Robert Kiyosaki, famed “Rich Dad Poor Dad” author and businessman, teaches people how to become wealthy beyond the 9-to-5 grind. Investing in real estate is a major part of his philosophy, but it’s a tough market to break into. That’s why Kiyosaki shared his two-step strategy for real estate investments with his audience.
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Of course, not every property investment is a smart move. Kiyosaki says you need to choose the right kinds of properties to give yourself the best opportunity for success. Here’s his two-step formula designed to help you do exactly that.
Step 1: Buy Properties Below Market Value
The first step in the strategy is to look for properties that are below market value. For example, the average home in Portland, Oregon, sells for around $525,000, according to Zillow. If you were buying in Portland and using Kiyosaki’s philosophy, you would want to focus on properties below that price.
However, “below market value” can mean different things. For example, if homes in Southeast Portland sell for $500,000 on average, you would want to look for properties in that area that are available for under $500,000 — not just under $525,000.
A good rule of thumb is to look for properties that are being sold for meaningfully less than comparable homes in the area. That’s all you should be thinking about at this stage, even if the properties you find are in total disrepair. This brings us to the second part of the strategy.
Step 2: Choose Properties That Can Be Improved
Kiyosaki recommends choosing properties that have the opportunity to be improved. The idea is that through these upgrades, you can increase the value of the property and eventually sell it for a profit. However, there can be many steps between buying a property that needs improvements and selling it for a higher price.
These homes are often more work than you expect and can bring major stress into your life. There’s also no guarantee you’ll be able to sell the property for more than what you paid plus the costs of improving it.
That’s why you should invest in a property only if you can articulate a clear path toward profitability. That means knowing exactly what you’ll need to upgrade before reselling the home and getting estimates for how much it’ll cost to do so.
Once you get an estimate for your planned renovations, add that figure to the price you paid for the property. If the sum is still less than the average home price in the area, then it could be a fantastic investment opportunity.
Stick to Local Real Estate Investments
Kiyosaki’s two-step approach to real estate investments comes with an important footnote. He says you should look for properties close to where you live. There are a few good reasons for this:
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You have a better understanding of your local area. You know the best parts of the city and which areas are on the rise. You can use this insider information to make smarter investment decisions.
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Local properties are easier to improve. When renovations begin, unexpected problems will almost always arise. You want to be able to go to the property and oversee these issues as they come up. If you invest somewhere besides your region, that could mean flying, renting a car and using vacation days, all of which can hurt your financial situation.
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It’s much easier to find a great property in your local area than it is to buy elsewhere. Instead of chasing leads across the country, it’s a more effective use of your time and financial resources to become an expert on your region.
Real estate investing is one of the cornerstones of Kiyosaki’s wealth-building strategy. His two-step philosophy offers a framework you can follow to break into the market and start making money.
However, investing in property isn’t the best financial strategy for everyone. If you don’t want to become a landlord or worry that you won’t be able to sell for more than you paid, another passive income strategy could be a better option.
Kellan Jansen contributed to the reporting for this article.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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