Yahoo Finance Robert Kiyosaki: 4 Real Estate Investing Mistakes That Lead to Financial Ruin
Robert Kiyosaki is the famous financial pundit behind the “Rich Dad Poor Dad” empire. On his YouTube channel, which has 3.24 million subscribers, Kiyosaki posted a video of his radio show titled “How To Invest in Real Estate Without Making These Mistakes.”
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The roughly 43-minute video features a conversation between Kiyosaki, his wife Kim, Robert Helms and Russell Gray regarding mistakes that real estate investors make. Here are some of the highlighted pitfalls that you should avoid.
Thinking You Have To Go Big When You Have No Experience
In Kiyosaki’s view, real estate is a complex, hard-to-master type of investment. While he believes strongly in its long-term potential for wealth creation — and claims he has never lost money in real estate — he advises newbies in the field to start slowly and learn the ropes before jumping into any big deals. Between the complexity, paperwork and large dollar sums needed for real estate transactions, Kiyosaki suggests that investors should take their time and move up the real estate learning curve before trying to go too big too quickly.
For example, to Kiyosaki, those who look for big projects like 100-unit condominium complexes before they have even bought a home or simple rental unit are setting themselves up for financial disaster. With hundreds of thousands of dollars on the line for even smaller deals, if you swing and miss at just one of these big deals, your whole financial life could end up in ruins.
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Trying To Get Rich Quick
Kiyosaki plays the famous song “You’re So Vain” as an intro to his radio show on this episode, primarily to reinforce one of his main points regarding investing in general and real estate investing in particular. That caveat is that if you’re trying to “get rich quick” in real estate, you’re setting yourself up for disaster.
Although Kiyosaki acknowledges that you could occasionally turn a profit flipping a house or buying and selling rapidly, thinking that you can do so consistently is a path to ruin. Kiyosaki remarks on the “vanity” of such investors, who either watch TV personalities and think they can do the same thing themselves, or make one successful flip and assume they can continue to do it forever.
According to Kiyosaki, if you’re investing in real estate, you have to learn how to be patient if you want to see significant profits.
Trusting the Wrong People (and Not Verifying)
Even if you have some real estate experience, Kiyosaki urges his listeners to confer with experts in the industry — but be selective in doing so.
While Kiyosaki thinks there’s no way real estate investors can possibly know all of the ins-and-outs of all possible deals, he cautions that you can only succeed if you bring in the right people to help you. In the real estate world, according to Kiyosaki, there are plenty of those looking to skim money off your deals, to generate commissions or other profits off your back, or to even steer you in the wrong direction just so that they can earn additional money themselves. It’s OK to trust a real estate professional, says Kiyosaki — but only if you also verify, by checking out their knowledge, credentials and intentions.
Focusing on ‘Buy-Low, Sell-High’ Instead of Cash Flow
To Kiyosaki, real estate investing is a long-term game that’s all about cash flow, not immediate profits. Cash flow provides current and ongoing income, and it tends to rise over time while your mortgage payments remain constant. If you use that income to offset your mortgage payments, your rental units will essentially pay for themselves over time.
Ultimately, you’ll be left with a debt-free property that you didn’t have to pay a penny to own, or perhaps just a small percentage of your total mortgage payment. Meanwhile, once your investment debt is paid off, all of your rental income becomes free cash flow that goes right into your pocket.
Kiyosaki contrasts this method of thinking about real estate with those in search of a quick buck by flipping properties or continually buying and selling. He points out that all of these transactions require capital and come with costs and potential taxes, whereas simply collecting passive income and using it to pay off your properties is an easier, simpler, more secure way of generating wealth from real estate.
The Bottom Line
Every person’s level of financial acumen is different, and there are those who may be able to succeed in real estate even by going against Kiyosaki’s advice. But for general investors — particularly inexperienced ones — the financial commentator’s advice can help protect against disaster.
Regardless of your level of real estate experience, as with any investment, it always pays to educate yourself first, and to consider your potential downside as much as you dream of your anticipated profits.
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