Posts Tagged ‘book review’

How investing in property can pay for your Porsche

Monday, July 27th, 2009

PREPs. Kim and I like to invest in private real estate partnerships, or what we call PREPs. No one else calls them that. It is simply a code name we gave to this form of real estate investing. A PREP is more often called a real estate syndication and is simply a private partnership that is formed to buy a large real estate investment.

The following is an example of a PREP In an earlier book I wrote about wanting to buy a new Porsche for $50,000. Instead of wasting my money on the Porsche, which is a liability, Kim and I pooled our money with nine other investors, raising $500,000 equity, and purchased a mini-storage warehouse with the mortgage financing coming from a bank.

That warehouse paid each partner approximately $1,000 to $1,400 a month in cash flow I do not know what the other partners did with their monthly cash flow check but Kim and I used our checks to make the monthly payments for the Porsche. After three years, the mini-storage warehouse was refinanced. We then got our initial $50,000 back, which we reinvested in another PREP. And we continue to receive our monthly cash flow; which has grown to approximately $2,000 a month, since the rents went up. If the property were sold today we stand to make an additional $l00,000 to $200,000 from capital gains… and I still have the Porsche. This is an example of an asset buying our liability and helping us with our early retirement. Since we no longer have any money in the investment, and we still receive our $2,000 a month, what is our new ROI (return on investment)? Infinite.

Kim and I invest in one or two of these types of PREPs a year. Our average returns are 15 percent to 25 percent cash-on-cash returns, plus the off-setting depreciation deductions, which are not really losses but phantom cash flow. This can easily put our returns in the 50 percent or more range. Try doing that with most mutual funds.

We like these investments because the risk is shared, we use our banker’s money the investment is secured to real estate, we receive monthly cash flow, there is a strong potential for capital gains if the property goes up in value, the income is tax-advantaged, and the capital gains are tax-advantaged at the time of sale. Most stocks and mutual funds do not offer such tax advantages, steady cash flow or security.

The latest PREP Kim and I invested in was a 240-unit apartment building that pays a 15 percent tax-advantaged retum, which is comparable to a 30 percent taxable return, with capital gains potential. We are in this partnership with three other investors. But best of all, in a little over three years we will have all of our initial investment back, we will still own the property still receive the monthly cash flow, and then be able to go out and use the same initial investment money to do it all again on another property!

Rich Dad’s Prophecy, Chapter 14, Robert Kiyosaki & Sharon Lechter

The Latte Factor

Tuesday, March 3rd, 2009

“The Latte Factor® is based on the simple idea that all you need to do to finish rich is to look at the small things you spend your money on every day and see whether you could redirect that spending to yourself. Putting aside as little as a few dollars a day for your future rather than spending it on little purchases such as lattes, fancy coffees, bottled water, fast food, cigarettes, magazines and so on, can really make a difference between accumulating wealth and living paycheck to paycheck.

We don’t even realize how much we’re actually spending on these little purchases. If we did think about it and change our habits just a little, we could actually change our destiny.

Still not convinced? Consider this:

$5 per day (the average cost of a latte and a muffin) x 7 days = $35 per week

$35/week = $150/month

$150 per month invested at a rate of 10% annual return =

1 year = $1,885
2 years = $3,967
5 years =$11,616
10 years = $30,727
15 years = $62,171
30 years = $339,073
40 years = $948,611


I just finished the book “The Automatic Millionaire”. I grabbed it from the library and boy is it quite worn out. I guess many have read the book.

Who is this book for?
– Anybody of any income really
– Someone who doesn’t really quite like to budget everything
– Someone who doesn’t like to deal with finances on a regular basis, but yet still wants to retire comfortably

“But I’m already living paycheck to paycheck! I don’t have money to save for retirement?”

That’s where the Latte Factor comes in. I’m sure many have heard from your financial advisors that if you give up your one Starbucks coffee a day, you can save $5/day and that compounded over 40 years would make you very rich. But of course Bach is not saying stop drinking Coffee Bean or Starbucks. All he is trying to say is, we spend 8-12 hours working a day. Is it really that unreasonable to keep 1 hour of your wages to pay ourselves?

If you are like me and don’t like tracking every single cent you spend (it can be quite a pain really, and hard to keep up), Bach challenges you to just track your spending over a single 7 day period. Just 7 days of tracking is all you need to know where you can save your extra $5 from. Once you are convinced it’s possible, the next big secret is: AUTOMATE IT.

Bach argues that if 10% of your money leaves your account before you ever see it, you won’t miss it! Singaporeans would understand this really well. Every month, 20% of our money automatically gets deducted into our CPF. We’re still surviving right? So likewise, if you were to giro out an additional 10% out of your paycheck each month, you know you make it. And because it’s automatic, you won’t feel it.

Imagine if we had to manually transfer out 20% to our CPF each month. We would feel the impact of ‘losing’ that money, and it’s a monthly affair. After a few months, we might even fall behind our contributions. Take yourself out of the factor and do yourself a favor. Automate it – you only have to do it once.

Home ownership is really another form of automation for us in Singapore, since our payments are automatically deducted from our CPF each month, and we steadily build equity. Bach encourages making extra payments to shorten the mortgage. That might or might not be a good idea in Singapore, since interest rates here are so low compared to US or UK, where low means 5%, whereas our low can be 1.5-3%.

Check out the book and read how you can automate your finances and eventually become an automatic millionaire.

(These days though, billion seem to be the new million.)