Who is right? Poor Dad or Rich Dad's Son?

26 Replies

Here's the scenario:

I'm taking the real estate exam in April and need your advice.  I'm currently the owner of a small dog walking business.  It's tough to scale and I'm stuck in it.  My dream is passive income and an automated business that gives me more time to snowboard in Lake Tahoe.

Growing up, my best friend's dad had all the time & money in the world because of his investment portfolio.  My dad, on the other hand, has only one investment property and is unable to retire.  Both dads & my best friend are in commercial real estate.  Here's what they have to say:

Poor Dad says, "Investing is not easy & you need to get started in brokerage or property management to build a foundation.  You'll get burned if you try and jump right in.  Close shop on your dog walking business and get a job in real estate first."


Rich Dad's son says, "Keep your dog walking business in operation.  Look for deals at night and in your free time.  We're looking for multi-family properties with 20-60 units, C+ to B, built after 1980, etc..  Find a deal, bring it to me, we will partner on it, and bring it to our investors.  We just need one deal together to get started and everything you'll need to know you will learn by doing."

Who is right?

Based on what you've posted, I would go with Rich Dad's son. Poor Dad just has you trading one job for another job. Granted, working in real estate is probably more conducive to learning this business than dog-walking, but you need to pay the bills while you are figuring it out either way and if you can do that with your current job, there's some rationale that says keep the current job while you figure out how to scale up. 

Don't quit the dog walking thing till it prevents you from doing deals.... at this point it doesn't. The deals you seek, so does everyone else... it's going to take time and luck to find them.... 

I'd keep the business (don't have much info to go on). Maybe hire out the walking and you manage the scheduling/invoicing. Your dog walking clients could be your next motivated sellers (or buyers). Your dog walking employees could be your RE employees "walking" for dollars and canvassing. 

I would do both.

get a job in real estate

invest in real estate on the side

you're right, no scale in dog walking. you need new regular income and a way to start investing, these are not mutually exclusive, do both

Option 2 at this time however I started my career with one duplex and a property management company. I now own 2k units, manage 700 more third party and plan to acquire 1 to 2k more in the next 12 to 18 months.  My management biz (for me) is key to making the whole machine work well.

All the best either way!

@Nick Carrel , There once was a man who loved dogs.  His dream was to be with dogs and love dogs and care for dogs.  so he started a dog walking business.  He did extremely well because he was doing what he loved and the dogs were happy and the owners were happy. One of the owners, a successful business man on his 3rd wife and 2nd ulcer told him that he could really be successful if he scaled his dog walking business.  

So the man hired another walker and then another and another.  His business went crazy and he had to increase his marketing to keep up with his walkers.  And one day at the end of the day he was wondering why he felt so sad.   After all he was the most successful dog walker in the land .  And he realized that he hadn't interacted with a real dog in weeks.  He was not a dog walker.  he was a business owner!  

Tongue in cheek but be careful that what you wish for is really what you wish.  Find your passion and pursue it.  If real estate can provide ways for you to enjoy your passion then great.  But be wary of accepting real estate as a passion if in your heart it is really a means to an end.

You're never going to be injured by learning more about what you're doing. Knowledge is power, so the poor dad is right in suggesting you get more knowledge first-hand. Experience is the best teacher.

Rich dad is also right because he's basically offering to back you and mentor you in a deal. That's, honestly, an ideal situation. You'll have to do some research yourself, if you don't have the foundational knowledge, to figure out what would be a good deal to bring to him. That knowledge you may be able to get through working actively in a real estate job...

Like others have said, do both if you can. If you had to absolutely pick one, go with rich dad as that's going to be a much more valuable, and hopefully profitable, experience. You'll never be more incentivized to learn all you can about something than when your financial well-being and prosperity are dependent on it.

Peter MacKercher, Real Estate Agent in MO (#2010004223)
(314) 210-4414
Originally posted by @Dave Foster :

@Nick Carrel , There once was a man who loved dogs.  His dream was to be with dogs and love dogs and care for dogs.  so he started a dog walking business.  He did extremely well because he was doing what he loved and the dogs were happy and the owners were happy. One of the owners, a successful business man on his 3rd wife and 2nd ulcer told him that he could really be successful if he scaled his dog walking business.  

So the man hired another walker and then another and another.  His business went crazy and he had to increase his marketing to keep up with his walkers.  And one day at the end of the day he was wondering why he felt so sad.   After all he was the most successful dog walker in the land .  And he realized that he hadn't interacted with a real dog in weeks.  He was not a dog walker.  he was a business owner!  

Tongue in cheek but be careful that what you wish for is really what you wish.  Find your passion and pursue it.  If real estate can provide ways for you to enjoy your passion then great.  But be wary of accepting real estate as a passion if in your heart it is really a means to an end.

 Ha! Love it. Reminds me of the Mexican fisherman story:

Tourist in Mexico sees this guy coming off the fishing boat with a few nice big fish. Asks the guy how long it took him to catch those fish; "Couple hours", says the fisherman. "What do you do the rest of the day?" asks the tourist. "Take a nap, play some guitar, go into town and drink some wine with my friends". "That's crazy!" says the tourist - "You should scale this up, you could be fishing many hours more and sell the excess fish and make a bunch of money, then take that money and scale up, buy a fleet of fishing boats, hire workers, and make a billion dollars!" "Then what?" asks the fisherman - "Then you retire! You buy a little house on the coast, go fishing for a couple of hours, play some guitar, and go into town and drink some wine with your friends" 

:D

@Nick Carrel I hope you know that the author - Robert Kiyosaki - has admitted that he just made up the entire story about Rich Dad, Poor Dad. Most of those "incidents" never happened. Kiyosaki has a great flair for marketing and used his writing as a marketing vehicle. 

Most people and situations aren't as black and white as you have mentioned. There is complexity and each person (like each situation) responds very differently. I know this is a RE forum and everyone is RE crazy, but there are other investments out there. 

Long term even index funds have performed better than RE (drawing broad strokes here, RE investing is local and market dependent). Ideally, we should all strive to be like Bill Gate or Sam Walton. Realistically, we all know that is not going to happen. 

If the only advice you are getting is black and white, you need to consider changing who you look to for advice. 

In simplest terms, using Kiyosaki speak, you need to focus on moving from the "S" quadrant to the "B" quadrant. Sounds simple, yet few are capable of doing it. Your dream of snowboarding requires you are absent from the business and means your business can run without you present. Getting your real estate license won't get you there, since licensed brokers (who occupy the "S" quadrant) need to be present to get commissions. 

When you partner with someone, make sure you know the terms of the partnership. When I partner, the 'other side' needs capital (cash or the ability to get cash), expertise, or something of tangible value. Just make sure you know the game. 

So my answer would be to read Cash Flow Quadrant and make your dog walking business run as a business that doesn't rely on you as an individual.  My 2 cents. 

The poor dads tells you what you can’t do

The rich dad tells you what you can do

Do you want to tell us what you can’t do, or do you wanna tell us what you are going to do?

@Omar Khan you stated “Long term even index funds have performed better than RE (drawing broad strokes here, RE investing is local and market dependent). I have heard other people state that in the forums at different times two. But I just don’t understand how that is true number wise.  For instance, here are the numbers of one of my lowest performing properties in Arizona: 

 Purchase price: $130,000 

 Rehab, carrying costs, and closing costs: about $21,000 

 Bank loan: about $104,000 

 Option fee collected from tenant/buyer: $5,000

 My total investment into the property: about $42,000 

 Monthly rent: $1250 

 Mortgage: $667

 Other expenses: $137 ( tenant takes care of all repairs)

 Monthly cash flow: $446

 Contracted for sale at $172,000 for a five-year lease option. 

 Total cash flow in five years: $26,760

 Profit from sale of property in 5 years: $41,285

 Total profit over five years: $68,045

ROI: 162%

Yearly ROI: 32%

And this is one of my lowest performing properties.  Most of my ROIs are over 100% per year because I have a lot less of my own money into the other properties. I just wanted to use one of my lowest properties as an example. 

I don’t mean to be argumentative, but I am trying to understand why people say that the stock market gets better returns than real estate.

Remember where Kiyosaki made his buck. Not by investing but by inventing these 2 dads and selling books about them.

Originally posted by @Shiloh Lundahl :

@Omar Khan you stated “Long term even index funds have performed better than RE (drawing broad strokes here, RE investing is local and market dependent). I have heard other people state that in the forums at different times two. But I just don’t understand how that is true number wise.  For instance, here are the numbers of one of my lowest performing properties in Arizona: 

 Purchase price: $130,000 

 Rehab, carrying costs, and closing costs: about $21,000 

 Bank loan: about $104,000 

 Option fee collected from tenant/buyer: $5,000

 My total investment into the property: about $42,000 

 Monthly rent: $1250 

 Mortgage: $667

 Other expenses: $137 ( tenant takes care of all repairs)

 Monthly cash flow: $446

 Contracted for sale at $172,000 for a five-year lease option. 

 Total cash flow in five years: $26,760

 Profit from sale of property in 5 years: $41,285

 Total profit over five years: $68,045

ROI: 162%

Yearly ROI: 32%

And this is one of my lowest performing properties.  Most of my ROIs are over 100% per year because I have a lot less of my own money into the other properties. I just wanted to use one of my lowest properties as an example. 

I don’t mean to be argumentative, but I am trying to understand why people say that the stock market gets better returns than real estate.

Disclaimer: I don’t know anything about your investing acumen. I am assuming you are a better than average investor. You are also benefitting from investing in a fragmented, private market where you have informational alpha (i.e. information is not publicly available).

Now for my answer J

Historically (long-term) stock market returns have beaten most asset classes including RE. This is across the entire market and not based off one company/sub-market returns.

In your particular case, you are cherry picking data. The market has been on a tear since 2008. Like most posters (myself included), you really got going over the past 5-8 years. Hence, you are not accounting for returns over the entire business cycle.

Furthermore, you cannot base results off the returns of one market/sub-market where you’ve not taken into account all the various RE products. The index takes into account the entire market.

A counterpoint to this might be that your research has indicated that a particular type of RE investing – e.g. SFR – offers better risk-adjusted returns over multiple business cycles (historically). Hence, you could be justified in following that approach. But time and time again, research has shown that it is not the case.

It would be interesting to see returns over a 50-year period to better understand the risk-return profile. Luckily, for most of us, we avoided the 2008 crisis. It would be very interesting to see results if you include data from 2007 onwards.

For instance, see below for my cherry picked answer:

I would be very interested in seeing an approx. 8.5 year returns that equal or better 57,775% returns (in real estate or any other market). If you can create a process that is repeatable and guarantees even half these returns, please, let me know where I can sign up. As a bonus, you will also become my best friend… lol.

Another example of cherry picked data:

Do you think most investor’s real estate portfolio returns are more robust or of higher quality than Amazon’s returns of 446.49% over 5 years?

As a side note, you could also be a great investor. The average does not account for that. All markets exhibits mean reversion when it comes to returns. Everything that rises must comes down.

Another perspective that investors, especially on BP, don’t consider is the liquidity premium that is attached to real estate (or any other private investing vehicle). If an investor is facing financial difficulties, they can quickly liquidate their stock market portfolio with minimal, if any, costs (this exacerbates the worst investor behaviors). That is not the case with real estate who by sheer accident (not because they are smarter than other investors) are unable to engage in this reckless behavior.

Furthermore, in private markets like RE, prices are not marked-to-market daily. Hence, there is a perception of lower price volatility. This contributes to perceived portfolio stability (from a valuation perspective), less volatility (as measured by standard deviation) and hence, better risk-adjusted returns (when using conventional measures of risk management).

This does not mean investing in RE is a bad option or that we should only invest in the stock market. The addition of RE (and other private market investing) has been shown to increase a portfolio’s risk-adjusted returns. This is, primarily, because of the decreased price volatility as well as the inability of the investor to make rash decisions by quickly liquidating their portfolio during a market downturn (behavioral economics 101).

Also, look at the list of the richest people in the world. The top 10 richest people in the world did not make their money in real estate. They park their money in real estate but they made the bulk of their fortune somewhere else. Why? Because successful businesses – the heartbeat of capitalism – have to offer way higher returns to compensate the entrepreneur for the massive amounts of risk they are taking.

Personally, I love real estate and will continue to invest in it. But facts are facts. 

P.S. As @Sam Josh has pointed out that Kiyosaki made his money on the books. His investing career isn't stellar. Reason being that he created a business which generated amazing long-term returns (we're still talking about him) as well as afforded him the ability to leverage that into media appearances (which further generated more capital). His companies btw have declared bankruptcy and his co-author Sharon Lechter initiated legal proceedings against him. 

This takes nothing away from his genius in writing and marketing his books. 

I always find the stocks/commodities vs. real estate return argument humorous. @Shiloh Lundahl Shiloh, I see your ROI is based on future (5 years out) events. I created a company last year with about $350K in capital contributions so far, that will have an $80M valuation in 5 years. Talk about return! It's right there in my slide #8. LOL! Show me a 2006-2007 real estate purchase that has a consistent 32% annual ROI. Or, better, show me a market that has a consistent 32% annual ROI starting in 2007. It isn't AZ (source: St Louis Fed), based on the numbers. But, clearly, you have powers and abilities that are far superior to average folk like me. While I have invested and profited (meaning realized gains) in 6 10-baggers (stocks that increase 10 fold, or 1000%, or more) in my life, I only have a few real estate multi-baggers, all less than 3X. Indeed, I am a cash flow (not appreciation) investor when it comes to REI.

@Omar Khan Omar has it right. For most people, the real money is in building a multi-million dollar business. Then park it in tax advantaged real estate. Domestic investors and investors from all over the world know this, hence we have see a large influx of investment capital in the past several years into the US real estate market.

Listen to rich dad. It is a mystery to me why people listen to the advice of losers who don't know what they are talking about and don't listen to people who have actually done what they are purporting to teach.

Call up the rich dad guy and ask if you can talk to him about real estate investing. Most people love to talk about themselves (you heard it here first lol). Listen and LEARN what he has to say.

@Omar Khan and @Chris Martin After reading the posts that each of you made, I think I better understand what you mean about comparing the stock market to the real estate market. There is an overall market for both and comparing the two I could see how one out performs the other.  

The general overall market does not account for deals that can be made or found though. And I think that that is one big advantage of investing in real estate, you can find deals that are under valued that when purchased can quickly be brought up to market value.  Thus creating equity quickly or increasing your net worth quicker.  Of course there are time periods when the market will fall thus eliminating the equity buildup or lowering ones net worth. But this is the case in both real estate and The stock market.

The money made in the stock market is usually very passive. The returns that I get with my properties or not completely passive. So it makes sense why they may be higher returns. So my portfolio would definitely be the market several times over but it isn’t a completely passive investment. So for me, that is one of the big differences or benefits of investing in the real estate market over investing in the stock market.

There are of course, as you mentioned, the super rich who built companies through innovation and the right time of the market Who have been able to make much much more than even the best real estate investors.  Personally, I like the model of figuring out a way to earn good money that you can use to support your family and then investing in real estate in order to create wealth. 

Is Rich Dad's son going to take the hit if it doesn't work out? Free mentoring is not a bad deal in any event.

But Poor Dad's son is right, you go into this alone with no experience you will likely be burned.

Sam Barrow, Real Estate Agent
202-415-9800
Originally posted by @Bradford Clark :

"The poor dads tells you what you can’t do

The rich dad tells you what you can do"

Hear! Hear! And that's why the one is poor and the other is rich.

Stephen R., Real Estate Agent in MA (#9554844) and CT (#RES.0806304)
Originally posted by @Shiloh Lundahl :

@Omar Khan and @Chris Martin After reading the posts that each of you made, I think I better understand what you mean about comparing the stock market to the real estate market. There is an overall market for both and comparing the two I could see how one out performs the other.  

The general overall market does not account for deals that can be made or found though. And I think that that is one big advantage of investing in real estate, you can find deals that are under valued that when purchased can quickly be brought up to market value.  Thus creating equity quickly or increasing your net worth quicker.  Of course there are time periods when the market will fall thus eliminating the equity buildup or lowering ones net worth. But this is the case in both real estate and The stock market.

The money made in the stock market is usually very passive. The returns that I get with my properties or not completely passive. So it makes sense why they may be higher returns. So my portfolio would definitely be the market several times over but it isn’t a completely passive investment. So for me, that is one of the big differences or benefits of investing in the real estate market over investing in the stock market.

Without adjusting for risk (including illiquidity), it’s comparing apples to oranges. Once you hit scale, there is no comparison. The stock market is multiple times bigger for a reason. The entrepreneur has to be compensated for the risk they are taking. If that weren’t the case, everyone would pile into an asset class that offered returns with minimal risk.

The market accounts for all deals. You are only accounting for a sub-set – your own deals – which may or may not work out because your track record does not extend over multiple business cycles.

As I said earlier, you could be the exception to the rule as an above average investor. But investing is a zero-sum game. Your gain is someone else’s loss (in relative terms).

Investors can choose to make money actively – prop traders, active investors – or passively – index funds, mutual funds. This is the same case with RE. You could be passive – REITs, LP in syndications – or active – what you’re doing, GP in syndications.

In calculating returns on your properties you should also include the value of your time, illiquidity premium and opportunity cost. For instance, as a child and family therapist you make a healthy salary. Every hour you spend actively working for your RE deals – sourcing, managing – is an hour you could’ve spent as a therapist (assuming all other things being equal).

Furthermore, as a high-income earner, I am assuming you have a decent balance sheet and have not overleveraged yourself. Hence, since you (primarily, because of your hard work over the years) do not face a cash crunch. In case, you do face a cash crunch, you will quickly find out how illiquid a RE estate focused portfolio is vs. a stock market portfolio.

In the end, it depends on your level of expertise, investing knowledge and how you want to structure your personal balance sheet. Personally, I prefer a healthy mixture of index funds, RE and other private investing in my overall portfolio.

But there is no one right way. Dumb people have done dumb things and become rich. Smart people have done smart things and have remained poor. There is an element of luck coupled with one’s research involved.

But the facts are facts. The stock market is bigger, more lucrative and has exhibited better overall returns than any other asset class in world history. 

Thanks again for the input here and providing some high-level thinking about investing.Let's bring it back to getting started in investing and which path to travel.  

I am now correcting for some mis-thinking in my mid-20s.  When thinking of how to create wealth in life, I understood that a good way to go about it was to start a company and build it.  Freedom comes from the scalability and/or the sale of a profitable business.  I had thought that the options on how to get there are to 1) gain expertise in a career and eventually create a business w/ that knowledge, or, 2) get started building something small and be prepared to "throw out your first pancake".  Well, I opted to go with option #2 and build something small enough that I almost couldn't fail.  But, I have found that the "first pancake" is ultimately not scalable to a size that allows for freedom and holds little prospect of selling to another owner/operator.

I was watching an interview with Tom Bilyeu of Tai Lopez [YouTube] where it's argued that if you fail in your first business, you're potentially doing damage to your brain's dopamine receptors.  Very similar to what  Jordan Peterson is talking about with lobster fighting & how to become a winner [YouTube].

That's all to say that, when thinking of which path to travel, I can't give up my dog walking business now, despite the fact that I'll still have to throw it out later.  I've got to at least finish cooking the damn pancake before I can throw it out, and I can tell you that there are enough systems-improvements to be made yet, that the thing is not yet fully-cooked.

After meeting last night with Rich Dad's Son, we covered how to browse Co-Star to look for deals.  I'll still take my real estate exam in April, I'll still run & improve my dog walking business, and I'll also get a job in real estate (property management?) when I've decided that my dog walking business is well-enough ready to toss out.

When I move on to build my second business, I'll know that I've found the industry that ultimately allows me to build a scalable, profitable, business with the hope of freedom and prosperity.  I'm not mislead to think that once I achieve that, I'll finally be happy.  I understand that I must happily achieve (along the way).  But I'm glad to see what's around the corner.

Thanks for your input again, guys, and feel free to follow-up with any additional thoughts or comments.

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