By Cliff Ennico
“I am really excited about becoming a real estate investor. I have read all of Robert Kiyosaki’s ‘Rich Dad, Poor Dad’ books, and he makes a compelling case that real estate investment is a great way to get rich!
But I’m sure there’s a lot more to that. Could you please offer some guidance on how someone like me with limited capital can get started in the real estate business?”
Robert Kiyosaki’s “Rich Dad, Poor Dad” series of books, launched in 2000, are among the most popular and frequently-read books on entrepreneurship in the world today. Written as a series of parables or stories taken from the author’s life, they advocate financial independence and building wealth through investing, real estate investing, starting and owning businesses, as well as increasing your financial intelligence to improve your business and financial aptitude. Throughout the author stresses the ownership of high value assets that produce cash flow, rather than being an employee.
Confession #1: I have read each and every one of these books. For people who are clueless about how to manage their financial lives, the books are a great and fun way to start.
Confession #2: the books aren’t bad at all. The author’s emphasis on cash flow, rather than earnings and profits in the accounting sense, is a lesson many seasoned entrepreneurs don’t learn until it’s often too late.
But the books have also created an entire generation of wannabe entrepreneurs who think that it’s easy to invest in real estate. Just about every week I meet somebody who wants to “get into real estate investing” after finishing one of Kiyosaki’s books on the commuter train.
The hard and painful truth is that succeeding in real estate is a lot more complicated and fraught with risk than the “Rich Dad, Poor Dad” books make it seem.
Real estate is a very simple business. You buy a property and take a mortgage out on it, just as you would with your own home. You then rent the property out to one or more tenants. The tenants pay rent each month (you hope), you pay the operating and maintenance expenses of the property, pay the mortgage with interest each month, and live on whatever is left over. If there is anything left over.
As Kiyosaki correctly points out, to do this successfully you must watch your cash flows like a hawk. It will be difficult to maintain a positive cash flow at all times if you own only one property. If even one tenant fails to pay rent on time, or if a leaky furnace or HVAC unit needs to be replaced without warning, your cash flow will quickly go negative and you will be facing a foreclosure notice from the mortgage bank.
Simply put, real estate investing is not a “passive” activity where you just sit back and the money rolls in. You will need to work extremely hard, and perhaps own multiple properties, before you see the returns on investment Kiyosaki talks about.
This reader needs to become thoroughly familiar with the law, economics and language of real estate. The first step is to read – and practice the exercises in – one of the many textbooks used for real estate classes in college and M.B.A. programs.
For many years, the essential textbook in this field was “Real Estate” by James D. Shilling (formerly known as “Ring and Dasso”). It has not been updated in several years, but is still mostly accurate and can be obtained very cheaply on Amazon. More recent entries in this field are “Real Estate Principles: a Value Approach” by David Ling and Wayne Archer, “Real Estate Finance and Investments” by William Brueggeman and Jeffrey Fisher, and “Practical Real Estate Law” by Daniel Hinkel.
Stay away from books with “Real Estate Development” in the title. These are focused primarily on building, renovation and construction projects. Most real estate “players” are investing in existing properties, not building new ones.
If you do not have enough capital to invest in properties, you will need to form pools or “syndicates” of investors and learn to manage those pools as their fiduciary. The leading books here are “Principles of Real Estate Syndication” by Samuel Freshman and “Real Estate Securities” by Mark Lee Levine and Philip Feigin. But better than any book would be to hire a lawyer who specializes in real estate securities and have him or her coach you through the process.
Finally, if you do not have enough capital to hire a “property manager” for your properties (which eat big time into your cash flow), you are a “landlord”. Just like Snidely Whiplash. To keep expenses under control, you will have to do everything yourself. The classic book is “Landlording” by Leigh Robinson.
Being a “real estate investor” sounds sexy, but not when you’re unplugging clogged toilets at 3 a.m. Somehow Kiyosaki’s “Rich Dad, Poor Dad” books don’t talk about that much.
Cliff Ennico (email@example.com) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com. COPYRIGHT 2015 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Follow him at @cliffennico.