Free Money: Why The Rich Get Something for Nothing…And the Poor Don't image

Free Money: Why The Rich Get Something for Nothing…And the Poor Don’t

Why the Rich Get More Free Things Than the Poor

In 1974, Ray Kroc, the founder of McDonald’s, was asked to speak to the MBA class at university of Texas at Austin. My friend was a student in that 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 all had their beers in hand. No one answered, so Ray asked the question again. "What business do you think I am in?”

The students laughed, and finally someone said, “Ray, who in the world doesn't 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.”

Ray knew that his primary business focus was to sell hamburger franchises, but he never lost sight of the location of each franchise. He knew that the 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 the land under the franchise for Ray Kroc’s organization.

Today, McDonald’s is one of the largest owners of real estate in the world, owning some of the most valuable intersections and street corners in the world. And the amazing thing is McDonald's gets all this real estate for free. Their franchises pay for it.

Get a piece of the action with financial education

In the world of the asset column, getting something for nothing is vital to building lasting wealth. Sophisticated investors first ask: "How fast do I get my money back?" They also want to know what they get for free, also called a "piece of the action." That is why ROI, or return on investment, is so important.

For example, I found a small condominium that was in foreclosure a few blocks from where I lived. The bank wanted $60,000, and I submitted a bid for $50,000. The bank accepted my bid because they knew I was serious—I included a $50,000 cashier's check with the bid.

Most investors would say, "Aren't you tying up too much cash? Why not get a loan?" The answer is, "Not in this case."

My investment company uses this condominium as a vacation rental in the winter months when the "snowbirds" come to Arizona. It rents for $2,500 a month for four months of the year. During the off-season, it rents for $1,000 a month. After three years, I had my initial investment back. That was years ago. Today, I get money each month in my pocket and the money I spent to buy the condominium has been returned many times over.

I got my money back, still own the condominium, and make money on it every month. Something for nothing.

Isn't that risky?

When I talk about the rich getting something for nothing through smart investing, I'm always asked, "Isn't that risky?" The answer is yes and no.

True, I have lost money on many occasions, but I only play with money I can afford to lose. I would say, on an average of 10 investments, I hit a home run with two or three, while five or six do nothing, and I lose on two or three. But I limit my losses to only the investment I have in the deal at the time—money I can afford to lose.

If you don't like risk, you're better off putting your money in the bank for long-term savings. It's better than nothing, though you make next to nothing. It takes a long time to get your money back, and you generally don't get anything free with it.

Financial freedom

On every one of my investments, there must be an upside, something for free—like a condominium, a mini-storage, a piece of free land, a house, stock shares, or an office building. Getting "a piece of the action," something for free, is essential to attaining financial freedom. I also look for limited or low-risk ideas. I only want to lose the money I'm willing to lose, not a penny more.

Wise investors look for more than just ROI. They look at the assets they get for free once they get their money back. That is financial intelligence, and that is why the rich get more free things than the poor.

Check out Rich Dad’s free, financial education community here for more information.

Original publish date: February 26, 2013