What's your strategy for Cash Flow 101?

Question

@Ben Leybovich had a recent article regarding financial statements based off of Robert Kiyosaki's Cash Flow 101 game. He insisted everyone needs to have their own financial statement and play it in the game. (Its a great game by the way)

When it comes to the game how do you play? Are you a saver and pay for a property in cash? Or do you borrow from the bank first and over leverage yourself knowingly? Or do you break even on your cash flow and amounts borrowed?

Furthermore, does anyone by the property with negative cash flow?

What's your strategy and how does it play into your real world strategy?

Deborah Burian · Answer

Knowingly overleveraged.  I was starting to think I needed a program... "Hi, my name is Deborah and I buy real estate."  But I've bought all I need and it seems to be working out just fine :-).

But we were/are maniacs about cash flow.  Gotta have it for the company to survive.

And, I've never played the game, we just work out tails off in real life.

Steven Huang · Answer

1. I dump money into $1 stocks and sell them high to create the capital to purchase a small deal, and also keep on passing paycheque to build up the capital

2. I keep purchasing small deals until I hit a market card where I can sell one of them off at a profit, at which I will pay off all the bank loans, and use the extra money as down payments for the large deals.

3. I just keep building up large deals, and slowly paying off some of the expenses until I get out of the rat race.

*I do always keep about 75% of my monthly expenses in cash reserves in case I hit the downsize square.

I feel that Cashflow 101 has some difficulty translating into reality, as people above have pointed out above. Also, Kiyosaki was using it as a tool to drive people towards his coaching programs so of course he made the real estate deals appear like the only ways to get out of the rat race, when stocks aren't bad investments themselves. However, it's only a simulation and does a pretty good job to teach the lesson of passive income versus going for paycheck to paycheck. Furthermore, they never mentioned the difficulty it is for a foreigner to get bank financing on deals or any of the other complexities, but they also don't have any of the creative things you can do to jump into real estate investing too!

Jason Minnich · Answer

So my wife and I had a blast playing this game with

@Ben Leybovich and I have to say it was a blast. Its been several years since I played cashflow and it amazed me how close to real life some of these deals were. My 3/2 in California for example is a prime example of a mediocre deal which had room for appreciation, and I did this in the game to positive results... That was until I pulled the "rates increase 10% and you foreclose" card. Some things don't always match up, but that's fine.

I also thought the different decision spaces was unique. At one point I managed to hit all the bad luck, foreclosure, lots of kids, lots of debt, just scraping by. Ben had already got his amazing stock deal and was sitting pretty and every time I looked at his balance sheet it infuriated me that he would have 100k sitting in the bank but wouldn't repay his 5k bank loan.  In my situation I was making 350/pay and needed to pay down every time I could to start building myself back up, but Ben rightly so didn't need to bother. There comes a point where the money you are making on your portfolio is such that you NEED to stop sweating the small stuff, and as someone that is REALLY analytical I need to keep that from interfering with the day to day operations of my business, especially as I grow.

When I was better off in the second game I found that the similarities to real life were getting rather creepy. Especially when we had just been talking about my (rather large) watch and I pull a Doodad card saying "you buy a watch for $150". Honestly, it was a lot of fun, and there were a lot of similarities to real life, I just need to take the lessons learned and apply them to how I do business.

Chris L. · Answer

Steven,

I have played the game multiple times and have been playing it in real life for some time.  The game is easy to win: buy enough small deals, sell and create enough cash to pay the down payment for a large deal and you are out of the rat race.

In real life, I have never purchased a negative cash flow property and have only borrowed money for one deal.

The biggest issue that I have found in terms of translating the game to real life is finding the big deals.  I have a collection of SFR's.  When I have evaluated larger deals like apartment buildings, commercial projects, etc, I discovered that the returns were no better than what I already make on my SFR's.  Since the returns are at or below the "small deals", I did not see that the risk was worth taking on for these larger projects.  So, I have just continued to add more and more small deals.

Good luck to you.

Chris

Ben Leybovich · Answer

Haha - this post came in as I was at my dining room table, playing the cash flow game for the first time in like 4 years with my wife Patrisha and my friend

@Jason Minnich and his wife Sarah, who came to visit us from Dayton.  Jason is stationed in Dayton with the Air Force.

We played 2 games - fun.  The strategy in the game depends on the cycle, just like in real life.  I, for example. was able to buy stock for $1 in the first game we played, and for $5 in the second.  I loaded up to the absolute max and selling eventually got me the seed capital to make big deals.  I will do the same in real life, but have not done it yet.  In order to be effective with this strategy, one must load up to the max, and while it is impossible to loose in the game when buying at $1, it is certainly possible in real life.  So, once my CF is such that I wouldn't care about loosing $50,000 in an IPO, then I'll do this kind of thing in real life.

In the game, tocks can not create a win - they are a vehicle to get to passive CF at the end of the day...

I did buy a negative fearing house, but only because I assumed it without any DP and bought it at the absolute bottom of the market - I have done that before in real life.  This is never a house - always an apartment building. And the negative gearing is never for any longer than 12 months and I always have a plan as to how I will stabilize the asset and create strong positive CF.

Between the stocks and the negative gearing the game encourages speculation - we should all take this with a grain of salt when transferring the rationale to real life.  But, if you've got your down-sizing fund put away, or if you are simply down and out and have nothing to loose, sometimes it can be appropriate to be aggressive.  I was for many years - 100% is what I do, as you know...

However, at this moment I am adding equity financing strartegies to debt financing  - SYNDICATION...  :)

What's your strategy for Cash Flow 101?

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