Although the bulk of Gen-Z will most likely associate Robert Kiyosaki with his over saturated self-help content and a poorly aged relationship with Donald Trump, for those with a few more speckles in their hairline, that name may invoke a whole different set of emotions.
The man’s breakthrough book, ‘Rich Dad Poor Dad’ inspired millions of readers in a non-trivial manner when it first came out. Within those pages, Mr Kiyosaki’s novel take on investing not only provided immediately applicable steps to manage your personal finances, but for many of his readers, the mythical ‘Rich Dad’ system to escape the rat race was the first realistic solution to this societal trap that they’d heard in their lives.
In a nutshell, Mr Kiyosaki’s system hinges around his unique definition of ‘wealth.’
Rather than complex calculations of wage, salary, net worth or assets, our Rich Dad put wealth into question form.
‘If you were to lose your job today, how long could you go before you run out of money?”
For the average man, this question immediately sends the mind into a squirrel-like
calculation, ‘how much do I have saved up for the impending winter?’
With a sympathetic smile on his face, our Rich Dad watches on patiently before offering his wealth prognosis,
“It doesn’t matter if you are a millionaire or a dishy, if you are relying on your savings to survive. You are not wealthy.’
Cultivation of passive income (primarily through property investment) to establish a healthy enough cash flow to cover all of your set expenses without reliance on external earnings.
By his logic, if your investments are paying you enough money on a monthly basis to cover your set expenses for that same time period, in the event that you were to lose that secure job out of the blue, you would nonetheless be in a position to survive.
This is the Rich Dad definition of true wealth.
It’s certainly not going to come without some hard work, but this ideal at least provides those who are suffering away in their day job, some light at the end of the tunnel.
Let’s use a hypothetical example to calculate the cash flow on an investment property in the Auckland CBD to see how someone might chase this goal:
Say you’ve bought yourself a tidy two bed apartment right in the center of the Uni precinct for $450,000 putting down a 40% deposit and paying a 2.5% interest rate:
Rental income per annum: $500 per week x 52 = $26,000
Less set outgoings: body-Corp, rates, maintenance eg. $6000
Your principal + interest payments will roughly stack up to $12,792 per annum.
So, you are left with $138 per week worth of positive cash flow.
If your weekly expenses are sitting at the national average ($645 per week) financial freedom is still a long way away, but at least you’ve got yourself on that road! Over time, the cashflow on this property is going to improve as you pay off your loan and theoretically rents will increase as well. Repeat this a few more times and you’ll be there.
But two months ago, Jacinda said, ‘not so fast!’
As part of her crusade against those godforsaken landlords, she’s introduced new legislation which retracts the ability to offset the interest portion of your rental income.
Once they’ve plugged this into our little equation above, most would be investors will swiftly kiss goodbye to their ‘Rich Dad’ dreams altogether.
And to what end?
Yes I know. The housing shortage, first home buyers locked out of the market, wealth inequality, I get it...
But let’s be practical here.
As a general rule, higher yielding properties are the smaller, non-bank friendly shoe-boxes which you can rent for a good rate yet buy for a lower purchase price.
This is what your Rich Dad apostles are generally buying.
Not only do first home buyers struggle to get funding for this type of thing at the best of times, they have little interest in buying these to live in in the first place.
So who are you helping?
This seems like nothing more than ideologically driven pursuit of robin hood justice against an abstract enemy. In reality, all our government has achieved with this, is an unnecessarily imposed layer of extra pressure on ordinary Kiwis.
Is there not a chance that once they’ve unburdened themselves from the weight of financial obligation, a portion of these Rich Dad success stories may apply their new found freedom towards giving back to the community?
To get there they’ve certainly proven that they’ve got the grit to pursue a goal to its conclusion. So who knows?
Once they’re no longer shackled to that 9 to 5, who is to say they won’t come up with their own answer to the housing crisis?
Of course that door hasn’t been closed entirely and maybe they’ll figure out a way to achieve this all the same. But my point stands.
The Rich Dad dream has certainly just got a whole lot harder.