Have you ever been frustrated by the false promise an article or speaker delivers in their headline but fails to deliver on in the actual speech? You know, the kind of heading that tells you how to make money in real estate, then says the secret is “Work hard, do your due diligence, and network!” This kind of advice seems to be flooding the internet right now. The authors are so general in their message, so watered down in their advice, that it really doesn’t do anything for you at all.
You click expecting lemonade. The article is equivalent to that little slice of lemon in your water that barely makes a difference at all. Best case scenario is you don’t swallow a lemon seed.
I hate this stuff. It ruins the credibility of good authors, and it reinforces a sense of hopelessness that is bound to come when you get disappointed. Getting your hopes up that you’re going to read what you’ve finally been needing just to end up feeling like a fool because you wasted 10 minutes of your life to read the same stuff you already knew is never a positive experience. If someone has a reputation as a successful investor with extensive experience, I expect more actionable advice than the standard “work hard, be smart, take action” advice that any Joe Blow can provide.
The worst is when it comes from a credible source. Someone who is known for being successful, who you know has good information to share, but still they water down their message so much it’s practically useless.
Why does this happen? Well, I think it boils down to two reasons.
- They don’t want more competition by giving away their best secrets when there is nothing in it for them.
- They don’t want someone else “exposing” them as a fraud, so they keep things as general as they can.
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The Advice Robert Kiyosaki Had to Give
I realized this last year in Lake Tahoe when I got to meet Robert Kiyosaki. If that name doesn’t ring a bell, he is the best-selling author of Rich Dad Poor Dad. He’s also an insanely successful businessman with a net worth in the vicinity of 80 million dollars. If you haven’t heard that name, listen to just about any BiggerPockets podcast and wait for the end when they ask the guests for their favorite real estate book. Just about everyone says Rich Dad Poor Dad. Mr Kiyosaki was brought in to speak to an investment group I belong to and gave a speech that detailed his history, his philosophies, and his financial opinion on the state of the American government. When the speech ended, he opened up the room for questions.
As you can guess, pretty much everyone in the room asked the same stinking question — “What should I buy and where?”
We all wanted the secret, right? What does financial genius Robert Kiyosaki know that I don’t? How can I copy him and score big without doing all the research he does? I’m sure this isn’t an isolated problem for Mr. Kiyosaki. My guess is Warren Buffet can’t go anywhere without someone asking him what the market is going to do. Same for Donald Trump, Gary Vaynerchuk, or Steve Jobs when he was around. We all want the secret.
Now, I noticed Robert Kiyosaki seemed to be making a lot of effort to answer our questions without giving an actual answer. I’m sure you’ve seen this before. He would say he’s buying oil, but he wouldn’t tell us by which means. He would tell us he’s buying real estate, but he wouldn’t tell us where or why.
I think he just didn’t want someone to follow his advice, have it go bad, and then be held responsible for giving my advice. Heavy is the head that wears the crown, and there is a lot of pressure that goes along with being as successful as Mr. Kiyosaki.
The 5 “G’s” That Hold Value During Recessions
Now, after a lot of prodding, he did tell us there are 5 “G’s” he has learned will always go up in value during a recession. Without further ado, they are:
- Ground (real estate)
- Grub (food)
Robert said he has made a career out of researching different economies and what happens when they collapse. Now, I’m inclined to believe this. I know when I started to accumulate a nice little amount of wealth, I got a lot more interested in researching the global economy. At first, you’re trying to grow wealth. Once you get a little, you get a lot more interested in preserving it. Robert Kiyosaki has an estimated 80,000,000 reasons to be interested in learning about economies, specifically recessions. I can imagine he’s pretty motivated to do so.
Robert went on to explain that when an economy fails, fear takes hold. People start accumulating things they believe will keep them safe. If you happen to own these things, people will pay a lot of money to buy them from you. Robert shared one story of a man he knew who started buying massive amounts of ammunition in 2008 when there was talk of the economy tanking. A few years later, when the country in Africa he lived in fell into economic turmoil, he sold that ammunition for something like an 8,000% mark-up. That’s a pretty penny. This man realized people were terrified and would pay anything to feel safe. Guns obviously make people feels safe in chaotic times, and the theory is they will sell for a premium because of that.
Gasoline falls into this same category. When you aren’t sure if gas stations are going to stay open, everyone wants to stock up on gas. Companies that make gas can do very well.
Grub is obvious. Owning food is vital to life. A starving person will pay anything to feed their kids. However, Robert took a bigger approach to this concept and wanted to own the land that grew food. This qualifies for two of the “G’s” (ground and grub) and Robert believed the research showed the people who owned food producing land at times of recession did very well.
This brings us to the final two “G’s.” Gold and ground. Now, Gold performs well in any downturn. It doesn’t take a huge recession. People flock to gold because they believe it contains an inherent value when a countries currency value is in flux. Gold is considered a standard of sorts, and people feel safe owning it or accepting it as payment when they are unsure what their national currency is going to do.
Now for the most relevant “G.” Ground. Ground is real estate, and that is what we are here to discuss. When an economy goes into a huge tailspin, there are several ways it can work itself out. One of the most common is by printing more money to pay its debts. Doing this devalues the currency. The less the currency is worth, the higher inflation goes. In times of inflation, owning real estate is your best friend. Your property values rise. Your rents rise. Your payments stay the same. In addition to your property being worth more and bringing in more money, you also will be paying back the money you have borrowed at a much cheaper rate than what it was worth when you bought the house with it. Double score. If I know inflation is going to hit, I want to borrow and owe as much money as possible. Robert Kiyosaki realized this to be the case and recommended ground, or real estate, as a great thing to own during a recession.
Another reason real estate does well in a recession is people circle the wagons and cut expenses. Most people feeling economic fear will only spend money on what is needed. Real estate provides shelter, and shelter is vital. Owning a fancy restaurant during a recession would be bad. Same goes for a luxury car dealership. But a landlord of cash flowing, high demand, well cared for rental property? That’s usually a good place to be. Your investment can pay for itself, and people will always need somewhere to live. While it’s true that vacancies may go up if people are losing their jobs, it’s also true that others will be losing their houses and need somewhere to live.
Hope for the Best, Prepare for the Worst
There are many theories as to what is going to happen in the American economy and if we are currently in a recession, headed towards a recession, or in an economy that is doing great. Regardless of what you believe to be the case, it is wise to consider a worst case scenario and have a plan in place to protect your wealth and the means to provide for your family should it ever occur.
It is hard to get a successful person to share actionable tips like Mr. Kiyosaki eventually did, and I hope you find them to be helpful and useful. Remember that more wealth is built during downturns in the economy than any other time. Be researched, be prepared, and be ready to strike when the iron is hot!
Have some advice for things you’ve learned during a recession?
I’d love to hear more about it in the comments below.