Comments on: An Infinite Return On Investment Is Impossible, Even In Real Estate http://amateurassetallocator.com/2009/06/29/an-infinite-return-on-investment-is-impossible-even-in-real-estate/ Amateur Asset Allocator Tue, 22 May 2012 02:58:13 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Kyle http://amateurassetallocator.com/2009/06/29/an-infinite-return-on-investment-is-impossible-even-in-real-estate/comment-page-1/#comment-17187 Kyle Mon, 03 Oct 2011 01:53:08 +0000 http://amateurassetallocator.com/?p=1825#comment-17187 CS, I am not confusing the issue. An infinite Return on Investment means infinite money. I made that statement as a way to highlight the ridiculousness of what Kiyosaki said. No, the ROI is NOT technically infinite if no cash is required. That is mathematically impossible. That's like insisting that 2+2=5. It doesn't and never will be. ROI refers to the return on your CAPITAL. Not all capital is monetary or represented by cash. To believe otherwise is to lie to yourself. Since time is money, time investment MUST be factored into any business endeavor, including investing in real estate, to get a true picture of how well you're doing. That's exactly why mutual funds are so popular: they don't require any time or effort! CS, I am not confusing the issue. An infinite Return on Investment means infinite money. I made that statement as a way to highlight the ridiculousness of what Kiyosaki said. No, the ROI is NOT technically infinite if no cash is required. That is mathematically impossible. That’s like insisting that 2+2=5. It doesn’t and never will be.

ROI refers to the return on your CAPITAL. Not all capital is monetary or represented by cash. To believe otherwise is to lie to yourself. Since time is money, time investment MUST be factored into any business endeavor, including investing in real estate, to get a true picture of how well you’re doing. That’s exactly why mutual funds are so popular: they don’t require any time or effort!

]]> By: CS http://amateurassetallocator.com/2009/06/29/an-infinite-return-on-investment-is-impossible-even-in-real-estate/comment-page-1/#comment-17180 CS Sun, 02 Oct 2011 00:05:25 +0000 http://amateurassetallocator.com/?p=1825#comment-17180 You are confusing several issues. Firstly you're confusing the value of the return with a ratio. Kiyosaki is saying that he receives an infinite Return On Iinvestment, not infinite money. ROI is the ratio of annual returns to the cash required to hold the investment. If no cash is needed, and the annual return is positive then the ROI is technically infinite, even though the earnings may only be one dollar. Secondly you are confusing the definition of ROI which does not calculate investment of time. The I part of ROI specifically refers to money, not time. Those who confuse the two have not studied it, and are not using the definition used by investors. Also I notice some people are suggesting that a job can somehow be an investment. But an investment results in returns that go on after you stop physically being productive. Working in itself is not an investment. If you build something which is productive after you stop working on it, then you have an investment. You are confusing several issues. Firstly you’re confusing the value of the return with a ratio. Kiyosaki is saying that he receives an infinite Return On Iinvestment, not infinite money. ROI is the ratio of annual returns to the cash required to hold the investment. If no cash is needed, and the annual return is positive then the ROI is technically infinite, even though the earnings may only be one dollar.

Secondly you are confusing the definition of ROI which does not calculate investment of time. The I part of ROI specifically refers to money, not time. Those who confuse the two have not studied it, and are not using the definition used by investors.

Also I notice some people are suggesting that a job can somehow be an investment. But an investment results in returns that go on after you stop physically being productive. Working in itself is not an investment. If you build something which is productive after you stop working on it, then you have an investment.

]]> By: mike http://amateurassetallocator.com/2009/06/29/an-infinite-return-on-investment-is-impossible-even-in-real-estate/comment-page-1/#comment-15434 mike Fri, 20 May 2011 21:47:28 +0000 http://amateurassetallocator.com/?p=1825#comment-15434 If you could do that deal over and over again, which theoretically you can, you are not limited by time. Of course, to be able to acheive that deal does take time. I don't think Kiyosaki has ever downplayed the need for financial education and that it is a lifelong process, and that his advice is not for the average person. His only advice for the average person is "don't be average". many people looking to get rich quick just have a tendency to overlook some of these things. The vast majority will never put in the work to even come close to be able to invest like Kiyosaki. I mean he has a publishing business that can bring in lots of genius investors that also have careers in other area, form a corperation with those people working with him instead of costing expenses they share in the actual investment. So he pays $0 in management, in fact Ken McKelroy the manager of his properties puts his own money down along with kiyosaki so that they have more deals available to them. Normally what Kiyosaki advizes would be a huge expense and make positive cash flow very difficult, which is why not only "forming a team" of people that are also investors, but actually structuring that team as a corperation and pooling money and using their services for free rather than eat up expenses until positive cashflow disappears is crutial! Kiyosaki takes the time finding the deals, but many deals come to him because of relationships he has with bankers and lawyers that can give him deals that never hit the public. Overtime his actions compounds, but he dedicated the first half of his life to investing and now he is dedicating it to teaching. If you could do that deal over and over again, which theoretically you can, you are not limited by time. Of course, to be able to acheive that deal does take time. I don’t think Kiyosaki has ever downplayed the need for financial education and that it is a lifelong process, and that his advice is not for the average person. His only advice for the average person is “don’t be average”. many people looking to get rich quick just have a tendency to overlook some of these things.

The vast majority will never put in the work to even come close to be able to invest like Kiyosaki.
I mean he has a publishing business that can bring in lots of genius investors that also have careers in other area, form a corperation with those people working with him instead of costing expenses they share in the actual investment. So he pays $0 in management, in fact Ken McKelroy the manager of his properties puts his own money down along with kiyosaki so that they have more deals available to them. Normally what Kiyosaki advizes would be a huge expense and make positive cash flow very difficult, which is why not only “forming a team” of people that are also investors, but actually structuring that team as a corperation and pooling money and using their services for free rather than eat up expenses until positive cashflow disappears is crutial!

Kiyosaki takes the time finding the deals, but many deals come to him because of relationships he has with bankers and lawyers that can give him deals that never hit the public. Overtime his actions compounds, but he dedicated the first half of his life to investing and now he is dedicating it to teaching.

]]> By: mike http://amateurassetallocator.com/2009/06/29/an-infinite-return-on-investment-is-impossible-even-in-real-estate/comment-page-1/#comment-15433 mike Fri, 20 May 2011 21:39:52 +0000 http://amateurassetallocator.com/?p=1825#comment-15433 The idea is that the amount you make is not limited by the amount of cash you have. Not limited by cash is an infinite return on capital, but not on other expenses such as time. The idea is that the amount you make is not limited by the amount of cash you have. Not limited by cash is an infinite return on capital, but not on other expenses such as time.

]]> By: Kyle http://amateurassetallocator.com/2009/06/29/an-infinite-return-on-investment-is-impossible-even-in-real-estate/comment-page-1/#comment-13340 Kyle Wed, 19 Jan 2011 21:56:21 +0000 http://amateurassetallocator.com/?p=1825#comment-13340 No. No.

]]> By: Bob http://amateurassetallocator.com/2009/06/29/an-infinite-return-on-investment-is-impossible-even-in-real-estate/comment-page-1/#comment-13339 Bob Wed, 19 Jan 2011 21:48:51 +0000 http://amateurassetallocator.com/?p=1825#comment-13339 Why so serious bro? Math is just a tool to help humans conquer nature, right? Why so serious bro? Math is just a tool to help humans conquer nature, right?

]]> By: Matt http://amateurassetallocator.com/2009/06/29/an-infinite-return-on-investment-is-impossible-even-in-real-estate/comment-page-1/#comment-4356 Matt Thu, 09 Jul 2009 02:27:48 +0000 http://amateurassetallocator.com/?p=1825#comment-4356 An infinite return DOES mean that you get infinite money if you ignore the practical element of the situation. In your arguement you point to the practical when it suits your arguement but fail to notice where it doesn't. ROI as a metric in inherently flawed for this type of debate because it assumes linearity across all levels of investment. If instead I said given an investment you got a 10% ROI then you'd expect to get $1 if you invested $10, or $10 if you invested $100. However, even in the real world this doesn't hold up for ANY investment. If I invest $1 trillion in a particular stock, I will not earn 100 billion because by that point I will either have exceeded the possible number of shares to own, or completely altered the financial situation that the ROI was based upon. On the opposite extreme it is doubtful I'd be allowed to purchase a stock at 1 cent or less...and if I did my 0.1 cent return would probably be rounded away into oblivion. However, if you took the ideal case of a company with infinite shares, with unlimited growth potential, then I should expect my ROI of 10% to hold up at any level. In the same way, if unlimited real estate was available for no money down, I could conceivably get infinite money. So yes, the text book ROI is definitely infinite...but does not define real world outcomes, anymore than a 10% ROI says anything about an investment as it approaches bounds of practical extremes. An infinite return DOES mean that you get infinite money if you ignore the practical element of the situation. In your arguement you point to the practical when it suits your arguement but fail to notice where it doesn’t.

ROI as a metric in inherently flawed for this type of debate because it assumes linearity across all levels of investment. If instead I said given an investment you got a 10% ROI then you’d expect to get $1 if you invested $10, or $10 if you invested $100. However, even in the real world this doesn’t hold up for ANY investment. If I invest $1 trillion in a particular stock, I will not earn 100 billion because by that point I will either have exceeded the possible number of shares to own, or completely altered the financial situation that the ROI was based upon. On the opposite extreme it is doubtful I’d be allowed to purchase a stock at 1 cent or less…and if I did my 0.1 cent return would probably be rounded away into oblivion.

However, if you took the ideal case of a company with infinite shares, with unlimited growth potential, then I should expect my ROI of 10% to hold up at any level. In the same way, if unlimited real estate was available for no money down, I could conceivably get infinite money.

So yes, the text book ROI is definitely infinite…but does not define real world outcomes, anymore than a 10% ROI says anything about an investment as it approaches bounds of practical extremes.

]]> By: Kyle http://amateurassetallocator.com/2009/06/29/an-infinite-return-on-investment-is-impossible-even-in-real-estate/comment-page-1/#comment-4353 Kyle Wed, 08 Jul 2009 16:38:59 +0000 http://amateurassetallocator.com/?p=1825#comment-4353 Paul, thanks for pointing that out. Even if you put zero down, you still definitely need to hold cash in reserve to take care of unexpected expenses, which for all practical purposes is a form of "down payment" anyway. Returns in real estate can be large, but you've got to be realistic. Espousing "infinite returns" is irresponsible, in my opinion. Paul, thanks for pointing that out. Even if you put zero down, you still definitely need to hold cash in reserve to take care of unexpected expenses, which for all practical purposes is a form of “down payment” anyway. Returns in real estate can be large, but you’ve got to be realistic. Espousing “infinite returns” is irresponsible, in my opinion.

]]> By: Joe http://amateurassetallocator.com/2009/06/29/an-infinite-return-on-investment-is-impossible-even-in-real-estate/comment-page-1/#comment-4349 Joe Wed, 08 Jul 2009 05:54:49 +0000 http://amateurassetallocator.com/?p=1825#comment-4349 Nicely written and explained article. Nicely written and explained article.

]]> By: Paul http://amateurassetallocator.com/2009/06/29/an-infinite-return-on-investment-is-impossible-even-in-real-estate/comment-page-1/#comment-4348 Paul Wed, 08 Jul 2009 01:10:56 +0000 http://amateurassetallocator.com/?p=1825#comment-4348 Obviously, no one can get infinite returns. I've done some "no money down" deals and in truth I've always had to come up with cash. Investment property requires cash for unexpected expenses. If you don't have any cash for a down payment, it's likely that if you lose a tenant for a long period or need a new roof you can be in deep trouble. Some people seem to think that if they buy property for no money down, that they can walk away if there are problems without any consequences. But if you default on a mortgage, consider your credit score. What is the return for the next seven years when you are paying a premium for any money you try to borrow? Maybe, it's a negative infinite return :) Obviously, no one can get infinite returns. I’ve done some “no money down” deals and in truth I’ve always had to come up with cash. Investment property requires cash for unexpected expenses. If you don’t have any cash for a down payment, it’s likely that if you lose a tenant for a long period or need a new roof you can be in deep trouble.

Some people seem to think that if they buy property for no money down, that they can walk away if there are problems without any consequences. But if you default on a mortgage, consider your credit score. What is the return for the next seven years when you are paying a premium for any money you try to borrow? Maybe, it’s a negative infinite return :)

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