How do I get the money to invest?
As you indicate, there are two basic sources of money for investing--your own money and other people's money (so-called OPM). Your own money can come from sources as diverse as cumulative life savings, your most recent paycheck, and dividends and profits from your own investing. Common examples of OPM, used for both investing and consuming, are credit card debt, car loans, real estate mortgages and loans or investment capital that can come from family, friends and others in partnerships.
Getting Started With Your Own Money
Often in life, what's most important is getting started on the right foot. In the case of investing, this means putting some money aside, however small, and setting up a suitable investment program for yourself.
To extract "seed capital" for investing, the place to start is with your own personal income statement. You need to arrange your personal finances, so that your income from all sources exceeds your total expenditures. Practically speaking, this usually entails a combination of elements such as:
The point is that you've got to figure out a way to save some money that will serve as the "seed" to start investing. You might think that $100 or $1000 is "small money," particularly if your financial dream is to become a millionaire, multi-millionaire or billionaire. However, for the sake of your own long-term financial health, you must, as early as possible, establish personal habits that are conducive to wealth-building. In my opinion, successful investing really begins with having the discipline to "live within your means," spending less than you earn and thereby continually augmenting your investment capital. Once you are a prudent manager of your own personal money, you can begin to supplement your investment portfolio with other's people's money.
Using Other People's Money
Having access to sources of money other than your own, which typically means borrowing or using OPM to leverage your own capital, can potentially produce higher investment returns. Some authors (like Kiyosaki, as you cite) make a distinction between: "good debt," like a mortgage on rental property, which can be serviced using rent paid by tenants; and "bad debt," like an auto loan, which you might take out on a new car and now have to service with your own money. Others distinguish between good debt on appreciating assets, like real estate and stocks, and bad debt on depreciating assets, like cars and elegant wardrobes. Still another useful point of view is that good debt produces cash flow, while bad debt does not.
To these dichotomies between good and bad, I would add a measure based on lowest cost of capital:
Good debt is necessary borrowing within reasonable risk limits at the lowest available cost of capital, regardless of source, so long as the expected return on your overall investment portfolio exceeds your cost of capital. Bad debt is borrowing that doesn't meet the specified good debt requirements.
Here are some examples to help illustrate:
My suggestion: Continue to save what you can from your paychecks. In a year's time, when you have a few thousand dollars more in savings, reconsider making the proposed investment if you still have the same outlook on Apple's business prospects. Neither the 10% private-party loan nor the 18% credit card loan is attractive, since your investment return could easily fall shy of these levels if Apple's sales or earnings falter or the stock market sags on unencouraging macroeconomic news. Also, you ought to maintain a few months' living expenses in your savings account, as a buffer against unpredictable changes in your job situation. Be patient. During the upcoming year, you might find even better investment opportunities than what you are seeing today.
My suggestion: Assuming you are comfortable with the additional portfolio leverage and have adequate cash flow to cover the debt service payments, take out the auto loan, since at 7% it is your lowest available cost of capital and is lower than the 10% return you expect on your investments. Think of the auto loan as not a wasteful loan on a depreciable asset but as your most efficient way to borrow funds within the context of your overall portfolio.
My suggestion: Even though the home equity line directly involves payments that you will have to make on your house instead of on the apartment investment, it is your lowest available cost of capital. Therefore, go ahead and tap the equity line on your house, and proceed to make a back-to-back loan into your investment property with terms matching your home equity loan. By effectively transferring the financial burden from your house to your investment property in this way, you achieve your lowest cost of capital and optimize your expected investment return on an overall portfolio basis.
Crossing the Finish Line
Investment capital, then, comes from a combination of your own money and other people's money, with the mix depending on your situation. A few key tenets to keep in mind are:
I think it is helpful to view investing as a life-long race in which you lead with your own money and add, as follow-on, other people's money when you can do so prudently. Relying solely on your own money, you may end up growing your net worth more slowly but you'll never go bankrupt and you will finish the race. At the other extreme, relying too much on OPM, you could grow rich quickly, but you also run the risk of losing it all and never crossing the finish line. Ultimately, the art of successful investing involves pursuing the optimal path at each stage, walking the fine line between too conservative and too aggressive.