Rich Dad
 


"Mind your own business"

In 1974, Ray Kroc, the founder of McDonald's, was asked to speak to the MBA class at the University of Texas at Austin. A dear friend of mine, Keith Cunningham, was a student in that MBA class. After a powerful and inspiring talk, the class adjourned and the students asked Ray if he would join them at their favorite hangout to have a few beers. Ray graciously accepted.

"What business am I in?" Ray asked, once the group had all their beers in hand.

"Everyone laughed," said Keith. "Most of the MBA students thought Ray was just fooling around."

No one answered, so Ray asked the question again. "What business do you think I'm in?"

The students laughed again, and finally one brave soul yelled out, "Ray, who in the world does not know that you're in the hamburger business."

Ray chuckled. "That is what I thought you would say." He paused and then quickly said, "Ladies and gentlemen, I'm not in the hamburger business. My business is real estate."

Keith said that Ray spent a good amount of time explaining his viewpoint. In their business plan, Ray knew that the primary business focus was to sell hamburger franchises, but what he never lost sight of was the location of each franchise. He knew that real estate and its location was the most significant factor in the success of each franchise. Basically, the person that bought the franchise was also paying for, buying, the land under the franchise for Ray Kroc's organization.

McDonald's today is the largest single owner of real estate in the world, owning even more than the Catholic Church. Today, McDonald's owns some of the most valuable intersections and street corners in America, as well as in other parts of the world.

Keith said it was one of the most important lessons in his life. Today, Keith owns car washes, but his business is the real estate under those car washes.

Financial Dreams


Two can live more cheaply than one, but saving is not investing. "Rich Dad, Poor Dad" [1] tells us that the main cause of financial struggle is not knowing the difference between an asset and a liability. An asset works for you and puts money in your pocket. A car is an asset for a salesman who visits his clients just as a van is an asset for a builder. Neither is necessarily an asset for a person who works 9-6 in a bank.

A building is definitely not an asset because it deteriorates and takes money every week from your pocket. However, if it is sited in a reasonable location which increases in popularity then the land is an asset which increases in value. This location can then make the building work for you as a "shop", "office" or "rooms to let".

(Thousands of hard working couples trade up in poor or average locations in which case their building can never be made to earn its keep. With interest over 20 years, they will end up paying back £ 200,000 for every £ 100,000 they borrow plus council tax and bus and tram fares to travel from their "average" locations to a "better" location where their job is.) The rich compete to buy property in the "best" locations for this reason.

Good, best, and top rate locations i.e. districts in cities are like bright stars in the sky. They pulse energy. They vibrate invisible connections (with respect to finance, social and business introductions) and visible connections (shops, clean streets, parks or gardens, access to range of services, schools, healthcare and transport and jobs, jobs, jobs).

Therefore who in their right mind would choose a secondary location with poor connections to live in? It comes down to AFFORDABILITY.

But if some locations are a lot cheaper, how come they do not improve automatically over time. After all, this is what enthusiasts for the free market say will happen. Lower property prices should attract fresh owners, talent and investment.

However, particularly in secondary locations interference in the free market stops automatic connection renewal taking place. Politicians and their economic advisers have taken control of the points at even local sidings and derailed dozens of freedoms.

Classical economics predicts automatic renewal in cheaper regions if the residents pull their fingers out. A town does not need the cheapest labour in the world to innovate, experiment and fresh goods and services. But to reinvent itself as a market dynamo every town needs either its own market of sufficient size or else easy access to nearby densely populated, large markets. A town with potential new markets should not be exporting its modest savings to distant experts in London for "investment" when renewal opportunities exist at home. Tax slavery beggars small town locals twice over. Firstly, direct and indirect taxes take a higher bite from modest wages than from big city/big wages. Secondly, perverse tax breaks on "Whitehall approved savings plans" encourage the plundering of tens of £ billions every year from thousands of failing towns.

A town is locationally disabled if it can not dynamically reinvent itself . Citizens are marooned in sidings.
For examples of successful town initiatives see COMMUNITIES ARE GOOD FOR YOU.

 

 

 

 

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Source:
[1] Kiyosaki, R.T with Lechter, S.L. (1999).  Rich Dad Poor Dad – What The Rich Teach Their Kids About Money – That The Poor Do Not! Tech Press Inc.
[2] Jacobs, J. (1985 ).  Cities and the Wealth of Nations. First Vintage Books Edition.