If you’ve ever wondered what makes Rich Dad different from everyone else, we’ve compiled those differences for you right here.
1. Buy the worst house in the best neighborhood
Location, Location, Location.
You can change a lot about a home—its curb appeal, exterior, and interior— but it’s very expensive, and almost prohibitive, to change the location.
Here’s why it makes sense to buy the worst house in the best neighborhood.
Read: Three Reasons to Stay Close to Home in Real Estate Investing
First, ideally, you want an area in high demand. Maybe even an area of town that is being revitalized. The best locations are those that offer residents access to good schools, parks, entertainment options, local interest, and educational opportunities, shopping, and good transportation. You’ll be able to see pride of ownership in these types of neighborhoods.
Second, a pristine property with affluent tenants sounds wonderful, doesn’t it? No huge maintenance issues, little problem collecting rents, and so on. Yes, these types of properties are easy on the mind; by they also have significant cost and little chance to appreciate.
A problem property, on the other hand, has an amazing and fast, upside potential. For example, let’s say that the going rate for a building in a certain area is $200,000. The problem property might be worth $140,000. Once the problem is fixed, however, its value will zoom to the going rate for similar properties: $200,000. Likewise, rents, in a problem building might be low. After you improve the property, however, you can raise the rents—increasing your amount of income.
If you resolve to become a problem solver—someone who embraces rather than runs away from problems—your chances of success in real estate investing will dramatically increase.
How You Can Build Your Wealth In Your Own Backyard
So, become an expert in a particular area, seek out the least expensive sections within that area, and finally, look for problem properties.
2. Understand the numbers for the best possible ROI
Just because a property is cheap doesn’t mean it’s a good deal. In fact, if it’s cheap but has no value, it could be the most expensive property you can buy.
You can’t tell from the building alone whether an investment is good or bad. You’ve got to look at the numbers. The numbers tell the story.
Consider every investment you pursue as a mystery to be solved. The numbers that makeup that investment’s story by themselves means nothing. I never see numbers from an investment analysis as just numbers. Instead, I look at the numbers as clues to guide me towards discovering the truth about that investment.
If an investment opportunity is a good deal, then:
Show me the numbers. Past operating numbers, as well at the worst, and best case scenario of future numbers
Explain why and how this investment will increase in value in the future
Give me the expected rate of return on the money I invest
The purpose of the numbers is for you to identify the red flags and the possible inconsistencies of what you are being told. The numbers help you discover what the facts really are to help you raise the right questions.
The Two-Step Recipe For Real Estate Success
The more comfortable you become through practice and experience understanding the numbers of any investment, the greater success you will have as an investor.
3- Real estate is a Safe investment
Many people feel that the commonsense thing to do is to place your money into a savings bond or bank account that yields 2 to 3 percent per year. The main argument for this type of investing is that it’s safer than real estate or other types of investments. The problem is that you don’t make any money. The reason for this is inflation.