Have You Recessioned Proof Your Lifestyle

The year 2008 was the year of the spectacular U.S. sub-prime mortgage meltdown. The world is watching as the U.S. government does everything in its power to stave off a recession. All of this came as no surprise to investors especially those who understand and implement the principles taught by Rich Dad Poor Dad author Robert T. Kiyosaki. It’s no surprise that Japan’s economy faced a similar recession just ten years ago which is followed by the U.S. which is followed by Canada. It’s no surprise that investors who buy passive income are calm and serene in the face of “a deflation the likes of which the United States has not seen since the Great Depression”. [Financial Post, August 25, 2007]

Homeowners enjoyed unprecedented double-digit equity gains for over a year. This translates into hundreds of billions of dollars in equity. In order to satisfy their insatiable need for instant gratification, they bought a whole whack load of big ticket doodads. Doodads are stuff that instantly lose value the moment you buy them. They traded in their precious equity to buy bad debt; items that take money out of your pocket every month. We are a society of shopaholics who love buying stuff that depreciates. Why not embrace your shopaholism and reframe it so you love buying stuff that appreciates.

So enters the Law of Polarity. What goes up must come down. It is unrealistic to think that double digit appreciation will continue indefinitely. There will be market correction and it is always at the most inconvenient time. Now homeowners are waking up to the fact that their first year’s interest teaser rate has expired, the real mortgage kicks in, they can’t afford the monthly payments and the value of their house has gone down. The anticipated 20% equity gain in appreciation did not materialize as expected. You can see how this type of investing can cause a bit of turmoil and angst for people who do not understand how to buy assets.

Lions and Tigers and Bears oh no! The sky is falling! Whoa is me! The housing market’s going downhill! It seems that every magazine or newspaper is focusing on doom and gloom. Reactive investing is what the majority of people do. Real estate investors who buy and hold for the long term engage in proactive investing. As homeowners rush into default and foreclosures, they have to live somewhere. They become your rental client.

Most people know how to buy doodads. It’s safe and comfortable and it feels good to spend money. It’s too risky to invest in real estate. Investors know how to buy assets that cash flow that put money into their pocket. It’s safe and comfortable and it feels good to spend money. It’s too risky to buy doodads. Unfortunately doodads for the most part do not hedge against inflation or provide a return on investment. Real estate is real, tangible property. The market may be down temporarily and we know values will readjust in due time.

This is an oversimplification of course but I know you get the gist. Real estate investors who buy properties that have positive cash flow have created a passive income money making machine. You have done extensive research in the area you are buying. You have conducted due diligence on the properties. You know the economic fundamentals driving the market today and have a good indication of future performance for the next decade. You plan your income and expense projections on a worst case scenario and hope for the best case scenario. You make money when the market is up and you make money when the market is down. The profit generated by these properties funds your lifestyle, makes your car payments and buys your doodads. When you’re tired of these things and get rid of them, you still have your passive income source. This is when you truly know that you have recession-proofed your lifestyle.