Kiyosaki's Seminars Investigated

Canadian TV has a story on the Kiyosaki's Rich Dad seminars. The upshot seems to be that they are basically non-educational and nothing more than extended sales pitches for more products and seminars. (I do have to disagree with the story's characterizations of lease-options and preforeclosures - these are valid investments and I have made money using both of them.)

Personally, I tend to agree. I've never been to a seminar I had to pay for. I just don't see the point. Kiyosaki has written lots of books, many of which I've read. I also was an active participant on the discussion forumson his website, which is where I met other RE investors and got most of my financial and real estate education. These are free or low-cost methods of learning. The only Kiyosaki seminar I attended was a free one that lasted a couple of hours. This was long ago – back before he got the image consultant and was still wearing Hawaiian shirts to appearances instead of suits. I’ve gone to a couple of other events he’s been at, all of which were free.

I can see where he is going and he is going to face increasing criticism like this. At one of the events I was at, he was talking about cashflow and how one of his goals was to increase it. He said he was currently getting about a million dollars a month in cash flow and he had talked with Oprah, who was cashflowing about a million dollars a day. His goal was to get to her level of cashflow.

Now to get to that level, you need to sell to a lot of people over and over. Books alone aren’t going to cut it. So I can see him branching out into other areas – seminars, videos, etc. And you can’t give seminars to tens of thousands of people on your own, so he has to hire or partner with other seminar companies. To get the recurring revenue, you also need to promote the need for more seminars, which seminar companies are good at doing.

Oprah has created her empire through television. She has her own show and it is her alone that millions of people watch and identify with. She is not giving seminars using other people and companies to promote her name. That is the big difference. She has a level of control over her empire that Kiyosaki can never have, not with the model he is using. It’s possible he knows this. He tried to go the television route before. He had a show on a local Phoenix television station that lasted a couple of episodes before it was cancelled. His wife also had a show that lasted slightly longer. Since the television route failed, the only other option he has for reaching the huge number of people needed to obtain his cashflow goal is by using surrogates to spread his message. By definition, he has therefore given up some control of his message by allowing others to teach in his name.

The other problem is his subject matter. Oprah talks to people about books, feelings, ways to live your life, and other topics that typically do not require her fans to invest large sums of money. Kiyosaki however, is teaching about real estate and, increasingly, stocks. Investing in these can require (although not necessarily) large amounts of money. Unwise or poorly educated people can, and have, lose all their savings and wind up bankrupt. Further, the law of averages guarantees this will happen to some of Kiyosaki’s followers, no matter what he does. Because the losses can be so great, dissatisfied followers will be more vocal and receive more publicity than dissatisfied followers of Oprah would. If you buy a book that Oprah recommends and you don’t like it, you’re out $5 to $15 bucks. If you buy a rental property like Kiyosaki says and you can’t manage it, you could go bankrupt. That’s a big difference. It’s why, in my opinion, Kiyosaki will never reach his cashflow goal. The number of people required to reach such a goal ensures there will be people who fail and failures in his field of play are enormously magnified, which in turn, discourages others.

This is not to say I am anti-Kiyosaki. His first several books are still filled with valid advice: stop buying liabilities, start buying assets, increase your cashflow. I still believe substantial passive income should be a goal of everyone. But it’s hard to continue to create content on this narrow topic. I stopped reading his books after Retire Young Retire Rich because I felt he was repeating himself.

Bottom line: learn and live Kiyosaki’s core message from his first couple of books. Don’t bother with expensive seminars. Educate yourself by meeting with other real estate investors in your local area and from reading free on-line communities. Be skeptical but keep an open mind. Check out the accomplishments of those whose advice you feel inclined to take to make sure they know what they are talking about. Don’t expect to get rich overnight.

Man Bulldozes Foreclosed Home

An Ohio man lost his home to foreclosure and bulldozed his house rather than let the bank take it back. It seems he was sued and the IRS placed a lien on his home. The bank claimed the home as collateral.

From what I can tell, it sounds like the guy got a loan from the bank and built the house himself. He owed $160,000 on it. The bank started foreclosure. The home was supposedly worth $350,000 and the owner had an offer to buy it for $170,000. The bank rejected this, saying they could get more for it at auction. So the man decided he would return the property to the way it was when the bank gave him the loan - just an empty lot - and he bulldozed the house.

As much as I hate to say it, I have to agree with the owner here. The bank was just plain greedy. He had an offer that would have paid off the bank completely, but the bank rejected it because they thought they could get more money. That was just stupid.Whoever made that decision at the bank should be fired.

Now there is probably more to this story. For example, why did the IRS put a lien on his house and how much did he owe them? It might be that the $170,000 was not enough to pay off the IRS and the bank, which is why the bank rejected it. As you know, IRS liens get paid off before any other liens, so maybe the bank would have lost money with that offer. If that's the case, I would have to side with the bank. But, lacking any info to the contrary, I think the bank screwed up.

I Started Another Blog!

I started a second blog about my iPhone and what I have done to customize it.

You can find it here.

Hard Money Loan #11

My partner finally found another property to invest my principle from hard money loan #9, which was paid off a little over a month ago. Hard money loan #11 is on a property picked up for one cent over opening bid at a foreclosure auction in San Ramon, California. I normally don't post photos of the properties I am lending on here, but this one is just beautiful, so I have to. For a foreclosure, this is in excellent shape.




This was a rental property and my partner spoke with the owner (who was being foreclosed on). He said he has two tenants living in the property who are paying him $1,600 a month in rent. The lender sent the tenants a letter stating they can live in the property for up to 60 days after the sale. Not sure what authority they have to make that promise since after the sale, it is no longer the lender's property and they should have no say in what is done with it. But anyway, when my partner was there, the tenants were loading a U-Haul, so they don't seem to be planning on staying.

The house was purchased at auction for $577,000 cash and the first mortgage I am a part of will be for $400,000. This gives a LTV of 69% based on the purchase price. The property was purchased in 2004 for $860,000. Current estimate of worth is between $650,000 and $700,000. Buyer is my partner's wife, who has a credit score in the 800s. The interest rate is 9%, which is one percent less than what I normally get. I consider it an employee discount :-) Mortgage is for one year, but we expect it to be paid off in 6 months.

New Year, New Opportunities

The holidays were a pretty busy time for me and I realized I neglected to write about the performance of my Houston apartment complex investment. I also just got the update for December, so I’ll write about both now.

In November, occupancy dropped to 90%, due in part to the declining Houston economy. This property still continues to outperform the other apartment complexes in the area by 3-5%. The manager expected vacancies to remain at this level though December due to the holiday season, but expressed hope that rentals will increase after the first of the year. Cash flow decreased to just under $4,000 for the month and was impacted by higher insurance costs and real estate tax escrow requirements, as mentioned in the last update.

For December, occupancy remained flat, as expected. The submarket we are in declined to an overall occupancy of 87%, so we are still ahead of the curve. Unemployment in the area has increased from 6.5% in Q1 of 2009 to 8.4% in Q4 of 2009. Obviously, that affects the availability of renters. The Managers are cautiously optimistic for 2010 because job losses have slowed and they have increased their marketing efforts to attract new tenants. Cash flow dropped to just around $350, still impacted by higher insurance and tax escrow requirements. The good news is the management has obtained new insurance that will reduce the cost by about 30%, which translates to a savings of about $35,000 per year. The decrease in cash flow means there will be no end of year distribution to investors. For 2009, investors so far have received a 6.75% annual return overall. Management fully expects investor payments to continue next quarter. The semi-yearly investor conference call will be held the first week of February and I’ll have more info then.

I continue to receive on-time payments on hard money loans #10, 8, and 4. HML #9 was paid off at the end of December and that money is sitting with my partner looking for a new investment. We had one lined up, but it was a short sale and at the last minute, the bank decided to reject the offer, so that fell through.

My move towards a self-directed IRA is making progress. I have converted my rollover IRA to a tradional IRA and then to a Roth IRA. The next step is to transfer the funds to the company the sets up the self-directed IRA. I was planning on going with the iTrust product, but after discussion with the company, have realized that the LLC product, rather than the trust, is a better fit for what I will be doing. The only thing holding this up is that I haven't had time to fill out the paperwork yet. I hope to get that done this week. I'm not in a huge rush as it seems the hard money opportunities are slowing down a bit. My partner is noticing increased competition at the foreclosure auctions.

And finally, it’s been over a year since I was laid off from my day job, but I will finally be hired as a full-time employee again come next Monday. The company I have been working as a contractor for for the last nine months or so has decided to bring me on board permanently. While my passive income is not yet high enough to cover my living expenses, it was high enough to cover the expenses of my loans and credit cards during the year I was laid off. (I normally don’t carry a balance on my credit cards, but the layoff changed that temporarily.) It was a huge relief knowing those bills were covered during the times I had no income coming in. My practice of putting 15% of my paycheck into a savings account also helped my ride out that year. This whole experience has taught me the importance of both passive income and maintaining an emergency savings account.