← Rich Dad Radio Show: In-Your-Face Advice on Investing, Personal Finance, & Starting a Business
Rich Dad Radio Show: In-Your-Face Advice on Investing, Personal Finance, & Starting a Business
How to Avoid Real Estate Disasters
00:19:09
Buying real estate without a plan is a recipe for disaster. In this episode, Robert Kiyosaki shares the proven strategies he uses to avoid costly mistakes—and why most investors fail. You’ll learn: -The key planning steps before buying any...
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This is the Rich dad radio show. The good news and bad news about money. Here's Robert Kiyosaki.
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Hello, this is Robert Kiyosaki and I'm very happy, excited and I'm gonna be talking today about real estate. Right now you have got to be smarter no matter what you do today. Cause this market is an all time high. It doesn't mean that I have stopped buying. I'm still buying. My partner Ken McElroy and I, we bought a property in Austin, Texas. It was $31 million. Beautiful property. But we had to be smarter. We had to work harder. And the reason we could buy a $31 million property is because Kenny is also a builder. So he can take the property, take it from 31 million and step it up to 45 million. Let me say that again. Bought it for 31 million but our plan is to take it to 45. That's our plan. That's how we're going to make our money. So it depends upon what skills can you take a property and fix it. So I'm going to show you what I think is the most important thing for right now is this. All of us, Aussie or American or whatever, rich or poor, smarter, stupid, male or female, we all have four intelligences. There's mental, emotional, physical and spiritual intelligence. So in today's market, with markets at all time highs, you've got to be smarter on your four intelligences, okay? Because you've got to get Smarter mentally, emotionally, physically, and spiritually. So let me explain. Mentally. Mentally means you've got to look at the property objectively. You've got to look at the numbers. Just the facts. Just the facts. You know, mentally, what are the facts? What is the rent? How much is stamp duty? How much is this? How much is that? Just the facts. What gets people in trouble is when emotions kick in. Oh, this is a good deal. Because if you get too excited or for many people, they're too afraid, and they're afraid of making a mistake. That's a negative emotion here. So get the numbers, keep your emotions in check, and then you take action. So like I said, even though in America the property values are really high and $31 million is a lot of money, we knew that physically we could improve the property and take a value up to maybe about 45 million. We know that. We're not emotional about it, and we can do that here. So those are some of the tricks. And the spiritual part here is this is, what are you investing for? See, one of the reasons I invest in property is because spiritually, I don't like paying taxes. It just bugs me. So I use debt, and I pay no taxes when I'm investing. So those are some of the things I think about here. But spiritually is we now own about 8,500 rental properties. Spiritually, we're never going to sell this thing. So our plan for our property is we're going to put it into what's called a crt, a charitable remainder trust, and we'll package it in. All this, all of this brain work, physical activity, and all this goes into a trust. And long after Kim and I are gone, that trust will still provide cash flow for the people out there. You know, it'll do good work for many, many people. So if you're just in it for the greed, that greed is more here. But this here is a spiritual side of here. Why are you investing it for? You just going to make money or you're passing on to your children or your grandchildren? You know, there's got to be some kind of love in this whole thing here. So those are very, very important things here to remember, especially in this marketplace today. This is probably the most important of all intelligences when it comes to real estate. So let me explain why emotional intelligence is the most important. The problem with real estate is this. It's not liquid. You know, if I buy a stock, let's say Apple Computers or Apple, I make a mistake, I can sell it today. You know, I can buy Microsoft and sell it today. But the trouble with real estate, it's not liquid. You can't sell it if you make a mistake. So if you make a mistake and you bought it up here and it's going down this way, you might be riding the Titanic down. You'll just keep going down with it because you can't get out. Okay, let's say I make a mistake. Let's say I buy this property. Let's keep the numbers easy. $1 million and it starts to drop like this. Have plan B. Let's say I make a mistake. Let's say China decides to go bust if it starts to go down. What's plan B? So let me say it again. We just bought, we just spent, we just borrowed $31 million. $31 million is a lot of money. The good thing is it's free money. They just give it to you if you have a good project and you have a good mental, emotional, spiritual plan. We showed the banker how we're going to take the property from 31 to about 45. The 45 valuation is dependent upon how much rent can we increase. So the good thing about Austin, Texas is possibly one of the hottest real estate property markets in America today. So even though it's very expensive, the good news is people are evacuating Washington state, you know, Seattle, Portland and California. And their favorite destination is Austin, Texas. So the prices went up in Austin. So we had to go in there and take a look at it. And at that moment, we found a property for 31 million. And our question is, can we get it up to a valuation of 45? And the way we're going to get it from 31 to 45, we're going to put improvements in it and increase the rents. So we had a plan how to do it, and it doesn't make any difference if it's 31 million or 300,000. The plan is always the same. You have got to be smarter. You've got to be smarter here, smarter emotionally, smarter physically and smarter spiritually. So those are the things I like to talk to you about. Another thing I would like to say is this. Have a partner. You want somebody to talk to you. I'm only here because I had a smart wife, Kim. She is really, really smart. In fact, she's 10. Most of my friends say she's 10 times smarter than me when it comes to property. And she is. She loves Property. This. In 1996, my wife Kim and I came up with this board game here. It's A cash flow board game. That's my yellow Ferrari out there. And this here is what's called the rat race. And this is what you go to school for. You go to school, you get a job, you get stuck in the rat race. And outside here is called the fast track. In the real world, there really is a fast track is called the accredited investor in America. And in most parts of the world, if you are not substantial, you have not enough money, or you don't have enough education or experience, you cannot invest out here. So that's why when 1996, Kevin and I created this board game here. And when you go to college, or you go to school, or you graduate from technical college, this is where you get stuck here. You go to work, Go to work, just keep paying taxes here. So this was 1996, and this is what made our program so different here, this is the book Rich Dad, Poor dad. Here. This came out in 1997. This is called a financial statement. Now, when I go to my banker to borrow $31 million, I've got to have a financial statement. You know, if I go to the banker, I say, well, I don't have a financial statement. I have a tax return and I have a bank statement. They won't talk to you. So the key is my way of saying it here. For you to get from here to here requires this here. So that's why we created the cash flow board game. And these are some of the differences here. There's three parts to financial statements all over the world. They're always the same. There's an income statement. It's oftentimes called a P and L. This is called a balance sheet, assets and liabilities. And this here is called the statement of cash flow. All over the world, it's the same. Now, the reason this is important, it's this. The facts. What are the facts? So when you look at the facts here and said, okay, got this here, got this here, this here, this here, this cash flow. So the mistake that people make is they call their house an asset. But if you look at the statement of cash flow, their home is here. And the cash flow pattern is going this way. In other words, every month, your money is flowing to the bank. But if I buy a rental property, this is the difference. It flows into my income statement. So this is a liability, this is an asset. So the reason my wife and I are rich is we only focus here. One more thing is when you listen to the language of rich people and poor people, poor people always talk about how much money am I making and how much are my expenses? How much money and how much are my expenses? The rich always talk about balance sheet. What's on your balance sheet? So the reason my wife and I created the cash flow board game this is in 1996 was to take your brain and put it down here.
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The first wave of inflation hurt. The second wave could break the system. It's already here. Tariffs are quietly pushing up prices on auto parts, appliances, electronics. And by the fall, we could get hit with a brutal one two punch. Skyrocketing prices and slowing economy. Most people will wait. They'll trust Washington and hope it all works out. That's how they get crushed. Here's the truth. Tariffs are already pushing prices higher. Inflation eats away at your cash and the US is drowning in nearly $47 trillion of debt. I don't sit in paper promises. I stay in real assets. Gold Silver. Gold is up over 29% this year. Silver is up over 28% and experts believe both could shatter new records. As the dollar continues to lose value, there's a legal way to move part of your retirement. The physical gold and silver tax free, penalty free. That's why I work with my friends and at Priority Gold, I trust them. They know the playbook and they can show you exactly how to do it step by step. Call 866-703-9895 and ask for the 2025 Rich Dad Wealth Defense Guide or text guide the 24999 right now. No pressure, just the facts you need before the next wave hits. I'm ready. What about you? Text guide the 24999 or call 866703. $98.95 now to get your free wealth defense guide. This message is brought to you by Apple Card. If you're like me, you might be considering getting a new iPhone. But have you considered upgrading your credit card? When you use Apple Card with Apple Pay or the laser etched titanium Apple Card, you can earn unlimited 3% Daily Cash back on on everything you buy from Apple, whether it's a new iPhone, an iPhone case, or even a service like Apple Music or Apple TV. Plus earn 3% back on the Apple products and services you love. It's an easy decision. You'll only wonder why you weren't doing it sooner. Subject to credit approval. Apple Card issued by Goldman Sachs Bank USA Salt Lake City branch terms and more@applecard.com.
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Again, there's three parts of a financial statement, income statement, balance sheet, statement of cash flow. So when you're playing this cash flow board game. Your hands are moving, doing the math, very simple math. You know, you can add, subtract, and that's all you need. But you've got to know where to put the numbers. So that's where the cash flow board game, you know, it's, it's all over the world. This cash flow club's all over the world here. So this is important here. Now this is the other part about it here. This was book number two in rich dad, poor dad. It's called the cash flow quadrant. This stands for insider. People think it stands for investor. No, it stands for insider, inside investor. E stands for employee. You know, I got a job. I'm a. I'm a clerk. I'm a banker. I'm a, you know, whatever, truck driver, or I can be a doctoral lawyer or a computer programmer or something like this. Self employed. E and S. Most people go to school to be E's or S's. This was my poor dad. This is my rich dad here. B stands for big business. It also stands for brand. And generally a brand has 500 employees or more. In the tax law of America, you have to have 500 employees here. And I stands for investor. But these guys invest also. But most of them invest in shares, bonds, ETFs, I don't know what else you call those things. They invest from the outside. The moment you go into real estate, you become an inside investor. That's why you've got to be smarter. So I only invest inside. I own no stocks, I own no shares. I don't do that. I. Because, you know, because I'm a capitalist, I create my own assets out here. Like, not only did I buy property, I also started two companies this year. So although I have shares, they're shares of my company because I am an inside investor. Those are the differences. So in 1996, we created the cash flow board game. There's a lot of cash flow clubs there. There's still cash flow clubs going there and all that. But it takes. The reason this works is because it's not just mental to play. The cash flow board game requires all four intelligences. You see, you can know the answer, but you still have to do something. So you have to fill in the numbers here. When you're filling in the numbers and you're erasing and all this stuff, your mental emotions and things, you're all getting smarter. So games are the better teachers because they involve all four intelligence, mental, physical, emotional, spiritual. So that's why games are best teachers. I Learned about investing, playing Monopoly, you know, four green houses, one red hotel, four our greenhouses, one red hotel. So when I was a kid and, you know, my rich dad had little green houses, and I was growing up and I would help him with his green houses. And then in 1969, no, 1967, he bought the red hotel. That red hotel is still there in Waikiki Beach. It's called the Hyatt Regency. So you have to have a plan also. Four green houses, red hotel. Rich dad doesn't own the hotel, he owns the land. So rich dad worked as planned. So as a young man, I understood that, and that's why Kim and I created the cash flow board game. Because you'd have to. It involves all four intelligences, and you can have fun learning. Most important thing, if you lose money, it's only paper money. That's the most important thing. Lose, lose, lose. You get smarter. But the reason so many people are not rich is because they went to school and they're taught if you make a mistake, you get fired or you lose everything here. The purpose of the cash flow board game is move your brain over here, make mistakes and lose, lose, lose. Because you get smarter, smarter, smarter. That's how I got smarter. So Kim and I created this game in 1996. So the final thing, I want to show you this here. This is what Kim and I do. Let me show you this here. So when I. So this here is my sketch of a financial statement, income. And I'll show you the statement of cash flow balance sheet. This is as I got. I started. My first investment was an $18,000 unit and island of Maui. I wish I'd kept it, but back then it was. I was a lot of money, 18,000 bucks. So I put $200. It was a $2,000 down, 10% down. So I put it on my credit card. So I bought my first property. And since then, I just kept investing. Made a lot of mistakes, lost some money, made some money, but I got smarter. So today, let me explain how I make my money. So let's say I have a business. So let's say it's a rich dad business here. It's an asset to me. And let's say it puts money here. Income. And let's say it's. Let's keep the numbers. It's $1 million if I just keep that money. The first line item, expense is tax. So let me show the tax consequences here. If I make a million dollars as an employee, I'm going to pay 40% in taxes. So 400,000 goes to taxes. If I'm a doctor or a lawyer or a small falafel shop owner, I make a million dollars, going to pay 60% in taxes. So $1 million here, I'm going to pay 600,000 in taxes. If I make money here as a rich dad company or a big business, I'm going to pay 20% or 200,000. And as a professional inside investor, zero. So let me tell you how I go from 20% to 0% here in taxes. And this is true all over the world. So the way it works is here's $1,000,000 if I do nothing and let's say I'm an employee, they're going to take 400,000 right off the top here. So what I do instead, that's where real estate comes in. I borrow $4 million. So I have $4 million in debt here. So I take the property up, borrow four, that gets my real estate. This is real estate here. It's now 5 million. So let me explain this to you. 1 million, borrow 4, it becomes 5 million. And because it's $5 million, I get to appreciate, depreciate and amortize this, not that. And because this has so many losses to it, zero tax. But you need a good accountant and all that stuff. There's a book called Tax Free wealth by Tom Wheelwright. Tax Free wealth by Tom Wheelwright. And My partner, Ken McElroy, he has three books, ABCs of Real Estate Investing. He has ABCs of Property Management and Advanced Guide to Finance. This is the advanced guide. So let me repeat again, I make a million dollars here. I called Kenny up, my partner. I said, Kenny, I need 4 million. That means he has to find something that we can borrow $4 million against. And once we have 4 million, it steps up the basis of the property to 5 million. And there are the tax laws. And this is true all over the world. Appreciate, depreciate, amortize it, zero tax. All that money comes into my pocket. Thank you very much, government. Okay, so that's the power of financial education. Keep studying, keep learning, find good partners. And the most important thing is keep your education up and do only business with good, solid, honest people.
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Let's map out this week's amazing destinations and travel tips.
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Honestly, Will, I didn't plan any trips, but I did switch to T Mobile with their new Family Freedom offer.
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That's not the itinerary we're following.
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Well, I'm departing from AT&T and embarking on a new journey with T Mobile. They paid off my family's four phones up to $3200 and gave us four new phones on the house.
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Bon voyage.
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From unsolved mysteries to unexplained phenomena. From comedy goal to relationship fails.
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So I'll leave you with this thing. The same for my Rich Dad. Rich dad always said there's a million ways to financial heaven. So if you have financial education, you can find one of the million ways to heaven. You know this is my way. But there's a billion ways to financial hell. Thank you very much. This podcast is a presentation of Rich Dad Media Network.
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Hey, this is Dan Harris, host of the 10% Happier podcast. I'm here to tell you about a new series we're running this September on 10% happier. The goal is to help you do your life better. The series is called Reset. It's all about hitting the reset button in many of the most crucial areas of your life. Each week we'll tackle a topic like how to reset your nervous system, how to reset your relationships, how to reset your career. We're going to bring on top notch scientists and world class meditation teachers to give you deep insights and actionable advice. It's all delivered with our trademark blend of skepticism, humor, credibility and practicality. 10% happier is self help for smart people. Come join the party.