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Robert Kiyosaki, Robert Allen, and Loral Langemeier would have you believe that in order to get rich all you need to do is throw your money into real estate, sit back, and let the profits come. It’s not that simple. There’s risk involved. You have to know what you’re doing.
Jon forwarded a link to what he calls “a personal finance trainwreck”. He writes: “If this guy is for real (and there appears to be some suspicion about that) then, wow. Unbelievable.” Casey at iamfacingforeclosure.com thought he could make a killing at real estate. He wanted to reach Financial Independence quickly.
I’m a 24-year-old aspiring real estate investor from Sacramento, California. After going to few seminars I bought eight houses in eight months across four states with no money down. I fixed and sold two and then ran out of cash. I am now facing foreclosure on
sixfive houses. I’m learning my lessons, finding solutions and blogging about it.
Casey’s story is fascinating. Here’s a young man who read Kiyosaki and Allen, and who is trying to find riches by following their advice. He’s trying to make money quickly, and is struggling, but is willing to share the gory details. In one entry, Casey writes that he and his wife are running out of money. They’ve been living on credit cards, which are now maxed out. He’s afraid he might have to get a job.
I can’t just do a job. I do not want to give up my dream of financial independence. If I get a full-time job, I will continue doing my business and investing on the side. Finding time to do both will be hard (tried it before many times). If I must do that, I will. But it will probably take much longer to reach my goals.
An hourly job has limited earnings potential. Getting a 3% raise every year is not my idea of “upwardly mobile”. Making $25/hour writing code seems like a waste of time when I can sell a real estate contract for $5,000 after doing 5 hours of work = that’s $1000/hour!
So if I can work really hard for one month and find just 2 deals, I can make $10,000. That’s much better return on my time.
Casey received many responses (the comments are the best part of the site), some helpful, some angry, some flabbergasted. Some are all of these at once.
You’ve just nailed the difference between fantasy and reality. [...] You are in the process of learning the difference between GAMBLING and INVESTING. Everything you’ve done so far has been gambling. Investing requires that one balance the risk with the rewards, diversify, and be dedicated. Some investments will fail, but a wise investor won’t have too much tied up in any single thing (like real estate purchased on a guru-drunken binge). Investments are made with money that one could stand to lose. Investing is not done by leveraging oneself up to the eyeballs and beyond, hoping for a miracle.
You can see television interviews with Casey (choose “House Flipper Part One” or “House Flipper Part Two” from the menu in the middle of the page). His story is also featured in two articles from the San Francisco Chronicle:
- A would-be real estate mogul follows boom tips straight to bust
- No spin is used as blog describes downward spiral
Langemeier, Kiyosaki, and Allen are inspirational. Some of their ideas may even be useful. (Prlinkbiz — who I’m sure will have something to say about this entry — is a huge Kiyosaki fan, and seems to be making his principles work for her.) But these folks preach that their methods are sure-fire ways to wealth and success. They overpromise in an attempt to sell books and seminars. Langemeier says she’s created 200 millionaires, and that she can make one out of anybody. Yet I can find no independent evidence that this has occurred. I’m not saying that it hasn’t happened, but I’m skeptical.
The only sure-fire way to wealth and success is to spend less than you earn, to save the difference, and to invest that savings for growth.
A couple more articles of interest:
- MSN Money: Nothing quick about getting rich with real estate (M.P. Dunleavey)
- Ripoff Report: Robert Allen
- John T. Reed’s analysis of Rich Dad, Poor Dad
- My own review of Loral Langemeier’s The Millionaire Maker
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October 20th, 2006 at 8:51 am
October 20th, 2006 at 8:58 am
LOL Not Kiyosaki fan- but subscriber to the same financial principles of investing in income producing assets and businesses as a means to financial freedom. This kid is right on in my opinion as far as investing in real estate will have a much better return for his time because of the ability to leverage.That being said, real estate is still not get rich quick; you cannot just throw your money into it. This kid bought at the top of the market in Sacramento- not a good start. I am totally with JD, you need to spend les than you earn, and then put that money back into investment growth vehicles. Some of us are always looking to increase our fiancial eduction, so we can use faster more sophisticated vehicles that generate a much higher and faster rate of return. If you don’t want to educate yourself, you should stick to slow safe investments. I have a circle of friends who chose education and hustled hard after it- and are now multi millionaires in a matter of a few years- whereas many of you will never reach that level because you either don’t believe it is possible or don’t want to work harder to increase your education so you can manage the risk. To each their own. I would just rather hit it hard now and enjoy my life.
October 20th, 2006 at 9:01 am
To counter balance the John T Reed BS link http://www.mastermindforum.com/kiyosakiresponsetoreed.htm
October 20th, 2006 at 9:21 am
Your right Kiyosaki and gang paint a too good to be true picture on getting rich quick (IMO).
However, as with just about all personal finance, money management material there are useful tools and techniques that can be applied to anyone trying to become financial secure. Risks are a necessary evil to increasing your net worth. Taking stupid risks like Casey admittedly did can cause a financial train wreck as much as smart risks can set you on a path to financial freedom.
October 20th, 2006 at 9:53 am
I am reminded of a famous quote from real estate mogul Trammel Crow who said “The road to riches is paved with debt.” But Crow made his big bucks during the upswing of the post-WWII real estate market.
I laugh at the financial ruin this bozo faces. He should be prosecuted for fraud, and many commenters on his blog expressed the same opinion, after reading how Mr. Real Estate lied on his loan applications.
October 20th, 2006 at 10:24 am
I read about this guy in the Blue (Metafilter) a few weeks ago; and skimmed the site. And yes, the comments are the absolute best part of the site.
A whole lot of “reap what you sow” and throwing under the bus.
My own personal take is that he got caught with his foot off the base and got called out, and now he’s arguing with the umpire. I still get a vague feeling of insincerity in his attempt to get out of this mess.
October 20th, 2006 at 11:54 am
I can’t see much in John T Reed’s analysis except for malice and spite. And entertainment value. Jealous finance book author?
I read a couple of Kiyosaki books but I can’t recall him advocating any get-rich quick schemes. Are you referring to his seminars?
http://www.litereviews.com/2006/07/28/rich-dad-poor-dad/
October 20th, 2006 at 12:14 pm
Has anyone ever seen Kiyosaki and Tom Vu in the same room at the same time? Remember Vu’s infomercials from the late 80s/early 90s? Real estate infomercials + sobering up after college beerfests = fun! Vu definitely advocated his course as a get-rich-quick scheme: “”A lot of your friends will tell you, ‘Don’t come to the seminar. It’s a get-rich-quick plan.’ Well, tell them, It is a get-rich-quick plan because life is too short to get rich slow.” (Bold is mine. Don’t be hating J.D., Tommy!)
A refresher course can be found at these links:
http://en.wikipedia.org/wiki/Tom_Vu
http://infomercial.tvheaven.com/tomvu.htm
John T. Reed also sounds off on Vu:
http://www.johntreed.com/Folsterletter.html
No word on whether he, like Kiyosaki, had his cat as a silent business partner.
October 20th, 2006 at 1:47 pm
Vincent, are you reading the same Reed page I am? While I acknowledge that they’re competitors and I’m taking the whole thing with a grain of salt, the issues brought up there seem *huge*. Like, lying about his background kind of thing. Kiyosaki’s response doesn’t even seem to deal with the fact that he’s never identified the ‘rich dad’ and nobody can find him, that he’s made deceptive statements regarding his own bankruptcy and education, and heck, even the fact that his descriptions of the different types of taxable income (and the huge tax disadvantages of incorporating) are completely wrong.
That’s the part that makes Kiyosaki suspect to me. No ‘rich man’ doesn’t know how to properly define long-term versus short-term capital gains. No ‘rich man’ talks about incorporation as a tax ideal, they rail at length about the double taxation on dividends. Yes, okay, I’m in accounting and those things stand out to me. He seems to actually know very little about finance and taxation for a guy claiming to be a multi-millionaire. Even without Reed’s analysis attached, most of the quotes on that page are completely off-base to anybody who really knows business.
October 20th, 2006 at 2:31 pm
Susan- what level of business do you play at? My guess is not Kiyosaki’s level. Rich Dad does exist, RK and Kim are wealthy through business and real estate, whether you agree with how they have done it or not.
October 20th, 2006 at 4:30 pm
I too found iamfacingforclosure via MeFi. While it makes compelling reading, it’s a very guilty pleasure: there seems to me no way it can end well short of Serin parlaying his story into a book/movie deal.
And while yes, the comments are often the best part (a lot of level-headed advice which Serin tends to ignore in his I’ll-trade-my-way-out-of-trouble way) they’re often the worst part too. A lot of rude berating, taunting, and ethnic slurs — and those are just the ones he allows through moderation.
Part of me also wonders if we’re all being played — at times the series of revelations seem a little too well-scripted.
As to Kiyosaki: to me him and his followers come across as a little too cultish, a little too evangelical, and a little too dismissive of anyone who dares to disagree.
The “anyone can do it” message is dangerous — surely Serin is vivid proof that *not* everyone can? And all too often the potential gains are touted and the potential risks ignored. Not everybody has a tolerance for the risks involved in property speculation.
The same applies to the evangelical promotion of entrepreneurship — “you gotta work for yourself to get wealthy”. What proportion of new businesses fail?
I have every respect for successful entrepreneurs and real-estate investors; but I’m also cognizant that success requires skills and risk tolerance that I do not necessarily have.
Serin’s dismissive of those of us who choose to work paid employment: “trading 1 unit of time for 1 unit of pay”, “a waste of time”. But hey: my situation’s a lot more stable than his, especially as a good proportion of each of those units is going to investment. Getting rich slowly feels a lot better than going bust quickly…
October 20th, 2006 at 4:44 pm
And on a personal-finance level, this post by Serin resonated somewhat:
http://iamfacingforeclosure.com/54/crazy-real-estate-accounting-mess/
We’re entering all the transactions into Microsoft Money and categorizing them. We have kept pretty good records of everything. It all just needs to be categorized. Lots of tedious work!
What this brings home is this: simply “keeping” records is not enough. If you don’t have a good overall view of your financial position, those big piles of bills and receipts are just so much paper.
He later comments:
http://iamfacingforeclosure.com/54/crazy-real-estate-accounting-mess/#comment-1634
That’s exactly what I’m trying to figure out as we go through all our transactions for the year… WHERE IS THE MONEY?
[...]
The cash is all gone … with nothing to show for it!
If he had been accounting as he went rather than after the fact he’d (a) know where the money went, and (b) may have spotted his looming disaster earlier.
For a long time now I’ve considered Microsoft Money my best investment ever: it’s undoubtedly repaid me what it cost hundreds if not thousands of times over.
October 20th, 2006 at 5:04 pm
prlinkbiz: It doesn’t matter what level you’re playing at. With a little research I could do tax planning for anybody, from Microsoft to Joe the Barber. The tax code is the same for everybody, though okay, Microsoft probably has a *fleet* of tax accountants, not just one.
The rich do not want corporate distributions as income. They go to great lengths to prevent that from happening. Much of what Kiyosaki seems to be saying corporations can claim as deductible expenses is outright bullsh… maybe I can’t say that here. Anyway. If they aren’t deductible expenses, then they’re double-taxed distributions. Even if they are deductible, however, you still have to pay taxes on receiving them. There’s no legal way to get that watch without the income being taxed to someone. None.
The rich incorporate for liability reasons, which are very valid, and then plan distributions based on their marginal tax rates, which can get complicated. If there were no liability fears, the rich would all be in partnerships. Direct income flow-through is much better to your bottom line.
His strategies for achieving wealth aren’t things I can accurately judge. Maybe real estate is a terrific thing to be in. Maybe rich people don’t own mutual funds. (I’ll keep mine, though; I’d rather be safe than rich.) What is absolutely true is that rich people do not have their corporations buy them fur coats, deduct the business expense, and then fail to claim the income. The IRS does brisk business auditing and fining people who try that. Maybe you can do it and not get caught, but it’s patently illegal and telling other people do it is highly unethical. Tax fraud is not a good strategy for getting rich.
And I stand by the fact that any self-made rich man knows what a ‘capital gain’ is and how it matters to his taxes. He’s espousing 1031 transfers and yet doesn’t seem to understand a capital gain, and that sort of scares me. I hope that his followers all have competent CPAs. But then, if he has a tax attorney… there’s probably a reason for that. If you’re not in trouble with the IRS, you don’t generally need one.
October 20th, 2006 at 6:18 pm
…And some of us don’t make the bold moves to become extremely rich (via real estate flipping, etc.) because we actually like our middle-class jobs and the lifestyle that they provide. I’m not rich, but I feel like I make much more money than I can use, thus I invest what I don’t spend. In some ways, I feel like I’m already a multi-millionaire, but without all that money. Does that make sense?
October 20th, 2006 at 7:47 pm
Susan, your pretty impressed with yourself. Maybe you should make some money first.
October 20th, 2006 at 8:56 pm
Making money isn’t the point, in this case. It’s not about money, it’s about the tax code.
I know the tax code fairly well. I can speak with some authority on the subject, certainly more than the average person who pays somebody else to do theirs. I don’t know whether you fall into that category or not. I don’t know as much as, for example, a major firm tax partner.
It doesn’t, however, take a major firm tax partner to know the ‘ordinary and necessary’ qualification for business deductions or the fact that any and all income is taxable unless otherwise specified. Anyone who says otherwise is lying to you. Anyone who says otherwise in a book that they’re trying to get people to purchase should be tarred and feathered, as far as I’m concerned.
I can be poor as a churchmouse and say that. It’s a matter of ethics, not wealth. You can dismiss that, if you personally think that getting rich by any means necessary is great. It’s probably easier than doing it the ethical way… but I’d far rather be poor with my ethics than rich without them.
October 21st, 2006 at 7:21 am
“Langemeier says she’s created 200 millionaires”
They don’t live in the United States then. The USA only has about 300 million people, last I checked (2004 data?)
That would mean 2 out of 3 people in this country are millionaires. I don’t think so.
As for Casey’s story - it sounds exactly like what Dave Ramsey (a real financial advisor who’s system WORKS) went through. He was in the real estate business buying foreclosures, fixing them and then selling for profit. Except he did all the fix up work on credit, borrowed all kinds of money and then when his bank was bought out, the new owner came to collect what he owed them.
I’ve read part of Rich Dad Poor Dad and I’ve seen part of the author’s seminar on PBS. I don’t buy his method. Ramsey’s Financial Peace University does work. At the very least, following his advise will get you out debt so you can have more disposable income to invest and grow, whichever method you prefer if you dont want to listen to his investment advice.
October 21st, 2006 at 8:56 am
Um, Joshua: that’s “200 millionaires”, not “200 million millionaires”.
October 23rd, 2006 at 5:44 am
Joshua ain’t too bright.
October 24th, 2006 at 7:14 am
[...] JD over at GetRichSlowly.org has a great article about Casey Serin. Casey is a kid who’s trying to get rich quick in Real-Estate. Here’s his story: [...]
October 24th, 2006 at 10:30 pm
I don’t see why a person CANNOT get rich quick… but still do it in an honest and safe way.
Whenever you hear “Get Rich Quick” you think somethhing bad.
And yes, if you read my story, it DOES sound like i’m just a big screw-up. AND YES.. I did do some stuff that I am NOT proud of (liar loans).
However, I am learning my lessons and hoping to make a comeback.
I am determined to find a way to make an honest buck in real estate in a down market. My mentor “Rich Dad” did it.
It took him only about 10 years. NOw he has 20K+/mo in PASSIVE income from RE.
Is 10 years too quick? What about 5 years?
October 25th, 2006 at 12:42 pm
[...] Last Friday I wrote about Casey Serin, the young man who is deep in debt because of risky real-estate investments. He’s blogging about his predicament at iamfacingforeclosure.com. Casey stopped by Get Rich Slowly yesterday and had this to say: I don’t see why a person CANNOT get rich quick… but still do it in an honest and safe way. Whenever you hear “Get Rich Quick” you think somethhing bad. [...]
October 26th, 2006 at 9:56 pm
I have friends who made it out of the rat race to become financially free at multiple millions a year levels- in two years, seven years, and by the age of thirty (3 separate), all different ways- all done right- mistakes and all. It can be done.
May 7th, 2007 at 1:26 pm
The way I see it, the guy above did two things Kiyosaki does NOT recommend- trying to go to fast and flipping. All these people on here are critical of Robert, but the truth is this kid went to far too fast and got greedy instead of doing a quarter of the homes and plowing the first few years of revenue back into bad debt reserve.
June 1st, 2007 at 9:10 am
JD,
Have you or this kid actually read Kiyosaki’s books? His own path to riches took over a decade when you consider all of the planning that first took place. Is that getting rich quick?
It appears to me that the people who are becomming financially destitute after reading these types of books are reading the advice selectively. Did they skip the chapters on planning, managing risk and developing systems? Or the chapters that talked about failing forward and that success usually comes after many unsuccessful attempts? They were looking for a get-rich-quick scheme when they purchased the book, so that’s what they found. The problem is, most of these books do not attempt to teach you how to “get-rich-quick”.
Sure, one can read a book, go off half-cocked and get leveraged up to their eye-balls…but they can’t blame that on something they read in book. To these folks I say: Do your due diligence, be patient, utilize funds that you can afford to lose, realize that you will screw up 5-10 times before you succeed, and stop blaming other people for your impatience and misinterpretation of the true principles taught in these books.
Blaming books…lol, that’s great.
December 7th, 2007 at 10:31 pm
Most of Kiyosaki’s followers lack critical thinking skills and so simply take a leap of faith and believe everything he writes or says. prlinkbiz’s immature criticisms of the far more articulate Susan above are prime examples of the Kiyosaki fan phenomenon. Lots of macho talk and platitudes because they cannot handle the truth that Kiyosaki made his money selling books and games to them, not by investing in real estate.
John T. Reed followers are equally feeble minded in that he continues to recommend real estate gurus who have long ago been proved to be complete frauds. Case in point is Robert J. Abalos, who John T. Reed continues to recommend to this very day, despite Abalos having ripped off dozens of customers, admitted his misdeeds, promised to refund everyone, failed to voluntarily refund anyone (lots of credit card chargebacks against him though), and has now shut down all his websites and skipped town. Some have gone so far as to suggest that Reed is complicit in Abalos’ thefts by knowingly endorsing a well-documented cyberthief. Reed appears to stick by Abalos despite the facts (or, he enjoys the controversy so that his use of other authors’ names on his website continues to increase his organic search results — that is the REAL reason behind his guru review series). For more info on Abalos’ crimes, see http://www.robertabalosrevealed.com. It’s one doozy of a site - especially the courtroom audio recordings!
December 13th, 2007 at 1:55 pm
prlinkbiz says:”I have friends who made it out of the rat race to become financially free at multiple millions a year levels- in two years, seven years, and by the age of thirty (3 separate), all different ways- all done right- mistakes and all. It can be done.”
Do you mean 3 different ways in real estate or you mean 3 different business industries. Which one?