s post on the Ultimate List of Bank Websites and I have found some updated listings there too. I have found a lot of promising properties and I must admit that it’s really exciting looking for good buys. I have been a bit depressed since last week, after I visited our old house and saw its sorry state. I determined that the only way for me to get out of depression is to finally have a new house! I have been joking that leaving our house is like breaking up with a boyfriend of 5 years – the only way to have closure is to have a new house/boyfriend! The process of looking for and deciding on the perfect place to grow our roots is both tiring and exciting. I do hope we find the house meant for us soon. We have visited a foreclosed property in Mandaluyong last week, full of excitement, only to have our bubble burst because of the really bad neighborhood, one of the worst as my husband put it (And he grew up in Mandaluyong! I really don’t understand why the Mandaluyong local government spends so much money fixing the islands  when they have so many squatters!).  My husband reminded me that it should be the other way around – we should find the worst looking house in a good neighborhood. I have also selected several properties and when I called up the bank, I discovered that they either have pending cases or encumbrances, or the bank does not have possession. Hay! I guess we have to look at more foreclosed properties (Around 100 more according to my husband – that’s a lot!). In God’s time, I know we will find the one for us.

5. Applicable taxes and tax exemptions? Being the tax person that I am, I really have to consider taking advantage of the  capital gains tax (CGT) exemption from the sale of principal residence. I also need to create a post about this and all the other taxes – real property tax (RPT), percentage taxes, VAT, etc. (Okay, I’m really delinquent I admit!).

So basically, we will be going through the entire process of choosing a property that will also be a good investment. We are also looking at other properties, though not foreclosed but are rather houses for sale by owner (FSBO), but which look like good deals. We will do our best to document each step of the way so that it can be a handy and useful guide for everybody, much like a walk-through of the process. Wish us luck!

Cherry is my wife. She is a certified public accountant (CPA) and lawyer.

—

My vision – financial freedom for all!

Jay Castillo
Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Click here to contact me via E-mail
Mobile phone (Call/SMS): +639178843882
Twitter: http://twitter.com/jay_castillo
Facebook: Foreclosure Philippines fan page

Text by Jay Castillo. Copyright © 2009 All rights reserved.

PS. If you are a new visitor, please start here to learn more about foreclosure investing in the Philippines.

PS2. Larry Gamboa and Bo Sanchez will give the Think Rich Pinoy Seminar this November 21 at the Philamlife Building in UN avenue in Manila. Larry will discuss his unique Real Estate methods, buying foreclosed properties and turning them around for passive income. You’ll also get to play Robert Kiyosaki’s CashFlow 101 Game and learn! To attend, click here now!

PS3. If you feel that anyone else you know might benefit from this post, please do share this to them and don’t forget to subscribe to e-mail alerts and get notified of new listings of bank foreclosed properties, public auction schedules, and real estate investing tips. If your inbox is getting full, you may subscribe through my RSS Feed instead.

Our journey to our new house – Finding a new home like true real estate investors is a post from: Foreclosure Investing Philippines

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I first played Rich Dad’s Cashflow 101 game way back in 2007, after I found Think Rich Pinoy Seminar attendees who organized their own cashflow 101 game sessions.

I was hooked ever since. I play cashflow 101 whenever I get a chance to do so as part of “sharpening the saw”.

I believe that the cashflow 101 game effectively simulates one’s  journey out of the rat race and I would like to share here what I have learned from playing what I consider to be a “life changing game” and its practical applications in real life.

Here goes my Top 7 lessons learned from playing Rich Dad’s cashflow 101 game…

A photo of the cashflow 101 board game courtesy of Earth del Mundo

1. Simplify and get out of the rat race faster

I noticed that whenever I played the cashflow 101 game and was able to choose a “simple” profession like a truck driver for example, I was able to get out of the rat race faster. This happened during the Think Rich Pinoy Seminar I attended last August 2007. As a truck driver, although my salary was low, my monthly expenses were also very low.

Because I had  low monthly expenses, I already had a positive cashflow and all I needed to do was just get those passive income generating deals. After each payday, I had more money to invest, and with just a few passive income generating deals, I had enough passive income that exceeded my monthly expenses, and I was able to get out of the rat race faster.

In real life, I am applying the same strategy by reducing my monthly expenses by leading a simple life. This was also described by Bo Sanchez in his book “Simplify and Live the Good Life” and T. Harv Eker in his book “Secrets of the Millionaire Mind“. My family and I lead simple lives, which explains my very low target monthly passive income which is why I know I am going to get out of the rat race in real life very soon!

2. Start with small deals first, and the big deals will follow

In the beginning of the game, I always chose small deals even if they produced little cashflow. Later on, when the market presents good opportunities, I was able to sell or “flip” these small deals and then I used the profit to buy the bigger deals that produced greater cashflow, allowing me to get out of the rat race.

My four “green houses” which I’ll exchange for a “red hotel” during a recent game I played with Earth. I was not able to get out of the rat race during this game but we only played for an hour due to time constraints.

In real life, I am also following the same path. I focus on single family homes or properties which may produce little cashflow at  the very least, but can actually generate significant profits if “flipped” or sold through “rent-to-own”. I can then use the profit later when they are enough to get bigger deals that can produce bigger positive cashflow.

3. Over-leverage often leads to bankruptcy

During the game, we often encounter great deals that produce a lot of positive cashflow but require a big downpayment and it is tempting to borrow money from the bank just to be able to buy those great deals. However, there is such a thing as becoming over-leveraged which can produce negative cashflow situations because of the high monthly payments for those loans.

Even if one’s passive income is enough to cover the monthly payments for those loans, imagine if something happened and the monthly income of one’s investment properties were affected, suddenly the monthly payments for the loans cause a negative cashflow and can lead to bankruptcy. The same can also happen when one is downsized. This is the reason why one should avoid deals that lead to too much exposure or over-leverage.

Applying this is real life is a no brainer. I would not dare buy those multi-unit apartments unless they were in the same price range as the single family homes I focus on. As mentioned in lesson number 2 above, I can go for those bigger deals later when profits from my small deals are enough.

4. It is better to wait for a good opportunity than settle for those not so good deals

In the game, good opportunities come in the form of deals that have big ROI potential, and can be bought with little or no downpayment, while producing positive cashflow. If any of these elements are missing, I consider a deal as “not so good” and I pass them up and just wait for the good deals.

In real life, I do the same and patiently wait for good opportunities. If a not so good deal comes my way, I can either look for ways to make it into a good deal, or I just pass it up and wait for another more worthwhile deal to pursue.

5. Learn how to spot a good deal and grab it

One of the biggest challenges one faces in the game is how to spot those good deals so that you can grab them. Sometimes a good deal is right under your nose and it slips away because you didn’t realize soon enough that it was a good deal.

I believe spotting good deals is a skill and you can only learn this skill by continuously analyzing deals. Once you get the hang of it, you will start seeing those good deals more often. Normally those deals would have slipped away without you knowing it. If you see good deals often, it’s just logical that you will eventually grab one of those deals right?!

6. Learn how to protect your investments

I distinctly remember games where apartment buildings getting toppled by mud and all the cashflow generated by these properties are gone, unless I am covered by insurance.

Does Ondoy and Pepeng ring a bell? Who would have thought that a game like cashflow 101 actually teaches us to protect our investments from such disasters and calamities. Better get your investments insured with “Acts of God nature” coverage pronto!

7. Net worth is worth less, cashflow is king

Once you play cashflow 101, you will notice its emphasis on the importance of cashflow over one’s net worth. You will see that it really is more important to have positive cashflow from passive income. What is the use of having a big net worth if you don’t have any positive cashflow?

In real life, we should apply this by focusing on building our positive cashflow with income generating assets. Even if we have to use leverage to buy these assets, it really is okay. We call this good debt. Don’t be afraid to have good debts that buy real assets that produce the cashflow we need to get out of the rat race for real!

Get out of the rat race in the game, and in real life!

So you got out of the rat race when you played cashflow 101. So what?! That’s useless if you don’t take action and apply the lessons you have learned from the game in real life. But playing a game is one thing, doing it in real life is an entirely different thing… or is it?

I can truly say that Robert Kiyosaki‘s Cashflow 101 game is a “life changing” game because my life has really changed ever since I decided to apply in real life the lessons I have learned from it. Take note that I only listed the top 7 lessons I have learned and I can assure all of you that there are more lessons one can learn from this game.

People may find it hard to believe that one can learn so much from a game and can have such a huge impact in life. I guess you just have to play the game and experience it for yourselves.

How about you, have you played Rich Dad‘s cashflow 101 game? What did you learn? Are you applying them in real life?

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My vision – financial freedom for all!

Jay Castillo
Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Twitter: http://twitter.com/jay_castillo
Facebook: Foreclosure Philippines fan page

Text by Jay Castillo. Copyright © 2009 All rights reserved.

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Top 7 lessons I learned from playing Rich Dad's Cashflow 101 game is a post from: Foreclosure Investing Philippines

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