I’ve been thinking a bit more on the Rich Dad philosophy of the “I don’t want to clean toilets” people. I’m going to paraphrase, but he seems to think that people who view this way are narrow-minded. He doesn’t want to clean toilets either, so he solves that problem by having his management company do it. To some degree, I agree with his philosophy of finding an interesting way around a problem. However, I’m having trouble coming up with ways to duplicate his experiences in 1960’s Hawaii (or wherever) or 1970’s Phoenix. It simply doesn’t seem to work in 2006 Boston.
Using the math that Adventures in Money Making gives us, the monthly rent should be about 1% of the purchase price. A ways outside of Boston, I have a place that I paid around 130K for back about 3-4 years ago. The mortgage is around 120K now and the mortgage, tax, and condo fee payments are around $1100K. In that time it’s appreciated to the 180-190K range. The most amount of rent I can get is $1100. So right about I’m at the point of being cash flow even and that’s if I manage myself. With a management company, it becomes negative on a cash flow basis. If I had to do it from scratch and pay 150K, pretending I get a tremendous deal on it, the mortgage payments would probably be over $1400 (rates have risen) and I’d get the same rent, a pretty big loss on a cashflow basis. And I think this represents the best of what’s around Boston. If you go in-town, expect to pay 400-500K and you’d be lucky to get $2500 in rent back.
And the thing is that I can picture Mr. Kiyosaki telling me that it’s what his poor dad would say. The way his arguments are structured, if I disagree, it proves his point that I’m narrow-minded. It’s almost like when someone says you are “in denial.” If you agree, then you are in denial, but if you deny it, you are in the state of denial.
Nicola Cairncross says
Great blog! If you had your trackback and ping available I could have sent you some traffic from my site http://www.themoneygym.com but I couldn’t find the trackback URL.
I have some friends that are really big property investors (bought 250 in the last five years) and they always work by the numbers. If your condo wouldn’t stack up to buy now, while using a management company, they would either not buy it or they would seek a way to make it work. There are only a few ways to do that; buy cheaper, get a better interest rate, or get more rent.
But they would always pay a management company to manage it. The money saved on fees could more than be made back in the time saved and used to find another deal.
Having said that, if it was a choice between cashflowing it for around $50-$100 a month (something Robert Kiyosaki is never keen on) but it being forecast to appreciate faster than a cheaper property – due to the area or redevelopment or a new mall going in for example – or another one where the rent, proportionally speaking, was higher, then they would simply do the sums.
If you would make more in say five years, by financing the first property for a nominal sum for a while, than you would for the second that you don’t have to finance, then it becomes a “no brainer” if, and ONLY IF, you can easily afford to subsidise it.
That’s why one investment strategy works for one person in property investment, but wouldn’t work for another. You have to work out a strategy that suits your circumstances and stick to it.
Keep at it, you are on the right tracks. In my Feedreader now but have a look for your “trackback” option and turn it on, eh?