Over the past several weeks I've written two real estate-related articles, REITallocate Your Portfolio and REITs With A Twist. Since then, I've received a number of emails from readers asking my opinion on the guide to getting rich in the real estate market titled Rich Dad, Poor Dad.
The quick answer to this question is that my opinion of this book, and those books that followed it, is not terribly favorable. Now, as I'm not a book critic, my opinion in and of itself may not interest you. But based on the frequency and popularity of this topic and this question, I think it's important to devote a little more cyber ink to explaining why I feel this way.
I first learned of this book about two years ago, and upon review, quickly dismissed it as a good deal of hype without a lot of substance. But to my surprise, about a year ago, friends began recommending the book to me and its popularity grew. This was unsettling because I considered much of the book not just to be inaccurate, but worse, I thought it could potentially cause financial harm.
Song and dance
Kiyosaki's material is almost completely devoid of specific financial advice. Further, his material on making money in real estate appears to be little more than repackaged hype from the "no money down" real estate hucksters of the late '80s (you know, the Carlton Sheets of the world).
That's why, this past February, it was so refreshing to read Eleanor Laise's article titled "Karma Chameleon" in SmartMoney Magazine. This piece is largely an expose on the shortcomings of Kiyosaki and his books. However, her article goes way beyond opinion, using solid investigative work to highlight a great many inconsistencies in Kiyosaki's story. Laise's article details a great many reasons why anything that Kiyosaki says should be highly scrutinized.
If you're not particularly familiar with the basis for Kiyosaki's book, consider this from the SmartMoney article:
At the heart of the Rich Dad phenomenon is an intriguing premise: Growing up in Hawaii, Kiyosaki says he learned the wrong way to manage money from his 'Poor Dad,' his own highly educated but financially hapless father, and the right way from his adopted 'Rich Dad,' a friend's entrepreneurial father who dropped out of school in the eighth grade and became one of the wealthiest men in Hawaii.
As Laise points out, "it's a nice gimmick," but unfortunately it turns out to be false. When pressed about the details of his "Rich Dad" by Laise, Kiyosaki finally says, "Is Harry Potter real? Why don't you let Rich Dad be a myth, like Harry Potter?" Hmmm.
Now, I realize this idea has a certain media appeal, but one needs to realize that's all it is: media (in other words: made up). And when you get beyond the cuteness of the story, you'll find the books a bit light on fundamentals.
His message leads many to believe real estate somehow takes less homework than other investments, a premise I would strongly disagree with. Real estate can be a great investment; so can stocks, bonds, and REITs. But it takes just as much knowledge and research to be a successful investor in this sector as it does in any other.
There are no free rides. And any strategy that doesn't share that little tidbit is more marketing than content. Despite their claims, buying a foreclosure for pennies on the dollar and selling it "days later" for huge profits is a rare occurrence. And your chance of being able to do so with "no real estate experience" is miniscule at best, and impossible at worst.
Lessons learned
My father used to tell me that I could trust someone who claimed they were not an expert but offered what knowledge they had, much more than I could trust someone that claimed to be an expert but never shared how they achieved their success. I suppose that's simply another way of saying that humility is a good thing, particularly when possessed by someone who also has a great deal of knowledge.
The truth is that Kiyosaki, and those like him, can make far more money selling you their "proven methods" than they ever could employing those methods themselves. The only available evidence leads one to believe that Kiyosaki has amassed whatever wealth he has by selling his methods, as opposed to employing them.
Now, these gentlemen trying to cash in on their "no money down" schemes would likely say that I'm just a bitter man, envious that I didn't develop their "proven methods." But before the Rich Dad fans start zipping out hate mail stating that I'm just jealous of what Kiyosaki and his like have accomplished, let me say that I begrudge no one their success. In fact, I wish nothing but success for all those who genuinely attempt to help others improve their financial well-being (after all, that's the reason The Motley Fool exists). I only ask that those who choose this noble pursuit do this with honesty and integrity, and fully disclose information that may be material to their potential customers and all those who may employ their advice.
This brings us to the No. 1 rule for successfully avoiding financial hucksters: If someone truly has the means to get rich quickly, they aren't going to tell you about it.
If you truly want to learn from the behavior of "the rich," you'd be a great deal better off reading The Millionaire Mind, sequel to The Millionaire Next Door.
Fool On!
Mathew Emmert is currently working on the Making Money Is Extremely Hard Work Package, but he doesn't expect it to sell very well. He doesn't own any of the companies mentioned in this article. The Motley Fool is investors writing for investors.
