Rich dad poor dad buying a house

For generations past, home ownership was a significant rite of passage that signaled stability, commitment, and, often, prosperity.

But, in this as in so many other cases, millennials are different.

As of 2015, adults under age 35 made up 19 percent of U.S. households but less than 10 percent of homeowners, according to a report released by Harvard University's Joint Center for Housing Studies. In fact, in 2015 home ownership for that group fell to a historic low of 31 percent.

Entrepreneur and bestselling author Tony Robbins says that, while millennials might be missing out on the social upsides of home ownership, real estate is not the best investment they could be making.

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"One of the weakest performers [is] your own personal real estate, because it doesn't provide much income," Robbins says. "It's an inflation hedge. You do a little better than inflation, and you can have your own home, so there's a psychological, emotional benefit."

Instead, millennials in a position to buy property should be considering how to do so in a way that will provide them additional cash flow, he says.

"If you can own real estate, real estate with an income is the one [form of] real estate that's more valuable," says Robbins.

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Opinions on the imperative of millennial home ownership vary.

Self-made millionaire Grant Cardone tells CNBC that home owners are forced to continue to spend unceasingly, and that he regrets buying a house at age 30.

"Unless you have 20 million bucks in the bank, in cash, you have no business buying a house," says Cardone.

In personal finance classic "Rich Dad Poor Dad," author Robert Kiyosaki notes that houses should be viewed as a liability, as opposed to an asset, and points out that it's not a given that a home will appreciate in value.

"I am not saying don't buy a house. What I am saying is that you should understand the difference between an asset and a liability," Kiyosaki writes. "When I want a bigger house, I first buy assets that will generate the cash flow to pay for the house."

Robbins emphasizes that real estate investing doesn't need to entail keys and a welcome mat.

"You can [invest] through a REIT. You don't have to buy everything, you get a piece of all these things," Robbins says.

But whether millennials choose to spend their nest egg on a nest, or begin focusing on a portfolio instead, Robbins says the worst mistake is making no investment at all: "The most important thing, I think, for millennials, is to get in the game."

Video by Richard Washington

See why Robbins says that to be successful, you need to avoid these three mental traps

The rich don’t work for money; they have money work for them - Rich Dad Poor Dad 

This concept is the heartbeat of the philosophy laid out in Robert Kiyosaki’s renowned book Rich Dad Poor Dad. The idea of passive income - of making your money make more money for you -  is what sets real estate investing apart as arguably the most powerful wealth building tool in existence. 

With over 32 million copies sold in 59 languages across 109 different countries, Rich Dad Poor Dad (RDPD) is the #1 personal finance book of all time! It’s no wonder that scores of real estate investors, when asked what book inspired them most to get started, name this book as catalyst for their investing career. This book offers invaluable insights through anecdotal lessons regarding work, money, time, skills and investing. Kiyosaki also challenges conventional “wisdom” by addressing the underlying factors at play in our motives and psyche towards our finances. If you’ve not read this book, I implore you to do so immediately. And if you have read it, reread it ASAP! This is a book that will radically reshape your thinking and redirect the course of your life if you apply its principles. 

I’m going to break down the first eight chapters of the book and highlight some of the main teaching points that will directly impact your mentality and actions towards real estate investing. 

The chapters: 

1. The rich don’t work for money 

   • People’s lives are controlled by fear, greed or both. The fear of not having money motivates many people to work hard, oftentimes at jobs they hate. When they get paid, their greed sets in on how they can spend their money on their vices. 

     1. Overcoming the emotions of fear and greed is paramount to your real estate investing endeavors. If you play into your fear, it can cripple you from ever getting started. Or, you might get started, but at the first bump in the road call it quits. Odds are if you’re thinking of getting into investing, you’ve begun to put greed to rest. Hopefully you realize that investing requires sacrifice and resisting the impulse of instant gratification. Real estate investing is a people business, and most people can perceive when someone is acting out of greed in their dealings. In order to be successful you will need to surround yourself with competent, good character individuals. If you’re greedy, they’re not likely to stick around and help you. 

   • Most people who claim to be uninterested in money also resent the fact that they have to work eight plus hours every day to make money. 

     1. Because money is a necessity of life, anyone who tells you they don’t care about money is only fooling themselves. There is a difference between contentment (a good quality) and apathy (a bad quality). It is a good desire to have enough money to not only provide for your family, but to live an enriched life - however you might define it. And when you possess this desire, you can then assess your current system of generating income, and begin to identify more efficient methods of building wealth. 

2. It’s not how much money you make. It’s how much money you keep 

   • Understand (Real estate) tax laws (54) 

   • Rich people acquire assets, while the poor and middle class acquire liabilities that they mistake for assets, i.e. a house (59-61)

     1. You must know the difference between an asset and a liability, and buy assets. Real estate is one of the best investments you can make for the following reasons: 

        1. A great property puts money in your pocket through forced appreciation and cash flow (rent). 

        2. Tax codes, like a 1031 exchange, provides a real estate investor to delay paying taxes on a property that’s sold for a capital gain through an exchange for a more expensive property. As long as you continue trading up in value, you can avoid being taxed on the gains until you liquidate. 

        3. Investing in real estate can keep you from simply working harder for the benefit of others - like most jobs. Acquiring assets (instead of just a bigger paycheck) can empower you to escape the financial struggle of working your whole life for someone else.

3. The rich focus on their asset columns while everyone else focuses on their income statements

   • Ray Kroc, founder of McDonald’s famously said he was not in the hamburger business, but the real estate business. Kroc understood that the land and location of each franchise were the most significant factors of his success. 

   • Keep expenses low, reduce liabilities, and diligently build a base of income producing rental properties. 

4. The history of taxes and the power of corporations 

   • “If you work for money, you give the power to your employer. If money works for you, you keep the power and control it.” 

   • A sound financial IQ is comprised of knowledge of the following four areas (88): 

     1. Accounting: the ability to read and make sense of numbers

     2. Investing: the science of money making money 

     3. Understanding markets: the science of supply and demand. A $75,000 house offered for $60,000 that cost $20,000 is the result of seizing a market opportunity. 

     4. The law: awareness of accounting corporate, state and federal regulations. Know and follow the rules to avoid unnecessary fees - and prison. 

        1. Tax advantages

           1. A corporation can do many things that an employee cannot, like spending money on pre-tax expenses (company cars, gas, travel, insurance, etc.). 

           2. An employee earns and gets taxed, living on what’s left. A corporation earns, spends everything it can, and is taxed on what’s left. 

        2. Protection from lawsuits. You can utilize the law to protect your assets by controlling everything, but owning nothing. 

        3. As your real estate investment portfolio grows, it is in your best interest to explore the benefits of establishing an LLC (limited liability corp.) so that you can avoid certain taxes and protect your assets.

5. The rich invent money - you need courage as well as competence to get ahead in this world. 

   • For the poor, old ideas and methods, and the fear of change are their biggest liability. Limiting your options, through a lack of financial intelligence, has the same detriment as clinging to old ideas. The rich don’t sit around and wait for opportunity to fall into their laps; they make their own luck through education and resourcefulness. Analysis paralysis is like waiting for all the traffic lights to turn green for five miles before you start your trip. At some point you have to overcome come to terms with not knowing everything before you make your first move. 

   • Financial intelligence involves the ability to create as many solutions to a problem in order to create wealth. The rich realize that their single most valuable asset is their mind.

     1. By training your mind well, taking advantage of fantastic free resources (books, podcasts, articles, videos), you increase your potential to create enormous wealth through real estate investing. 

   • The rich use their (or other people’s money) to create more money: 

     1. Kiyosaki illustrates an example of a wholesale deal in which he used a $2,000 loan from a friend for a down payment on a house worth $75,000 that he purchased for $20,000 - and later sold for $60,000. Using a promissory note from his buyer, he was able to create $40,000, much of which he sheltered from taxes through his private corporation. 

   • On the relationship between real estate investing and the stock market: “I love real estate because it’s stable and slow-moving… the cash flow is fairly steady and, if properly managed, has a good chance of increasing in value. The beauty of a solid base of real estate is that it allows me to take greater risks, as I do with speculative stocks” (109). 

   • In response to people’s assertion that certain areas don’t have good real estate deals, Kiyosaki counters by saying, “Great opportunities are not seen with your eyes. They are seen with your mind. Most people never get wealthy simply because they are not trained financially to recognize opportunities right in front of them” (110). 

   • Kiyosaki on overcoming analysis paralysis: “Most people never win because they’re more afraid of losing… In school we learn that mistakes are bad, and we are punished for making them. Yet if you look at the way humans are designed to learn, we learn by making mistakes… Failure is part of the process of success. People who avoid failure also avoid success” (110, 111). Many people fail to make their first real estate deal because they’re afraid to fail. But failure is not only inevitable, but necessary in the process of learning and growing. It’s been said that people learn more from failure than success, and yet so many people refuse to let themselves fail by taking a risk. What they fail to realize is that they are missing out on many life changing opportunities. 

   • Kiyosaki identifies two main types of investor: 

     1. “Clean investor,” i.e. those who buy packaged investments (REIT, mutual fund, stock, etc.). Analogous to a shopper buying a computer off the shelf. 

     2. “Creative investor,” i.e. those who can put a deal together by connecting different opportunities. Analogous to someone who buys computer parts and builds the computer themselves. Being a creative investor allows you to create huge wins, but it requires three main skills: 

        1. Find the opportunities others missed. You must be able to see past a run down, undesired property, and perceive the underlying potential. You must be adroit to overcome obstacles and consider all available options. 

        2. Raising money: creative investors need to know how to raise capital, and attain financing through more suppliers than the bank. They know how to purchase great deals oftentimes with little to none of their own money down. 

        3. Organize smart people: creative investors know they’re not experts in every facet of real estate investing. So instead of faking it, they identify and work with smarter people than themselves.

6. Work to learn - don’t work for money 

   • Being an expert will make you very good at one specific job, but job security is never guaranteed. You want to know a little about a lot. Learning new skills not only grows you as a person, but makes you much more marketable. 

   • Investing in real estate will force you to learn many new skills, including negotiation, sales, marketing, networking, business management, leadership, entrepreneurship and much more. 

   • If you just want a job, don’t get into real estate investing. If you want a lifetime of learning and the opportunity to work hard for financial independence, then real estate investing may be for you. 

   • The main management skills needed for success are: 

     • Management of cash flow: before buying a property, you need to have an accurate understanding of its monthly cash flow. You also need to know what factors you can affect to increase cash flow. 

     • Management of systems: technology allows for much of the work in real estate investing to be automated. Having an infrastructure of established systems will make rent collection, maintenance requests, property management, lead generation, and other aspects much more manageable. 

     • Management of people: from tenants, to contractors, accountants and more, real estate investing involves the management of people. Learning to manage and clearly articulate your expectations to others is paramount to your success. You are not trying to outwit or manipulate others into doing what you want; rather, you must strive to add value to others in the quest of achieving your dreams.

7. Overcoming the obstacle of fear

   • “There are five main reasons why financially literate people may still not develop abundant asset columns that could produce a large cash flow: (1) fear (2) cynicism (3) laziness (4) bad habits (5) arrogance

   • Perhaps the greatest barrier of entry to real estate investing is not money, but fear, mainly the fear of losing money. 

   • “For most people the reason they don’t win financially is because the pain of losing money is far greater than the joy of being rich” (131). 

   • “The greatest secret of winners is that failure inspires winning; thus, they’re not afraid of losing” (133). In real estate investing you need to be more afraid of looking back on a life of inaction and “what ifs” than you do of failure. You will fail. But you can turn failure into learning and inspiration, and ultimately success. 

   • There is a difference between playing it smart and playing it safe. You can achieve success only through calculated risk. 

     1. “Balanced people go nowhere. They stay in one spot. To make progress you must first go unbalanced, you must take your first step” (133). “If you have the desire to be rich, you must FOCUS: Follow One Course Until Successful 

   • You will have to overcome your own cynicism, others’ cynicism, or both. Others may be cynical towards your investing aspirations because they’re jaded by their own failure, or because they’re just plain ignorant. People who are cynical and don’t pursue their own dreams hate hearing about those who are pursuing their dreams 

   • Saying “I can’t afford it” is just an excuse to be lazy. Asking the question, “How can I afford it?” opens up possibilities, excitement and dreams (140). 

8. Getting Started 

   • 10 steps to develop your God-given powers

     1. Find a reason greater than reality: the power of spirit. Identify your most deep seated desires for your ideal life, and use them as the motivation to do whatever you need to achieve success and never settle for less 

     2. Make daily choices: the power of choice. Choose to acquire real assets. Every day we have the choice of what we do with our time, money and what we put in our minds. That is the power of choice

     3. Choose friends carefully: the power of association. Surround yourself with positive, intelligent individuals who want success for themselves and others. Refuse to listen to poor or frightened people. Ultimately be true to yourself and willing to swim against the current towards success. Choosing the path of greater resistance is the road less traveled, and oftentimes the path to true reward and greatness. 

     4. Master a formula and then learn a new one: the power of learning quickly. When it comes to money, the masses have one basic formula they learned: work for money. In today’s world of readily available information and every evolving systems, learning fast is a priceless skill. 

     5. Pay yourself first: the power of self-discipline. 

        1. Don’t get into large debt positions that you have to pay for. Keep expenses low, and build assets first. 

        2. When you come up short, use the pressure to inspire your financial genius to come up with new ways of making more money, and then pay your bills. In this you will have increased your ability to make money as well as your financial intelligence. 

     6. Pay your brokers well: the power of good advice. A great broker who saves you time and money is worth being generously compensated. Be an Indian giver: the power of getting something for nothing. The sophisticated investor’s first question is: “How do I get my money back?” Wise investors look at more than ROI; they look at assets acquired for free once they get their money back. 

     7. Use assets to buy luxuries: the power of focus.  

     8. Choose heroes: the power of myth. Find heroes who have already achieved your dreams and copy them. There’s no need to reinvent the wheel. Many more people are smarter and more successful than you. Learn what they did and do it. 

     9. Teach and you shall receive: the power of giving. What you receive, make available to others. Little helps you learn more than teaching others what you know. The more you teach, the more you’ll want to learn. When you pass on what you know, a torrent of new ideas and finer distinctions will come in.
        
        

Conclusion: while not explicitly a real estate investment book, RDPD is so much more because it identifies the many misconceptions people have towards money, work, risk, investing, etc. By understanding and applying this philosophy to your own work and personal finance, you can begin to work to achieve a strong real estate portfolio. This truly is a book to come back to time and time again as a north star on the journey to financial independence. 

What does Rich Dad Poor Dad say about real estate?

What does Rich Dad Poor Dad say to invest in?

Why is a house not an investment?

Why is a house a liability and not an asset?