Sunday, June 12, 2005

Kiyosaki's Killings in Real Estate

A Snapshot, and Vidication, of "Rich Dad's" Portfolio

Mr. Suleske sent me this link about a critique of Robert Kiyosaki's and his teachings, of whom he and I are big fans. Robert Kiyosaki, the famous author of the Rich Dad series of books, is both famous and infamous in the world of financial advice. His books opened up for me and others a whole new world of looking at finance, with his thesis that you get rich by working smart, being creative and courageous, not just by working hard for the man. But there've been alot of rumors and complaint that his entire portfolio and life story have been made up, and that he's gets rich only by talking about getting rich. People allege that he never owned property where and when he said that he did.

These rumors are false. Any search of online title records show that he was a very savvy investor with a very diverse portfolio, who made very profitable and unorthodox real estate investments.

A snapshot of his feats can be found in the Maricopa County online real estate indexes through the early to mid 1990s. This period represents a transional period in his life, the apogee of his investment career and the start of his writing career, the years he wrote and published his first book, 5-7 years before Rich Dad. Kiyosaki says that he lived in Phoenix for several years and made several profitable investments. And how!

First, Kiyosaki made several purchases in Veteran Association ("VA") properties, apparently foreclosure sales. During 1992-93, Robert and Kim Kiyosaki bought five of these properties: this one, this one, this one, this one, and this one.

The VA also provided financing for this properties, and judging by that financing, they were a steal--between $40,061.00 and $52,468.00. I suspect, but cannot confirm, that Kiyosaki had to pay $4,000.00 to $5,200.00 down for each.

Then Kiyosaki finds inhabitants for the properties, and transacted what is known as an Installment Sales Contract ("ISK")1. Kiyosaki agrees to have the tenant/purchaser pay for the house in monthly installments. At the end of those installments, the purchaser/tenant owns the house. But if he doesn't make the installments, Kiyosaki has the right to kick him out (which, on occasion, he did!). In reality, the arrangement is little more than a rental situation, but it does afford the inhabitant some financial options and additional debtor's rights under the law. Think of it as a rent-to-own situation. (Note that this is a rather big-hearted thing for Kiyosaki to do; he's giving his tenants the opportunity to own their own home, instead of just renting them out, as is standard.)

An good example of the ups-and-downs of his investments is what transpired is his Casitas Bonitas property. It happened as follows

  • 11/24/93--Kiyosaki buys and finances the property from the VA. It's safe to assume something like a 7.5%2, 30-year mortgage, payable in monthly installments of $368.00, plus taxes and other fees.

  • Between 11/92 and 5/15/95--He finds a tenant names Rose Benally. He makes an ISK with her to live in and purchase the house. The ISK provides for payments of $625.00/mo. Thus, Kiyosaki is earning about $257.00 a month on the deal. But Benally begins to default on the payments. Kiyosaki cancels the ISK and evicts her, and now has about $1,000.00 more in equity than 2.5 years ago.

  • Between 5/15/95 and 8/96--Kiyosaki licks his wounds and transfers the property to his holding company. He maybe went through another tenant or two, but finally makes another ISK with the Dennis and Elizabeth Lint. This time, Kiyosaki is getting $657.14/mo. Note however that now the house is pretty beat up: The pool pump isn't working, the air conditioning isn't working, and the kitchen stove is broken. Nevertheless, the payoff amount is $74,000.00. Much better than the initial cost. Kiyosaki has made anywhere from $15,000.00 to $20,000.00 from the deal, plus the spread his higher installment schedule compared to the mortgage he's paying down.

  • 8/96 to present--There no more about this property, so we can assume that the condition has stabilized. Kiyosaki is now getting about $290.00 a month cashflow from the investment, which maybe necessitated a down payment of only $6,000.00 or so.

    However, this deal was small potatoes for Kiyosaki by this time, much bigger was the office building/hotel he bought from the National Model Railroad Association for about $1,000,000.00 as the initial financing would indicate, then made $28,000.00 in a year when he cashed out the equity in a subsequent mortgage, not to mention whatever rental he was getting. (This may also have been his main offices at the time).

    So Kiyosaki's for real! He's done exactly the kinds of deals, with exactly the kinds of peaks and valleys, that he talks about in his books. I wish those people who say that Kiyosaki's full of BS would check their facts first. The internet give no excuse for lack of information.

    1 That's the standard legal abbreviation. Don't ask me why "kontract" is abbreviated with a "k">

    2 The going interest rates in 11/1993 were around 7.08 to 7.31%.


    UPDATE: Greetings, visitors, from The Carnival of the Capitalists


    At 6:49 PM, Blogger Christopher said...

    excellent work, Louis. deserves to be picked-up. regards, christopher.

    At 12:47 PM, Blogger Thurston said...

    The larger question surrounding Kiyosaki that needs to be asked and hasn't is: Do his methods work? In short, yes.

    Is he inspiring people to make their lives better? Yes

    Is he teaching something that is not offered in schools? Yes

    I have more thoughts, check them out here:

    At 3:16 PM, Blogger Christopher said...

    T.H. III - i believe that question is inherent with and incumbent upon answering the question Louis has endeavored to answer.

    If Kiyosaki hadn't done what he said he'd done, then he'd be a fraud and his methods not worthy of consideration.

    Men who have done nothing and yet profess great things are a dime a dozen (well, $99.95 plus $9.95 s/h on late night TV). A man who professes great things - the great things he has done - these are few and far between.

    Most who do great things do not spend time professing as much. There is too much greatness to be had. But some take their greatness and decide to market it - not surprisingly - for add'l greatness, either monetarily or altruistically.

    Kiyosaki could come out with another course in several years called "Successful Brand Marketing". And the basis would be the "Rich Dad" series. :-)


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