Robert Kiyosaki The Real Book Of Real Estate

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The REAL Bookof Real Estate

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The REAL Bookof Real EstateREAL EXPERTS. REAL STORIES. REAL LIFE.Robert Kiyosaki

Copyright 2009 by Robert T. KiyosakiPublished by Vanguard PressAll rights reserved. No part of this publication may be reproduced, stored in a retrievalsystem, or transmitted, in any form or by any means, electronic, mechanical, photocopying,recording, or otherwise, without the prior written permission of the publisher. Printed inthe United States of America. For information and inquiries, address Vanguard Books,387 Park Avenue South, 12th Floor, New York, NY 10016, or call (800) 343-4499.Designed by Anita KourySet in 10.5 point MercuryLibrary of Congress Cataloging-in-Publication DataThe real book of real estate : real experts, real advice, real success stories/Robert Kiyosaki.p. cm.Includes index.ISBN 978-1-59315-532-21. Real estate investment. 2. Real estate business. I. Kiyosaki, Robert T., 1947HD1382.5.R33 2009333.33—dc222009008346ISBN 13: 978-1-59315-532-2Vanguard Press books are available at special discounts for bulk purchases in the UnitedStates by corporations, institutions, and other organizations. For more information, pleasecontact the Special Markets Department at the Perseus Books Group, 2300 Chestnut Street,Suite 200, Philadelphia, PA 19103, or call (800) 810-4145, extension 5000, or [email protected] 9 8 7 6 5 4 3 2 1

"I'm not a genius. I'm just a tremendous bundle of experience."—Dr. R. Buckminster “Bucky” FullerFrom left to right: Dr. R. Buckminster“Bucky” Fuller at eighty-six years old withRobert Kiyosaki in 1981. Buckminster Fullerwas an American architect, author,designer, futurist, inventor, and visionary.Recognized as one of the mostaccomplished Americans in history, hededicated his life to a world that workedfor all things and all people.

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ContentsAcknowledgments ixIntroduction, Robert Kiyosaki 1PART 1: The Business of Real Estate1 The Business of Real Estate, Tom Wheelwright 52 A Real Estate Attorney’s View of Assembling and Managing YourTeam, Charles W. Lotzar 293 The Way to Exotic Wealth, Wayne Palmer 534 Profits from the Ground Up, Ross McCallister 715 Master Your Universe, Craig Coppola 896 10 Rules for Real Estate Asset Protection, Garrett Sutton 1087 Of Marbles and Capital, Wayne Palmer 1338 How to Avoid and Handle Real Estate Disputes, Bernie Bays 152PART 2: Your Real Estate Project9 Buy by the Acre, Sell by the Foot: Understanding Real Needs,Financial Logic, and Asking Questions, Mel Shultz 17310 It’s All About Adding Value, Curtis Oakes 18411 Analyzing the Deal, or Adventures in Real Estate, John Finney 20012 Real Estate Due Diligence, Scott McPherson 22213 Creating Value from the Inside Out, Kim Dalton 23314 Financing for Real Estate Investors, Scott McPherson 25115 Lease It and Keep It Leased, Craig Coppola 26216 The Perils of Careless Property Management, Ken McElroy 276

PART 3: Creative Ways to Make Money in Real Estate17 Getting from A to B Without Paying Taxes, Gary Gorman 29318 No Down Payment, Carleton Sheets 30619 Marketing: Your Ticket to Finding and Profiting from Foreclosures,Dean Graziosi 32620 Entitlements: The Sleeping Giant of Real Estate Profitability,W. Scott Schirmer 34121 The Tax Lien Investment Strategy, Tom Wheelwright 37122 Horse Trading: The Original Way to Wealth on the Great AmericanFrontier, Wayne Palmer 39023 How to Create Retail Magic: A Tale of Two Centers,Marty De Rito 409PART 4: Lessons Learned24 What One Property Can Teach You, Kim Kiyosaki 43325 In the Beginning . . . , Donald Trump 45126 What Is the Most Important Thing You’ve Learned From YourFather About Real Estate?, Donald Trump Jr. and Eric Trump 45827 Overcoming the Fear of Failing, Robert Kiyosaki 466Index 481Credits 501

AcknowledgmentsFor years I have been an advocate for financial education. While many otherfinancial advisors are telling people what they should invest in, I have beentelling people to invest in themselves—to invest in their own knowledge. Thatis what I have done, and it has made me rich. I have also been telling people tosurround themselves with great teachers who are actively practicing what theypreach. The creation of this book was made possible because of the people Iconsider my teachers. Each one has a lifetime of experience and a lifetime ofknowledge. And each one knows the importance of continual learning.The contributors to this book generously gave of their time and their talentso that you could see the possibilities, avoid the pitfalls, and understand themethods of building wealth through real estate. They have recollected theirgreat achievements, and they have revealed their painful failures. I thank themfor their openness. The lessons we learn from our own mistakes and the mistakes of others are the most powerful.These people are not only my advisors, but they are also my friends. Togetherwe have been through the ups and downs of the real estate cycle, ridden eachwave, and made money doing it. These are the friends I run my ideas and mydeals by. And because they are friends, I know that they will give me theirhonest opinions. I thank them for that, too.ix

xACKNOWLEDGMENTSI’d also like to thank Jan Ayres and Kathy Heasley of Heasley & Partners,Inc., who took this book from ideas on a flip chart to a finished manuscript.Special thanks to Rhonda Shenkiryk of The Rich Dad Company and CharlesMcStravick of Artichoke Design for their work on the book’s cover. Finally,thank you to my wife, Kim, who more than twenty years ago said yes to a guywith no money and a lot of ideas.

Introduction: A Note fromRobert KiyosakiWhy a Real Book of Real EstateThere are four reasons why I think a real book of real estate is important atthis time.First, there will always be a real estate market. In a civilized world, a roofover your head is as essential as food, clothing, energy, and water. Real estateinvestors are essential to keeping this vital human need available at a reasonableprice. In countries where investing in real estate is limited or excessively controlled by the government, such as it was in former Communist Bloc countries,people suffer, and real estate deteriorates.Second, there are many different ways a person can participate and prosperwith real estate. For most people, their only real estate investment is where theylive. Their home is their biggest investment. During the real estate boom from2000 to 2007, many amateurs got involved with flipping houses—buying lowand hoping to sell higher. As you know, many flippers flopped and lost everything. In true investor vocabulary, flipping is known as speculating or trading.Some people call it gambling. While flipping is one method of investing, thereare many, more sophisticated, less risky ways to do well with real estate. Thisbook is filled with the knowledge and experiences of real, real estate investors—real estate professionals who invest rather than flip, speculate, trade, or gamble.Third, real estate gives you control over your investments, that is, if youhave the skills. In the volatile times of early 2009, millions of people were losing1

2THE REAL BOOK OF REAL ESTATEtrillions of dollars simply because they handed over control of their wealth toother people. Even since the middle of 2008, the great Warren Buffett’s fund,Berkshire Hathaway, has lost 40 percent of its value! Millions of people havelost their jobs, which means they had no control over their own employmenteither. The real, real estate professionals in this book have control over boththeir businesses and investments. They will share their good times and the badtimes with you. They will share what they have learned while learning to controltheir investments and their financial destiny. The learning process is continual.And, finally, here’s my real reason for this book. I am sick and tired of financial experts giving advice on real estate, especially when they do not actuallyinvest in real estate. After my book Rich Dad Poor Dad came out, I was on a television program with a financial author and television personality. At the time,in 1999, the stock market was red hot with the dot-com boom. This financialexpert, who was a former stockbroker and financial planner, was singing thepraises of stocks and mutual funds. After the stock market crashed in 2001, thisman suddenly resurfaced with a new book on real estate, portraying himself asa real estate expert. His real estate advice was beyond bad. It was dangerous.Then the real estate market crashed and he dropped out of sight again. The lasttime I saw him, he had written a book on investing in solar energy and wasclaiming to be a green entrepreneur. If he were to write a book about what hereally does, his new book would be about raising bulls . . . and selling BS.There are other financial “experts” who know nothing about real estate, yetthey speak badly about real estate and say it is risky. The only reason real estateis risky for them is because they know nothing about investing in it. Instead,they recommend saving money and investing in a well-diversified portfolio ofmutual funds—investments which I believe are the riskiest investments in theworld, especially in this market. Why do they recommend investing in savingsand mutual funds? The answer is obvious: Many of these professionals are endorsed by banks, mutual fund companies, and the media. It’s good business toplug your sponsors’ businesses and products.Commissioning this book gives the public its first chance to learn from real,real estate investors, friends, and advisors—people who have been through theups and the downs and who walk their talk. This book gives them the opportunity to share the spotlight with the many media financial “experts” and speakthe truth. These real estate experts are true pros, and you’re about to move beyond the media hype. I hope you are ready. The Real Book of Real Estate is thereal deal.

TOM WHEELWRIGHT CHARLES LOTZAR WAYNE PALMER ROSS MCCALLISTER CRAIG COPPOLA GARRETT SUTTON BERNIE BAYSPART 1The Businessof Real Estate

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Tom WHEELWRIGHT1The Business of Real EstateTom Wheelwright is a rare combination of CPA, real estate investor, andteacher. He has the ability to take the complex and often boring subject oftax and tax law and make it into something that’s simple enough for a person likeme to understand.Tom understands the tax code. He actually enjoys reading the tax code, and because he is such a student of it, he understands this lengthy document better thananyone I know. Most CPAs focus on a very small part of the tax code. They focuson the part that lets you and most Americans defer taxes until retirement—thecode relating to IRAs, 401(k)s, and other so-called retirement plans. Tom also paysclose attention to the other, much lengthier part of the code that shows you how toreduce or eliminate your taxes permanently. The difference between Tom andother CPAs is that Tom understands the purpose of the tax code. It’s not just a setof rules. It’s a document that when followed is designed to reward certain behaviorsthrough lowering or eliminating taxes. Does your CPA see the tax code this way?I consider Tom to be a very moral and ethical man. He is very religious, raisedin the Mormon faith. While I am not Mormon, I do share many of the values ofthe Mormon religion—values such as tithing, giving at least 10 percent to spiritualmatters, and dedicating a number of years as a missionary. While I have never5

THE REAL BOOK OF REAL ESTATE6been a religious missionary, I have spent nearly ten years as a military missionary:a Marine Corps pilot in Vietnam, serving my country.One important lesson I have learned from Tom and others of the Mormon faithis the saying, “God does not need to receive, but humans need to give.” This remindsme of the importance of being generous. It is my opinion that greed rather thangenerosity has taken over the world. Every time I meet someone who is short ofmoney, or if I am short of money, I am reminded to be generous and to give what Iwould like to get. For example, if I want money, I need to give money. Havingbeen out of money a number of times in my life, I have had to remind myself togive money at times when I needed money the most. Today I make a point of donating regularly to charities and causes that are dear to my heart. My opinion is,if I cannot personally work at a cause near to my heart, then my money needs towork there for me. Going further, if I want kindness, then I need to give morekindness. If I want a smile, then I need to first give a smile. And if I want a punchin the mouth, then all I have to do is throw the first one.I asked my friend Tom Wheelwright to be a part of this book not only becausehe is a smart accountant—a team player that anyone who wants to be rich needsto add to his his team—but also because he comes from a generous and soundphilosophical background.Tom is a smart CPA who is an advocate of investing in real estate. Why? Because he knows that tax laws reward real estate investors more than they rewardstock investors. He is a great teacher, a generous man, and, most importantly, afriend I respect.—Robert KiyosakiIwas one of the fortunate few growing up. Unlike much of the rest of theworld—people who have been told to save their pennies and invest in mutualfunds—my parents taught me to invest in real estate and business. My fatherhad a printing business, and my mother handled their real estate portfolio.So, it was natural that once I had received my education, both formal andwork related, I opened my own business. (I had a lot of education before Ifinally opened my own business—a master’s degree in professional accounting,thirteen years of experience with international accounting firms, as well as experience as the in-house tax advisor to a Fortune 1000 company. I was a littleslow to realize the power of business.) When I started my accounting firm, Idid it like most people: I worked all hours of the day and rarely took a vacation.

ROBERT KIYOSAKI7When I did take a vacation, I still took calls from clients and colleagues. Afterall, business never rests, so why should I?Several years into my business, we had experienced significant growth, but Iwas still working day and night and never taking a real vacation. And outside ofmy business, I had no substantial assets. That’s when I read Rich Dad Poor Dadand first met Robert Kiyosaki. He helped me realize that I was thinking aboutbusiness all wrong. It was not about how hard I worked, but rather about howsmart I worked.Like many of you, my first real experience with Robert was at a Rich Dadseminar. There I was, sitting next to my business partner, Ann Mathis, and herhusband, Joe. Robert was talking about a subject near and dear to my heart—the tax benefits of real estate. Out of the blue, Robert asked me to come up tothe front of the room to explain the tax benefits of depreciation, introducingme as his “other accountant.”I had come to learn about Robert Kiyosaki and Rich Dad only a few monthsearlier. One of my good friends, George Duck, had become the chief financialofficer at Rich Dad and had introduced us. I’m not sure who was more nervousthat first time I went on stage, Robert or me. Can you imagine putting an accountant on stage? Robert had no idea that I had spent my life teaching in onecapacity or another, but he took the chance and put me up there anyway. Thisbegan a long and inspiring relationship between us, and it really launched myjourney toward financial freedom.I remember one of the first times Robert and I worked together. He used meas “muscle.” That’s right, he used his accountant as his muscle. Robert had beenasked by a reporter to give an interview for the business section of the ArizonaRepublic. The primary topic was how Robert could claim that he routinely received 40 percent returns on his investments.I went as the authoritative backup to Robert’s ideas. After all, someone mightnot believe a marketing genius (i.e., Robert) when he says he gets these levelsof returns, but who wouldn’t believe an accountant? When it comes to investing,numbers are everything, and who better to support the numbers than someonewho spends his life documenting, reviewing, and analyzing them?That was one of the first opportunities I had to explain the benefits of leverage that comes from real estate. Not long before, I had started my own realestate investing. You would think that with parents who were real estate investors, that I, too, would become a real estate investor. I had even spent my career helping real estate investors and developers reduce their tax burdens.

8THE REAL BOOK OF REAL ESTATENot so. I didn’t actually begin investing in real estate until after the first timeI played Robert’s game, CASHFLOW 101 . This game had a powerful impacton me. I saw, with my own eyes, the power of leverage in real estate. The gamewas so powerful that the next day after playing the game, I called one of myclients who had been investing in real estate for several years and asked him tomeet with me to show me how I could begin my own real estate investing.And then I began making serious changes to my business. My partner, Ann, asystems genius, created the systems, policies, and procedures in our firm so wecould focus on running the business and not working in the business. It took afew years, but eventually we were able to step away from working for hourlyprofessional fees and instead supervise and grow a business that worked withoutus.Now, I can take three weeks off each year with no e-mail or phone access, asI did just recently when I took my oldest son on a trip to the châteaux region ofnorthern France. I didn’t have to worry about my accounting firm or my realestate investments while I was gone because they were both running withoutmy daily attention.TIP Real estate investing is a business and should be run like a business.Robert talks a lot about the CASHFLOW Quadrant, with each labeled as E,S, B, and I. He emphasizes that we need to move out of the E (employee) and S(self employed) quadrants and into the B (business) and I (investor) quadrants.I have learned to take this one step further. That is, to move all I-quadrant investing into the B quadrant.Think about what you could do with the time you would have if you didn’thave to worry about tenants, repairs, and cash flow. How would it feel to eliminate the frustration that comes from constantly watching your real estate investments and worrying about if a tenant might call you in the middle of thenight with a problem? You can eliminate all of this stress and free up hundredsof hours of your time simply by running your real estate investments as a Bquadrant business.FIGURE 1.1 I’ve learned to take the quadrant a step further andfree up hundreds of hours of my time simply by running my realestate investments like a B-quadrant business.

ROBERT KIYOSAKI9It’s really not that difficult. You simply have to start acting like a businessand apply fundamental business principles to your real estate investing.Business Principle No. 1: StrategyEvery business has to have a plan. Your real estate investing business is no different. A strategy is simply a systematic plan of action designed to accomplishspecific goals. There are seven simple steps to creating a successful strategy.Step 1: ImagineBegin your strategy with goals. Imagine where you would like your real estateinvesting to take you. It may be a white sand beach in the Caribbean, unlimitedtime with your family, or working for your favorite charity. My favorite placesin the world are Hawai’i, France, Arizona, and Park City, Utah. So my dream isto own a house in each of these locations.Don’t be afraid of being too aggressive. These are your dreams, after all, notsome number that is artificially imposed by a financial advisor. Our clients frequently have dreams of fina

In countries where investing in real estate is limited or excessively con-trolled by the government, such as it was in former Communist Bloc countries, people suffer, and real estate deteriorates. Second, there are many different ways a person can participate and prosper with real estate. For most people, their only real estate investment is .