kiyosaki has reached new low - unbelievable

[nun]

Yup, rentals is not for the faint heart. Still working a vacancy: mice baits reveal another 2 dead mice; fridge is filthy beyond repair; don't ask about the bathroom; 2 dump runs to haul abandoned furniture; 2 abandon cars hauled. Entire unit has been repainted ... now steam clean the rugs; paint rather than replace the cabinets ... AND THEN rerent the place and start all over.

All in all not too bad ... I am thankful I didn't need to evict (he stifted me a month and a halfs rent).

I own a 2-family in Boston and I think its the least painful way to invest in rental real estate. I rent the downstairs apartment out. In 10 years I've had 2 tenents who I got through Craigslist. I can keep an eye on the place, but seldom have to do anything. The rent pays 2/3 of the mortgage and the value of the place has more than doubled since I bought it. However, I put my retirement and after tax savings into index funds rather than more rentalproperties as I'd hate to have all my eggs in the real estate basket and dealing with more than one renter would be a worry and take up too much of my free time.

 

[rmark]

Having attempted to read kiyosaki's article, I'm suprised once again that an investment columnist confuses a vehicle for investing (mutual fund, 401k, IRA) with the underlying investment (stock, bond, beev3r cheese EFT). I've seen this several times, and simply don't understand the confusion.

Quite honestly, I'm embarrassed for Yahoo.finance for having published this column.

 

[tryan]

yeah, things can run seamlessly for years. 2 of the tenants in my SF have been in the place more than 10 years. Not looking forward to THAT cleanup when they leave.

It seems the more settled they get the more crud collects. Once filled 3 dumpsters after evicting a woman and her "husband" after they lived in the unit 18 years and raised 9 kids (many foster childern).

 

[calmloki]

Yup, rentals is not for the faint heart. Still working a vacancy: mice baits reveal another 2 dead mice; fridge is filthy beyond repair; don't ask about the bathroom; 2 dump runs to haul abandoned furniture; 2 abandon cars hauled. Entire unit has been repainted ... now steam clean the rugs; paint rather than replace the cabinets ... AND THEN rerent the place and start all over.

All in all not too bad ... I am thankful I didn't need to evict (he stifted me a month and a halfs rent).

I really like sgeeeee's " ... exorcise them from the premises ...." - somehow he sounds like someone with a handle on rentals! We don't worry too much about getting stiffed as long as we get the place back standing. It will only take work and $$ to get it back together. The expense i find myself less and less inclined to spend is the emotional coin. Dealing with the few rotters is tough on one's rosy outlook on life; enforcing payment and performance from folks who have made and continue to make bad choices, or who are just the butt of bad fortune, hurts. When my gal worked as a service advisor and then service manager for a # of Chevy dealerships she got to be the recipient of a lot of unhappy people screaming in her face. They (often) had a right to be unhappy and she would do her best to make warranty work for them and to bring about a good outcome. As years went by the effect of being screamed at changed her. I find myself less and less open and giving with my tenants - not the way i want to be. Don't like having my way of dealing with the world influenced in a negative way.

 

[Olav23]

On the carpet cleaner vs Software entrepreneur, carpet cleaning can't be outsourced (except to cheap illegal labor I guess) and done over the 'net . So, perhaps the manual laborer really has the upside in the future!

 

[mb]

I feel the same as sgeeee about RE. I just don't want the hassle of being a land lord.

I suspect that Calmloki's earlier post is a pretty accurate description of reality.

Regarding some prior posts, I think that you need to separate two questions:

1 - Can you make a lot of money in RE?
2 - Do Kiyosaki's books and articles add value?

I think that the answer to (1) is "yes" although I'm quite happy with the return on my index funds and am not convinced that over long time periods you will do any better on a risk adjusted basis in RE.

I haven't read any of Kiyosaki's book but I have read his Yahoo articles. So far I don't think that have been worth the time that it takes to read them except perhaps for entertainment value and I can read them very quickly.

MB

 

[mathjak107]

i wouldnt be a landlord again ever ever ever. especially here in new york

 

[mathjak107]

I agree that, in the long-term, it is all but impossible to "easily" average annual returns of 30%-50% in mutual funds. It is certainly possible to luck out like this once in a while, but such returns are exceptional.

As to whether it is possible to earn average annual returns of 30-50% on real estate: well, I have my doubts. It just doesn't seem sustainable to me. Your experience is apparently limited to less than two years, which I respectfully suggest is not sufficient to provide a reliable comparison. Various studies have suggested that in the long-term (25+ years), real estate gains have averaged about 2%, after taking inflation into account.

P.S. Generally speaking, I don't think that anyone's opinion is more or less valuable because of the number or scarcity of previous posts.

even here in nyc where values in real estate tend to exceed the country averages our home was 235,000 in 1987. today its worth double that.

most of the gains were very quick over 2 short time frames . the rest of the time we trended down for a while and then very slowly bounced back.

our funds are up over 10x that amount in the same 20 years.

 

[kcowan]

even here in nyc where values in real estate tend to exceed the country averages our home was 235,000 in 1987. today its worth double that.

most of the gains were very quick over 2 short time frames . the rest of the time we trended down for a while and then very slowly bounced back.

our funds are up over 10x that amount in the same 20 years.

In the past 25 years, the DJIA has averaged a CAGR of 11+% a year. And that does not require any maintenance or management.

I have owned 4 homes in four cities over 30 years and I concluded that renting is better than owning for us. Most of the maintenance issues go away. And we have been making good money on our equity, in fact so good that we have now achieved 3.5% SWR. We are also in a place where rental economics are favorable.

 

[haha]

And we have been making good money on our equity, in fact so good that we have now achieved 3.5% SWR. We are also in a place where rental economics are favorable.

The first factor you mentioned is nice but essentially luck. You could also be losing money on your "equity". The second factor IMO is structural and solid.

Ha

 

[NinjaPigeon]

I agree that REI isn't all Kiyosaki spins it to be, but you guys are only attacking one aspect of it. That's at best narrow-sighted. Here are some points I felt nobody really covered that make RE a viable means of investment.

-You mentioned that the actual return on RE over time is something like 2% after inflation. You are only taking into account appreciation. That'd be like ignoring the dividends on the S&P500. If you're renting, you're getting some type of cash flow generally.

-You have an opportunity with RE to create money where none existed. Short sales are a perfect example. That creation of money is a return that doesn't get captured by looking at the appreciation of the FMV of the property.

-You keep mentioning the hassle of being a landlord. You don't have to hold the property you invest in. You can always clean it up and resell it.

Now, I'm not agreeing with Kiyosaki at all. I have all of my money in Mutual Funds right now. However, I've always been interested in doing REI and may do so at some point in the next few years as I have friends who do it now. I'd never bet the farm on it though; as mentioned earlier in this thread, you can score some great returns, but you can get hit with some nasty surprises as well.

REI is just a tool to create wealth, the same as stocks are. How successful you are in it has to do with education, determination, and a small bit of luck. A fool invested in RE is just as bad as a fool invested in the market.

 

[teejayevans]

In 1989, I rented a 1 brm apartment for $450, now in 2007 it's
costing me $560, also I was a landlord for a short time, I know
what's involved.
I'll take the low overhead, easy to liquidate, better return on
investment of stocks any day.
TJ

 

[bssc]

In my mind, I think that the advantage to real estate is the leverage that you have. With 10% down, you are getting 9 to 1 leverage. A margin account can only be leveraged 2 to 1.

Of course, when the market moves against you in RE, you end up upside down. In a margin account, margin calls ensure that your broker is protected.

 

[dmpi]

In my mind, I think that the advantage to real estate is the leverage that you have. With 10% down, you are getting 9 to 1 leverage. A margin account can only be leveraged 2 to 1.

Of course, when the market moves against you in RE, you end up upside down. In a margin account, margin calls ensure that your broker is protected.

The real question is : Is "leverage" really an advantage? Suppose you could margin stock 9 to 1, should you do it? I don't know he answer. I'm just asking the question.

 

[calmloki]

Eh - full disclosure time: rental real estate has paid our bills and is what we will be retiring on any time now. Thanks to RE (and a few other important factors [sparkling personality]) we have a net worth higher than most of the folks we know - 'course that could be a matter of the size of the pond we're in. Rental RE is not for everyone, or even most people. Done in a profitable way which gives good value to the tenants it is a whole lot like work. Flipping RE is a nifty way of making BIG MONEY in RE - at least that's what the tv seminars say. I envy the mad skillz of Carlton Sheets, Tom Vu and his "Distress Property", and the two short fellers. Just never rolled that way. Shoot, we even did our best to get the properties paid off ASAP, using as little OPM as possible. Totally the wrong thing to do according to just about anybody. Worked out anyway. Is this a great county, or what?

 

[mathjak107]

wasnt carlton sheets driven into bankruptcy following his own advice?

 

[bssc]

The real question is : Is "leverage" really an advantage? Suppose you could margin stock 9 to 1, should you do it? I don't know he answer. I'm just asking the question.

In theory, since markets and RE trend higher, leverage should give you an advantage. However, nine to one leverage doesn't leave you much leeway, especially if you bought at the top of the market.

 

[Spanky]

RE is all about location, location, location .. I know a lot of people have made big $$$ from rental (or even residential) properties in California. They purchased their properties before the boom. Timing or luck does matter.

If you do not want property management but still interested in RE, you can always hire a property manager or simply invest in a REIT index fund.

 

[Anansi]

As the length of this thread seems to demonstrate, RE and stocks are simply very different things and you really can't make a direct comparison between them that makes a lot of sense. Being a landlord or even flipping houses is a business. Buying mutual funds is passive investing.

Owning and managing your own property is an alternative to buying a franchise, starting a business from scratch, selling stuff on eBay or even a j*b, not to investing in the stock market. RE just happens to be a business most people understand, or think they do, that is relatively easy to get into. But it is still a business.

Personally, I have done both. In the right location (CA) and time (not now), thanks to the leverage involved, RE was ridiculously profitable. But it was also a lot of work and I wouldn't do it now even if I thought I could make those kinds of returns again.

 

[kcowan]

Done in a profitable way which gives good value to the tenants it is a whole lot like work....
Shoot, we even did our best to get the properties paid off ASAP, using as little OPM as possible. Totally the wrong thing to do according to just about anybody. Worked out anyway. Is this a great county, or what?

Thanks for your honest perspective and congratulations. Your post highlights two aspects to REI, namely that being a good landlord is like having another job, and that you used the investment as a forced savings plan by paying down the mortgage asap rather than using leverage.

Such a pursuit can be very lucrative is you hold a steady job that is not too demanding. In my working life, devoting extra time to the job was the best return on my time (commissioned sales), so I was not looking for any part-time job. The"excess" commissons were invested, and the DJIA has return over 11% per year for the last 25 years.

I did one real estate flip in the early days so I realize what is involved, and all the costs and risks involved. Doing it well takes a lot of time. Definitely not a free lunch.

 

[honobob]

Thanks for your honest perspective and congratulations. Your post highlights two aspects to REI, namely that being a good landlord is like having another job, and that you used the investment as a forced savings plan by paying down the mortgage asap rather than using leverage.

Such a pursuit can be very lucrative is you hold a steady job that is not too demanding. In my working life, devoting extra time to the job was the best return on my time (commissioned sales), so I was not looking for any part-time job. The"excess" commissons were invested, and the DJIA has return over 11% per year for the last 25 years.

Besides location, location, location Leverage is the best aspect of Real Estate. Don't confuse it with being "over leverged". My returns on my three oldest properties are 20%, 26%, and 23% compounded annualy. If I had invested the same amount in the 11% DJIA at 11% I would have about $160,000. Instead I have over $1,300,000 on just these three properties and a positive cash flow.

Yes, a few years of negative cash flow (not so bad after taxes) but after a certain point on each property it's all cash to the landlord!! My plumbing disaster has been one stopped up drain that I cured by giving the tenant a $10.00 plunger. Probably a little lucky but I also chose my product so that I would have maximum return on least effort. I manage 4 of these properties from a 3K mile distance.

Conservative appreciation is about 1.5 X my annual salary. I don't understand how anyone in a high cost area can claim that they make more in the market. They must be market genisus or the worst real estate investor ever! If you're the market genius, please share.

Pay off the mortgage? Yeah, I got all midwestern a few years ago and converted to a couple of 15 year mortgages chasing the rate. I was on a pay down tear until I projected my rents and appreciation and figured I'd be better off paying a 2003 fixed mortgage with my tenants 2020 rents!

 

[kcowan]

Conservative appreciation is about 1.5 X my annual salary. I don't understand how anyone in a high cost area can claim that they make more in the market. They must be market genisus or the worst real estate investor ever! If you're the market genius, please share...

Congratulations on your fortunate investment choices. What is your day job? Over how many years have you been invested in rental real estate?

 

[honobob]

Congratulations on your fortunate investment choices. What is your day job? Over how many years have you been invested in rental real estate?

Thanks!
Last twelve years I've been a guvmint worker. Took the job mainly for the medical bennies. I've been vested for over 6 years but I've created a pretty good situation for myself so may hang 5 more for the defined benefit plan. It is real estate related and I did sell real estate in college and law school but I don't think that has given me an edge in investing. There are people in my office who still didn't buy in 85 at $80K or 88 for $160 or
2000 for $250K or 2005 for $400K or 2007 for $600K+ (well you'd just be crazy to buy at $600K........or would you?) I also share in the appreciation of other properties where I came up with the down payment and they make the payments and the maintenance.

The 20% return I bought in the 70's, 26% from the 80's and 23% in the 90's. I bought in 2003 and 2004 and the return on them is so astronomical that I know they'll level out (and I'm not smart enough or Kiyosaki enough to work the BIG money) but in the 20% range seems to be the long haul rate and I can be happy with that.

I really think real estate has to be a component in WEALTH BUILDING. I may start to sell off after retirement but I may keep them and just harvest cash thru HELOC's or refi's.

 

[mathjak107]

we were down 20% in the 80's in new york city and long island

 

[bssc]

(and I'm not smart enough or Kiyosaki enough to work the BIG money)

So, you don't go on the Amway circuit pushing your books hoping to write one with the Donald.