Page 155 - Rich Dad's Increase Your Financial IQ: Get Smarter with Your Money

Unfortunately, this describes most investors. Since most investors invest for
capital gains, their investment decision is based upon opinions about the

future. Many investors invest in mutual funds based upon the opinion that
the stock market goes up 8 percent to 10 percent per year. If the opinion is
wrong, they lose.
A smart investor knows the difference between facts and opinions.

Generally a person who invests for capital gains is investing on an opinion.
A cash flow investor invests for facts. If possible, a smart investor will
invest using both opinion and facts, and invest for both cash flow and
capital gains.

If you are investing in stocks, mutual funds, real estate, or business, ask
yourself if the information you are basing your decision on is fact or
opinion.

Lesson #4: Control over the asset. One important bit of information I want
is how much control I have. In the previous chapter on financial IQ #4:
leveraging your money, I stated that it was important to invest with control

before leverage. If I do not have control, I do not use much leverage. I
control my asset value by controlling my rents. My asset value is not based
upon a market appraisal, which is an opinion 99 percent of the time.
The reason bankers often ask for a large down payment on a property is

simply because they do not trust the appraised value. Of course, this
practice went out the window when credit became cheap. With easy credit
and cheap money, housing prices skyrocketed as fools rushed in after fool’s
gold. More buyers meant prices went up. As prices went up, real estate

appraisals went up. As appraisals went up, families felt rich because they
thought their home went up in value. Many took out home equity loans
based upon their new appraised valuations. They bought new cars, vacation
homes, took cruises, and went shopping. Then a rip appeared in the balloon,

a tiny tear known as a problem with subprime mortgages. As the tiny tear
keeps ripping, the balloon starts floating back to earth.
This is the problem with using an opinion (capital gains) rather than a
fact (cash flow) as the basis of valuation. This is true not only for real

estate, but for all asset classes. This is why when seeking financial