How Realistic is This? - Robert Kiyosaki Article

Question

Hi BP community.

I’ve just read an article written by Robert Kiyosaki about 3 steps to owning real estate with very little money down.

A little background on myself, I am a real estate agent in MA. It is my full time job and I have been doing this for a little over a year now. It’s been slow to start but I’m getting there. I got into this because of the opportunity to make money to buy investment properties and to learn as much as I can about the local markets I plan to invest in and learn as much as I can about real estate in general.

My plan has been to save up my commissions and buy a 2 or 3 family rental. If I buy a 3 family I’d like to use a MA Housing loan, similar to FHA and house hack. Down payment is 3%. If I find a 2 unit home, I’d rather use a portfolio loan with a down payment of 11% so I can rent out both units. I won’t invest unless there’s positive, strong cash flow.

So that’s been my plan and needless to say it’s been frustrating not being able to start. I’m 27 now, going on 28 in August. I was 24 when I discovered real estate investing and have had setbacks and probably could have made better choices to get myself an investment property sooner.

The article I just read by Robert Kiyosaki is here: https://www.richdad.com/how-to-get-rich-in-real-estate?feed=blogs

Rich Dad Poor Dad is what completely changed my perspective on money and investing/real estate. So I definitely soak up whatever he says. But sometimes his stuff can be a bit vague.

In this article he talks about finding a great investment property that isn’t living up to its full potential, starting an LLC for the property and then selling shares of that LLC to investors in order to acquire the property  Basically, nearly a no money down scenario or at least a lot less money than you’d need if you were going down my route. Here in MA in order to get a property, I’ll need anywhere from $20-$60k down.

So my question, is what RK says in this article realistic? Has anyone here ever done this? How could this be done? I’m looking for a more detailed and in depth explanation than what he gives in the article.

Dennis M. · Answer

Sure anything the gurus say is possible if the stars are in perfect alignment. Reality is much different than what they often teach .real estate costs money ...alot of it and it is risky .i loved Roberts books but some of the things he discussed for strategy are just flat out BS . He gives bad tax advise which isn’t even true or legal .He tells you to buy 100k houses for 20k at the court house steps which is impossible .. touts lying on loan forms about using his house cat as a partner . Brags about illegal insider trading on stocks .. the list goes on . One thing is for sure and that is there is no elevator to success, everyone has to take the stairs

Heath Ryans · Answer

@Matt D'Arco

Without reading the article, it sounds like all he's saying is get some partners to take down the deal. Basically, you find a deal and bring it to another investor or someone with money and offer them a percentage of the profits. You go in together and form an LLC and buy the deal. People do it every day.

if you create an LLC and start "selling shares" then im pretty positive that makes it a security and that opens up a whole other expensive legal can of worms.

Michael Boyle · Answer

@Matt D'Arco good to see another new investor in MA! I feel your pain on capital raising, 60-120k on even the most basic properties in decent areas is a huge barrier to getting started. My partner and I are currently looking to finance a deal in Framingham so we are asking ourselves the same kind of questions.

I like Kiyosaki as a source of motivation to be creative in personal finance, but starting from BP podcast 1 and working forwards has been a much better source of practical advice for me, especially since they discuss new investor topics so much. I think their advice on being transparent and honest about being new and showing that you are putting in the work to learn the business goes a long way, and it seems like you're doing just that!

BTW i just recently turned 28 myself, it's not that bad ;)

John Corey · Answer

Ignore the LLC & anything other structure for a minute. I am not saying LLC is wrong. Just that it is not the point of my warning below.Selling shares to members of the public is highly regulated by the SEC (in the USA) and by the state equivalent. There are some minor exceptions (family for example). That said, you really need to be careful about any pooling of funds or collective investment schemes.  Get it wrong, you can go to jail. A few of the comments above are over the line in my opinion.

If the investors are active as part of the management and are really helping to make the decisions, run the show and otherwise key, another exception might be possible. Avoid passive investors until you get legal advice. Get it in writing so you can plead with the judge when you get investigated.

When the projects are big enough, covering all the legal and regulatory requirements becomes cost-effective. Syndication is a term you will hear. Search for it here and on the podcasts.Random tangent. I grew up in Lawrence, went to high school in Danvers and university in Worcester. I left MA for CA in the 'early days' of Silicon Valley (pre-dot com era).

Pat L. · Answer

Yes many years ago while having the steak & beers after the weekly squash games I put forward the same concept to several engineers working with me. We all made great money & had unlimited o/time & company expenses so dropping $2000 each was easy. At the time I planned to go into new build startups whereby the builder had a trailer on the land & was selling from the plans before digging. It was usually a $2-$3k deposit with the rest coming in later as the build progressed. We would choose the lowest cost build, did it a number of times & made a good return for as long as we stayed together as a group. But they were the days of a hand shake & just a one page agreement.

If it gets you into a project & you cover all the nuances in an operating agreement Just Do IT as they say.

Caleb Heimsoth · Answer

Selling shares to an investor and raising money would be the same thing.

Don’t take advice from the rich dad poor dad guy, he gives dubious advice often

Anthony Rosa · Answer

Just save enough for a down payment or borrow down payment money from family if you're looking to buy a 2 or 3 family rental.

Matt D'Arco · Answer

@Heath Ryans thanks for the info. The article made it sound pretty straightforward and it looks like from your explanation that this would be. Reading it got me thinking that maybe there’s a faster way to my first investment than I thought. My brokerage business is picking up so more than likely I’ll be using my money for the down payment and closing costs but it’s good to know that this other option isn’t so far fetched. Sometimes I read Kiyosaki and think the stuff is just too good to be true. Almost like it’s too vague and leaves out a lot of the more complicated aspects.

David Lilley · Answer

@Matt D'Arco you don't necessarily need an attorney if you have partners in the deal versus investors who are entirely passive. You simply create an LLC and split ownership pro rata.

Your biggest hurdle will be finding partners/investors who will trust you when you have no experience. So, in order to get them comfortable enough to give you their hard earned money, you better know your stuff.

Next, do you know if you can even qualify for a loan on a 3 unit property? Do you know how the qualifications for debt on 3 unit properties differ from 5 unit properties? No? Then you aren't ready.

I own a 6 and 16 unit property at the moment. Purchased both last year. Feel free to reach out with any questions.

Heath Ryans · Answer

@Matt D'Arco

I haven't done it yet personally, although it's been brought up. Once I get a deal that I can't take down myself, I know exactly who I'm going to go to first to partner with. It's a pretty simple process. Find someone you want to partner with who understands that they are bringing most if not all of the money to the deal that you found, decide on profit/equity splits (50/50, 60/40, ect), then have an attorney create a LLC for the two of you with a very detailed Operating Agreement so that it leaves nothing up for debate if an issue were to come up. Then purchase the deal.

It's a great strategy for people of all experience levels, but especially when your just starting out and either don't have the money or a full working understanding of how the investment side operates. It allows you to get in with no money with a front row seat for learning operations. The value you bring is in the deal. So it has to be a good one. Otherwise it's just a lot of work and risk for the other investor IF they even decide to come on board.

How Realistic is This? - Robert Kiyosaki Article

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