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Comment by klbarry | Hacker News Reader

This person severely misread the book. I could give quite a few examples from the writing. For instance, the child labor issue he brings up is ridiculous - "Rich Dad" obviously didn't benefit from this labor in any financial way.

The premise of the book is solid; invest in assets that make money for you without you having to be there. He specifically says in the book a few times that he doesn't necessarily advocate real estate investing, but to invest in what makes financial sense, as long as you invest in something. He gives this as a representative list of such investments:

1) Businesses that do not require your physical presence I.E. a web app that you have someone program once and people pay $10 a month for

2) Stocks

3) Bonds

4) Mutual funds

5) Income generating real estate

6) Royalties from intellectual property

7) Any other recurring sources of income

View on HN

The idea of a "passive investment" is a joke.

The example of a web app as a passive investment is crazy -- how many apps exist that won't require support, ongoing maintenance, etc? That's significant work.

Stocks, bonds, mutual funds -- the returns here are small enough that you can't generate income to live on without a huge up-front investment. If you could manage a consistent 8% yield you'd be doing well, and it would $1M to generate an $80k annual income.

Real estate -- I know a couple of part-time landlords, and this is not passive work. They have to deal with tenants, maintenance, etc. Sure, you can hire a property manager, but that cuts into your returns.

Royalties -- This is hardly passive. What's the half-life of IP these days? You can write a book, but it will likely be out of print within the year. If you manage to publish something reasonably popular, you'll likely have to build a franchise around it, which means that you'll have to work at writing more books. Even if you hire ghost writers, you have to find them, manage them, deal with marketing, etc.

One of the takeaway lessons I got from b-school was that "there are no long term economic rents". In other words: if something is profitable (easy money), then other people will enter the market and the profitability will decline. Sure, there are barriers to entry, etc. but all else equal the crowd will follow the easy money and suck the profit out of it.

"Real estate -- I know a couple of part-time landlords, and this is not passive work. They have to deal with tenants, maintenance, etc. Sure, you can hire a property manager, but that cuts into your returns."

I posted somewhere down the thread that this has been my observation from watching my grandparents and father manage their investment properties (which were their retirement fund as retirement money in Uruguay is only good for basic survival).

"f something is profitable (easy money), then other people will enter the market and the profitability will decline"

Yep, but as you said, there are psychological barriers of entry which make the "short-term" profitability good enough for an individual, yet bad for foreign investors.

For example, you can make a 12% profit off real estate rentals here in Uruguay now, it's shifting downwards due to the market pressure, but for us locals it looks like a low-risk, high-reward investment opportunity, but for people in the developed world, the perceived risk of investing in a South American country is too great (and I'd agree, they need a local partner to avoid getting fleeced by the government, or investing in the wrong places, etc... local knowledge basically).

As it usually happens, I'm currently in debt and cannot take advantage of the investment opportunities (fortunately my parents and grandparents can :) ).

It's possible to make real estate income passively. The rub is that you either have to have lots and lots of money or lots of friends with lots of money. Either way, you need lots and lots of money to pull it off.

Many years ago, I worked for a property management company who's sole client was a partnership of about 30 people. Between the partners, only two were active partners. The rest did nothing more than show up during the first week of the month to get their disbursement check. This was before direct deposit was widespread.

Of course, the holdings were all commercial, were valued collectively at ~80 million, from initial investments of around ~15 mil (adjusted).

The main problem with "passive" income is that margins on passive income are so low that you need a huge amount of investment to make anything meaningful. You have to keep developing streams of income to replace ones that have burnt out. And you have to keep shoveling your profits back into the venture.

It's a long, hard slog.

"Rich Dad" does seriously advocate real estate, not to the exclusion of those other options but certainly above them. Real estate stands out mostly because of the leverage that a mortgage can provide: you can control the income and appreciation of a $250,000 asset with only $50k of actual capital. You can't get 5-to-1 leverage on stocks or other such passive investments.

That said, real estate is certainly no magic bullet. You certainly take on risk, of depreciation and vacancy time and deadbeat tenants. And it's hard work to keep a property maintained or expensive to hire someone to do it. It's not for everyone. These are the points that "Rich Dad" doesn't make and must be included for a balanced perspective.

You can't get 5-to-1 leverage on stocks or other such passive investments.

Not exactly true. Derivatives have significant leverage, often times way more than 5-to-1.

5 to 1 margin on stocks is not hard to achieve, it's just more risky than 5 to 1 on a mortgage because your position is marked to market where as mortgages are not marked to market, but are much more illiquid.

Unfortunately, only a tiny percentage of the book is dedicated to addressing these legitimate avenues for investment.

The rest of the book succeeds only in massacring the concepts. Insider trading? Illegal. Real-estate lowballing? The only guarantee is a bad reputation.

It wasn't hard to find lucrative investments in the late 90s. I can't help but wonder what happened to his real estate empire when the bubble burst, if it even existed.

There are many books that do justice to explaining those seven items you've mentioned. Rich Dad is definitely not one of them.

> The premise of the book is solid; invest in assets that make money for you without you having to be there.

Sounds like a recipe to hand your money over to scamsters. Esp as it was proven out by "Income generating real estate" in the past decade.

My grandparents live off "income generating real estate", and my father is on his way (it's his nest egg for his retirement).

They were not "flipping" properties; rather, they bought good properties when the market wasn't inflated, and rented them, maintaining them and keeping the tentants happy.

It does take some work, not as much as being employed of course, but you have to be on top of things and it takes some mindshare.

There's a real estate bubble here in Uruguay because property rentals pay above-average returns - currently way above average, but market forces are pushing them down as they should, rent is starting to drop as more apartments enter the market.

> maintaining them

What?! How is that consistent with "invest in assets that make money for you without you having to be there"?

Obviously I'm snarking. The idea that you can generate money and do no work is fertile ground for self-help hucksters.

BTW: I've never met any landlord who ever believed that they weren't earning every penny, and who didn' have scars to show for it.

I'm sorry, I didn't want to refute your point, but I do believe that saying that "Income generating real estate is a recipe to hand your money over to scamsters" is too harsh and partially incorrect.

My father goes to his rental property maybe twice per year, so he most definitely isn't "there". He does have to keep it in mind, pay for repairs, and make some phone calls.

I believe that making money of rent is "earning every penny" because he put all his effort before in creating the capital, but, to make a comparison, he makes the same for his maybe one day a month (plus the initial capital) than I do for a month of work.

So I'd describe it as an "asset that makes money for you without you having to be there".

Did you know there are professional property management companies that do much of that work for you?

If the only valid point he has is that passive investments are a good thing, it's not a great personal finance book. You could learn a similar amount by looking up "investment" in a good dictionary.

The 'point' of the book is that this contradicts general beliefs of society. For example, that hard work is what gets one rich. Going from poor to rich does require hard work, but which work you choose to do matters far more than how hard you work at it.

If you read HN then you already understand the premise of the book. But for society writ large "Rich Dad, Poor Dad" was a wakeup call to reexamine core values and life choices.

OK, I get it. It's for people who never have looked up "investment" in a good dictionary.

But that doesn't make it a good book. I mean, you can get that and more off a single page: http://www.dummies.com/how-to/content/personal-finance-for-d...

Or this one: http://www.dummies.com/how-to/content/making-millions-for-du...

or reading "The Intelligent Investor" by Graham - Who is the guy that taught Warren Buffet every thing he knows.

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