5 Real Estate Investing Principles From Rich Dad Poor Dad
This summer while bass fishing, my friend informed me that he’s started focusing on real estate, specifically fix and flips.
What’s amazing is that even at 23 years old, he already understood the concept of “getting your money to work for you.”
He wanted to know a few resources to begin learning more about real estate. I recommended possibly the top personal finance book of all time that I read when first starting my journey, Robert Kiyosaki’s Rich Dad Poor Dad.
If you ask most real estate investors about the first book that motivated them to pursue passive income via real estate, it would be Kiyosaki’s book.
The first lesson in the book says it all: The poor work for money and the rich make their money work for them.
Even though the book is most popular among real estate investors, it does NOT teach you “HOW” to invest. Instead, it focuses on “WHY” you focus on assets that pay you regardless if you’re working or not.
“Often, the more money you make, the more money you spend; that’s why more money doesn’t make you rich – assets make you rich.” – Robert Kiyosaki
Real estate investing first starts with a mindset shift and his book does a great job of this.
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Who Is Robert Kiyosaki?
When you think about creating a real estate investment strategy, one thing seems to be constant: You must first start off reading Rich Dad Poor Dad. Robert Kiyosaki is best known as being a teacher an author of the Rich Dad Series: Here are some of the Rich Dad books:
- Rich Dad’s Cashflow Quadrant
- Retire Young Retire Rich
- Rich Dad Poor Dad For Teens
- Rich Dad’s Guide to Becoming Rich Without Cutting Up Your Credit Cards: Turn “Bad Debt” into “Good Debt”
- Fake Money, Fake Teachers, Fake Assets
He also created a popular board game that teaches people about money called, The Cashflow Board Game and even one for kids too.
Like many successful people, early on his career he had a series of set backs only to build himself back up to reach financial freedom.
He served in the Marine Corps before starting a company that launched the Velcro surfer wallet ( I had one of those!) and rock band t-shirts – both of which failed.
He began to repay his debts buy learning how to invest in stocks and real estate.
He eventually went on to becoming an author and teacher using his previous experiences to educate people what to avoid along the way to building multimillion dollar training brand.
A Tale Of Two Dads
Where did you learn about money?
In school? Me neither.
As a doctor, it’s hard to believe how a “system” can put us through 20+ years of education to get a job ultimately to make money yet NEVER teach us how to handle money.
Maybe this is why the U.S. student loan debt totals $1.71 trillion and grows 6x faster than the nation’s economy.
Student loan stats
Here’s a few other stats from educationdata.org:
- 43.2 million student borrowers are in debt by an average of $39,351 each.
- The outstanding Federal Loan Portfolio is over $1.56 trillion.
- Approximately 42.9 million Americans with federal student loan debt each owe an average $36,406 for their federal loans.
- More than 35 million of these borrowers may qualify for student debt relief under the CARES Act of 2020.
- The average public university student borrows $30,030 to attain a bachelor’s degree.
The rich keep getting richer…
Because we don’t receive financial education in school, most of us get it from our parents. Maybe this is the reason that that the statement “the rich get richer and the poor get poorer” is true.
In his book, Kiyosaki also heard about the richer getting richer and poor losing money growing up and wanted to share his story about what he learned about wealth.
Interestingly, he learned it from two people, his “rich dad” who was actually one of his friend’s dads and his “poor dad” who was his real one.
His biological father (poor dad) was an educated college professor that who recommended him to go to school, get a job and work hard the rest of his life.
On the other hand, Kiyosaki’s “rich dad” was one of the wealthiest business owners in Hawaii that never finished high school.
During his childhood years, he began getting totally different messages about money from both fathers.
Kiyosaki stated, “I noticed that my poor dad was poor, not because of the amount of money he earned, which was significant, but because of his thoughts and actions.“
Although his “rich dad” was a high school dropout, he eventually became a millionaire by putting the power of money to work for him.
And the rest is history…
“It is what you know that is your greatest wealth. It is what you do not know that is your greatest risk. There is always risk, so learn to manage risk instead of avoid it.” – Robert Kiyosaki
6 Rich Dad Poor Dad Lessons
#1 It’s not how much money you make, it’s how much you keep
It’s a fact that most people that want to improve in life focus on making more money. Remember our previous discussion regarding lack of financial education growing up?
What do most people do whenever they earn more? Spend more, right? I understand this isn’t always the case but for the most part, the more we make, the more that leaves our pocket.
It doesn’t matter what comes in if all of it continues to go out. According to Kiyosaki, one of the key differences between the rich and the poor is that the rich focus on keeping their money to make it work harder for them.
He states, “You must know the difference between an asset and a liability, and buy assets. If you want to be rich, this is all you need to know. It is rule number one. It is the only rule.”
As a father of two teenagers, I’ve make it a point to begin teaching them how to handle money and they understand that: Assets put money in our pockets and liabilities take money out.
Kiyosaki recommends we focus on investing in assets that produce income (cash flow) and appreciate such as real estate.
#2 The rich don’t work for money
If you currently have a job trading time for money then:
- You must work to get paid
- Taxes will increase as your income increases
“If you work for money, you give the power to your employer. But if money works for you, you keep the power and control it.” – Robert Kiyosaki
In the book, Kiyosaki states that he learned to put his money to work for him and enjoy tax benefits of generating income that does NOT come from a paycheck.
His poor dad would say, “I can’t invest, I have no money.” Meanwhile, his rich dad would look for opportunities to invest time to start a business to make money, or find additional sources of income.
My wife and I took Kiyosaki’s advice and started investing in cash flowing investments, such as real estate syndications.
We’ve now been able to take more time off as other streams of income are being created.
#3 The rich focus on their asset columns while everyone else focuses on their income statements
McDonalds is a MASSIVE real estate empire.
Founder Ray Kroc didn’t realize this early on until he hired someone to take a look at his books to find out why his business was bleeding money.
He was told, “Mr. Kroc, you’re NOT in the burger business. You’re in the REAL ESTATE business. You build an empire on the land upon which that BURGER is cooked.“
After hearing this, he then understood that the land and location of each franchise were the most significant factors of his success.
“The long-term rich build their asset column first,” Kiyosaki writes. “Then the income generated from the asset column buys their luxuries. The poor and middle class buy luxuries with their own sweat, blood, and children’s inheritance.”
#4 Corporations are the biggest secret of the rich
Rich people understand how the tax system works and search for opportunities to make the tax laws work for them.
They understand how by setting up corporations can lower their overall tax rate vs the individual (employee) that works for a corporation.
One of the main differences is how business owners and investors with corporations such as C Corps, S Corps, or LLCs pay taxes to how most people pay tax:
Business owners with a corporate structure:
- Earn
- Spend
- Pay taxes
Employees who work for corporations:
- Earn
- Pay taxes
- Spend
Notice that employees spend their money post-tax and pay MORE in taxes, while business owners earn and spend before paying tax.
This is based on employees not being able to expense items they purchase.
“If you work for money, you give the power to your employer. If money works for you, you keep the power and control it.”
#5 Work to learn, NOT to earn
“Don’t be addicted to money. Work to learn. Don’t work for money. Work for knowledge.”
Through out the book, Kiyosaki stresses about the importance of acquiring knowledge over money.
He states:
“I recommend to young people to seek work for what they will learn, more than what they will earn. Look down the road at what skills they want to acquire before choosing a specific profession and before getting trapped in the Rat Race.”
Poor Dad was intelligent and well educated and worked for money because job security meant everything to him. Rich Dad became a millionaire by working to learn.
I see too many professionals that STOP the learning process after their training is completed. Many feel that they’ve had enough education and don’t feel the need to have to learn anything new.
This is a mistake.
Once I became interested in learning about real estate, I had to learn many new skills and a whole set of terminology such as:
- cap rate
- accredited investor
- private placement memorandum (PPM)
- depreciation
#6 People who avoid failure also avoid success.
The books states, “the primary difference between a rich person and a poor person is how they manage fear.”
This “fear” he’s talking about is 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.
Most successful people I know get to where they are in life because of their mistakes and failures they’ve made along the way.
Failure is part of the process. I should know as I lost $50,000 on one of my first deals via crowdfunding (which I now know to avoid!).
If you become a real estate investor, know this. You WILL fail.
But you can turn failure into learning and inspiration, and ultimately success.
If I never played the game due to fear of losing/failing, then I’d NEVER get better.
5 Real Estate Investing Principles From Rich Dad
Now that you’re familiar with the key Rich Dad Poor Dad lesson, there are 5 main principles that you can apply to grow your wealth through real estate investments.
Principle #1 – Your house is NOT an asset
The American dream is to get a good job and buy a home. Why rent when you can buy, right? The house you purchase to live in will eventually appreciate in value making buying the right choice, right?
Rich Dad Poor Dad says not so fast.
He says that having a mortgage payment is actually a liability and NOT an asset. Instead, we should focus on investing in assets that put money in our pockets in order to grow our wealth.
“One door is not an investment. One door is a liability.” – Grant Cardone
Other real estate gurus such as Grant Cardone, also agree that buying a house is a mistake.
Cardone states that you shouldn’t own a home unless you have 20 million bucks in the bank. (I guess I should sell our home 🙂 )
He goes on to say that a home is not an investment because it doesn’t pay you every month. In fact, you have to pay it every month which is why it’s a liability.
Nothing is a good deal if you have to feed it constantly.
Cardone gives out 3 main tips to aspiring entrepreneurs:
#1 Invest in yourself
#2 Focus on income
#3 Invest in something that pays YOU
Principle #2 – Search for the GOLD
There’s a story in the book about a gold miner in Peru that once told Kiyosaki, “There’s gold everywhere. Most people are not trained to see it.” Kiyosaki said for him, this was also true regarding real estate. He said he could find about four to five excellent properties a day, whereas others may look and find none. We have to remember that not all properties are created equal. Some look bad and tattered on the surface, but with some TLC, can easily bring thousands back in profit. The real estate investors who win are the ones that can look beyond the surface to find the “gold”.
Principle #3 – Invest in YOU
After my training, I made it a habit to read on a daily basis about investing. Too many people think once they graduate then their learning is finished. This is the WRONG way to approach life. Readers are leaders. Once I began reading and learning about real estate, it sparked a newfound excitement in me. This particular area of investing was BRAND NEW to me and I felt like a freshman in high school again. It didn’t take long to get the basics of real estate down but there’s so much more to learn. Speaking of learning, we all acquire knowledge differently. My top way to absorb new ideas is by reading. For you it maybe listening to podcasts or attending conferences. Always look for ways to continue growing your knowledge base in order to scale your property business.
Proverbs 27:17 states, “As iron sharpens iron, so one person sharpens another.”
Never underestimate the power of association. Choose who you hang out with wisely and surround yourself with others that are interested in real estate investing. This way everyone can learn from each others’ habits and support each other.
Principle #4 – Don’t fear RISK
I started off investing in real estate via crowdfunding with small debt deals. After a handful of these I decided to step it up and invest in an equity deal in Oklahoma with a $50K minimum investment. Unfortunately all investors in that deal lost their investment which turned me off real estate for almost a year. If I wouldn’t have kept learning from my mistakes during that downtime, I would have become extremely risk averse.
Kiyosaki teaches investors to not let doubt cause you NOT to act.
Perform due diligence and instead of criticizing a deal, analyze it. Don’t overcome to your own doubts or they will rule you forever.
Principle #5 – Make your money work for you
As I’ve learned over the years, every dollar that I invest in real estate goes to work for me, and in more ways than one. It’s like having a bunch of little soldiers out there doing the work for me.
There are five core ways each dollar works for you when you invest it in real estate:
- Cash flow
- Leverage
- Equity
- Appreciation
- Tax benefits
By leveraging your money to acquire assets that generate additional income, you can grow and scale a profitable business.
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