*Rich Dad Poor Dad* Book Review #1

*Rich Dad Poor Dad* Book Review #1

OH · Member since 2017 · 45 posts · 38 votes

To whom it may concern,

Since this is my first time making a thread, I feel the need to share a little about myself. If you’re only interested in the book review, feel free to skip ahead. My name is Alexander Monnin. I am currently a college student majoring in Electrical Engineering. I will graduate in May 2019, get a full time job and begin investing in real estate on the side. My goal is to build wealth and have the opportunity to quit my day job by the time I’m 40 (emphasis on opportunity because I do enjoy engineering).

I read Rich Dad Poor Dad at least a year ago and several other personal development books since. About a week ago, I decided to go all out in real estate and committed to seriously educating myself over the next 2 years to prepare myself for when I have money to invest. So to do that, I will be writing book reviews on real estate books in my free time.

Rich Dad Poor Dad

By Robert Kiyosaki

“If you want to be rich, you need to be financially literate.”

If you are looking for a book about investing strategies or tactics, this book is not for you. I would not call Rich Dad Poor Dad a book about real estate. Instead, this book teaches people how to be financially literate, which above all, may be the most important thing to building wealth.

The first step to becoming financially literate is understanding the difference between an asset and liability, and also understanding the effects of them. According to the book, the key to gaining wealth is acquiring assets and keeping your liabilities as low as possible. An asset is something that puts money into your pocket and a liability is something that takes money out of your pocket. This is the first thing that people should know when trying to build wealth. I know some people will disagree with these definitions, but the truth is that these are concepts and you can call them by whatever name you want. In the end, rich people find ways to put money in their pocket while decreasing the things that take away their money.

The next thing to understand is that putting your money into liabilities before you have assets is essentially digging yourself a grave. For example, many people buy themselvess their dream home before they can afford it. They don’t understand the expenses that come with it. They don’t understand that a house will have larger fees like property taxes and upkeep fees that will never go away. People who fall into buying a house too early will be forced to pay their liabilities first and have little to none to put into assets. This leads to lost time, loss capital and a lost chance to gain experience investing.

“People who avoid failure also avoid success.”

You will never find a golfer who never lost ball or find a biker who never fell of their bike trying to learn. This is true of investing. You will make mistakes when investing, it's inevitable. It happens to all investors. Unfortunately, most people know this but use it as a reason not to invest.

You can play to win or you can play not to lose. Fear of losing should not keep you out of the game. You can’t let fear control you. Above all, take calculated risks and trust yourself. You will make mistakes, but you will learn from them. If you really keep at it and don’t give up, you will become successful.

Since this is my thread, I will keep it short and stop here. These were my top takeaways from Rich Dad Poor Dad. If you are just getting started into investing, then this is a wonderful book for you. My next review will be on Real Estate Investing - A Complete Guide to Making Money in Real Estate in your Home Town by David Lindahl. Comment what you think and let me know if you know any good books on real estate.

Alexander Monnin

P.S. Feel free follow or reach out to me.

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Investor · North Charleston, SC · Member since 2017 · 277 posts · 91 votes
9y

@Alexander Monnin,  Glad you liked Rich Dad Poor Dad.  I great book to follow up with is @Scott Trench's "Set For Life". As a retired Engineer, I only wish that I had had these two books to read at your stage of life.  Read and take the lessons seriously.  Good Luck and Welcome to BP.

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  • Investor / Broker · Brooklyn, NY · Member since 2016 · 665 posts · 1k+ votes
    9y

    @Mike Dymski

    Hi Mike,

    I didn't want to go off-topic but I'll answer your question in regards to forced appreciation or market appreciation.

    1) Forced Appreciation

    Generally, I don't actually take this into account in my calculations because while it is a real value increase, I'm going to instead gauge how it affects the rent roll. The higher the rent roll, the more I can determine the value of the Investment. The Cap Rate Calculation helps me with this. As I'm sure you know, so this is more for the readers of this post, Cap Rate = NOI / Purchase Price. Generally, I know the Cap Rate in the specific place I invest, including the neighborhood and even the block. The more dense the population, and Brooklyn is VERY dense, even the block may have a specific Cap Rate.

    Once I understand that Cap Rate, say, 5%, I then can apply the NOI after adjusting for the renovations that I have done.

    I take the Formula, Cap Rate = NOI / Purchase Price (PP) and plug in the numbers. Let's say the pre-renovation NOI was $100k. After Renovation, it's $120k. Now I plug in that info to the formula and it looks like this: 5% = $120k / PP. I solve for PP = $120k / 5% = $2.4 Million.

    (As a side note, a lot of Investors can't really solve these simple equations because they have been out of school for so long. In my former classes, you MUST re-learn these equations and take a test.)

    That then gives me what the Fair Market Value (FMV) would be, in this case, $2.4 Million, what you would call the Forced Appreciation Price. Then that leads me into the next topic, Appreciation Rate.

    2) Appreciation Rate

    Once I calculate the Forced Appreciation Price, in this case, $2.4 Million, I apply an Appreciation Rate that is conservative for the neighborhood, block and any future developments that are happening. For instance, there might be a new Train Station or Public Park being built. Even a well know store can have an impact (such as Whole Foods). I generally look for at least 3 future projects that are starting up just in case any or should take longer than expected or just not get off the ground.

    Depending on what is happening, I can use a conservative, normal or optimistic appreciation rate. Let's say there are 2 major projects (in my case, Barclay's Stadium and the new World Financial Centers are very close by), then I would use 3 projected appreciation rates to arrive at a future price.

    Let's say, conservative is 5%, normal is 7%, and optimistic is 9% over a 10 year basis.

    Now I take my FMV determined by the calculation in 1) and carry that forwards for each 10 year projections:

    So the 10 year pro forma tells me my $2.4 Million Investment will be worth either a Conservative $3.9 Million, a Normal $4.7 Million or an Optimistic $5.7 Million.

    I will tell you that even my most optimistic assumptions have been way too low.

    I generally use the conservative projection in my Internal Rate Calculations.

    Anyway, this is actually a real example as I am planning on being in contract with a $2 Million property soon.

    I think for many of the Investors here, this is new math for them. They have never seen it. I wish it was not the case, but I'm afraid so. We haven't even touched on stuff like DCF and IRR and NPV.

    Really, all investments should be boiled down to either an IRR or a NPV and then you should understand when to pull the trigger.

    BTW, for the readers of this post, I just want to point out that a 5% Cap Rate property, in my case, really gives me a lot of profit. Many of you will turn down this kind of property. I don't.

  • Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    9y

    Thanks @Llewelyn A. great content and thorough as always.  There is a good reason why your vote count is so high.

    You likely don't need a sharp pencil, good spreadsheet, or complex formulas to underwrite a leveraged 5 cap + 5-9% predictable appreciation (plus some forced appreciation)...those returns reach a point where you just stop analyzing and start admiring...and just have to source it and fund it.

  • Investor · Brooklyn, NY · Member since 2015 · 43 posts · 11 votes
    9y

    @Llewelyn A., thank you for another great post! To @Mike Dymski's point, awesome content, analysis, considerations of upcoming developments (trains, stores, etc.) in an area. The information you provide in your posts are very educational and insightful.

    Still working on getting a grasp of that IRR!

  • Engineer/Real Estate Investor · Renton, WA · Member since 2015 · 368 posts · 120 votes
    9y
    Originally posted by @Aaron Mazzrillo:

    That engineering degree is going to set you back in your real estate investing. The phrase "Paralysis by Analysis" was created to explain why engineers look at hundreds of deals, but only buy the house they live in.

    This is probably the most true statement I've ever read on BP. I've had to retrain myself to think in order to overcome "Paralysis by Analysis". It has been an uphill battle, but I am conquering it at every step of the way. Still have a ways to go. 

  • Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
    9y

    @Pete Perez the point I was hoping to make is that it is not the degree that is the issue. Unlike designing a bridge (or whatever engineers do), the math is never going to pencil out perfectly. Myself and a fellow investor were talking about this exact issue this morning over breakfast; at the end of the day, we call ourselves investors, but we are really just gamblers with a 6 figure betting habit. We try to stack the deck in our favor (budget for expenses and profit) and take a look at the dealers cards (comps) before we place a bet (make the offer), but it all boils down to taking lots of risk. Crossing that threshold gets easier and easier with experience until you get to the point you can make offers over the phone without ever seeing the house, and close on it without losing a wink of sleep. Unlike that bridge/building which better pencil out before a shovel hits dirt.

    Actually, I get quite excited when I hear a 'yes' from a seller (and sleep better!) and I am downright in the dumps the few times a year I don't have an escrow going. As my mentor says, "learn to enjoy the slow times!"

  • Engineer/Real Estate Investor · Renton, WA · Member since 2015 · 368 posts · 120 votes
    9y
    Originally posted by @Aaron Mazzrillo:

    @Pete Perez the point I was hoping to make is that it is not the degree that is the issue. Unlike designing a bridge (or whatever engineers do), the math is never going to pencil out perfectly. Myself and a fellow investor were talking about this exact issue this morning over breakfast; at the end of the day, we call ourselves investors, but we are really just gamblers with a 6 figure betting habit. We try to stack the deck in our favor (budget for expenses and profit) and take a look at the dealers cards (comps) before we place a bet (make the offer), but it all boils down to taking lots of risk. Crossing that threshold gets easier and easier with experience until you get to the point you can make offers over the phone without ever seeing the house, and close on it without losing a wink of sleep. Unlike that bridge/building which better pencil out before a shovel hits dirt.

    Actually, I get quite excited when I hear a 'yes' from a seller (and sleep better!) and I am downright in the dumps the few times a year I don't have an escrow going. As my mentor says, "learn to enjoy the slow times!"

    I agree with your point. I have been retraining my brain for the last year because of the degree I received. A lot of skills are transferable, but the risk tolerance that is built into engineers is what I had to overcome. I used to think in terms of "achievements". "If I graduate college I will be happy, if I get this job I will be happy, etc." Now I just view life as one big resource collecting game. The more resources I have the more time I have to go fishing, or kayaking with a cooler down a lazy river. Thinking of it like a game makes the fear much more manageable. Its a simple mental change, but profound effect.

    Also an update: I am 2 months into a 6 month marketing campaign of "test" letters that I wrote personally after reading Claude Hopkins, System's Business Correspondence, and Robert Collier. I am sure my media sucks, but I am focusing on improving my message right now. It will get better. Thanks for the tips about those books, again.  

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