How Does “Rich Dad” Define Cash Flow?

Author Robert Kiyosaki, inspiration to many people, often speaks of cash flow. He says that if a property is negatively cash flowing, how many of them can you afford? And if a property is positively cash flowing how many of those can you afford? What he doesn’t allude to until later in his series of books is how he defines “cash flow”.

In his book “Rich Dad’s Prophecy” Kiyosaki actually defines what he means by the term ‘cash flow’. He says there are 4 quadrants to cash flow: rental income, tax deductions, depreciation and appreciation. The only problem with the definition is for some of the newer investors. Many new investors are only focusing on the first quadrant: rental income. All too many get scared right out of the game because they don’t take into account the other 3 quadrants, and that’s where most of your money in real estate will be, not in rental income!

Sure, I have properties that cash flow a couple hundred a month. I also have properties that negatively cash flow a couple hundred a month. The real money is how much I save at tax time and the value of the appreciating real estate. If my properties all had a slow year, they may only appreciate $50,000 in that year. Compare that to the couple hundred here or there in rental income – no competition. Add another $25,000 depreciation (what Kiyosaki calls ‘phantom cash flow’) and thousands more from all the deductions, more likely tens of thousands. Based on that, do I worry much about monthly cash flow?

Nope!