How to Avoid the Biggest Real Estate Investing Mistakes

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0:50Still waiting in line? The reason I say that is we're going to talk about next. How do you know the bubble is about to burst? The end is near because we're old enough to have seen the booms and the busts. And I think we're cruising up to one of the biggest busts in world history. This is the Rich Dad Radio Show, the good news and bad news about money. Here's Robert Kiyosaki. Hello, hello, hello. This is Robert Kiyosaki, the Rich Dad Radio Show, the good news and bad news about money. And as you know, Rich Dad is about the good news and the bad news. And we're not into the hype, you know, all good news, good news, good news, and you get rich quick and all that stuff.

1:38And today we're talking about one of my favorite subjects is the subject of real estate. What we're going to be talking about is the difference between financial education and financial hype. you know like you see them in infomercials every single day and I watch them I get excited about them you know it's the same formula you got some guy you know I won't mention his name but he's a new guy there's always a new guy coming up every year they come up and they go and it's the same formula so you have Joe Schmo the new guy good looking guy his good looking wife they go da da da da and then and the interviewer yeah I had nothing and I'm not a multi millionaire flipping real estate And I go, holy moly.

2:20It's the same formula. Everybody wants to get rich quick. And thank God we've done our best at the Rich Dad Company to avoid that because there's a difference between flipping and flopping and having some hot chick and some hot young guy up there promising you can get rich quick in real estate. And it does happen, I guess, occasionally, but not for the long term because eventually your stupidity will catch you, or more your vanity. Yeah, I can do this. I've invested in a couple of properties. I have a master's degree in accounting or something. And they really are so vain. And real estate is a very sophisticated game.

3:05So our guests today are longtime friends, probably some of the oldest friends the Rich Dad Company has had. I mean, we were so desperate for publicity that I actually flew to wherever you guys were located and went on the Real Estate Guys radio show. I did my first infomercial or promo or PR event, you know, basically talking about rich dad, poor dad. So anyway, we have Robert Helms and Russell Gray, and we're going to be talking about the dark side of real estate, but also the good side, because don't we love this game, right? Oh, my gosh, yes. So welcome to the program, Mr. Helms. Thank you, sir.

3:44Welcome, welcome. Give us a little bit of your background. I mean, you guys, you know, congratulations. You guys just won some huge award with Hilton or something, right? Well, we're doing a lot. And it's, you know, I love the theme of this show because we're all about getting wealthy in real estate. But the quickly part is the challenge. It takes years and years and years to build up a brand, to build up a reputation. Why would it be any different to build up a great stream of cash flow or a great pile of equity? It takes time. Yep. How many years have you been doing this, Robert? So the radio show is now its 22nd year.

4:15What were the first guys? Among the first. Our first big get, if you will, when we were just on one radio station back then. And it's funny. I remember we expected you to call in, and our receptionist said your guest is in the lobby. Yeah, I was so desperate. I wanted to make sure you didn't cut me off. No, it was awesome. We had just finished your book then, right, and couldn't believe it like everybody. And that led to a very long and wonderful relationship we've had. We just always appreciated you guys and your message and your integrity and all of that. Well, and what we appreciate about you, Robert and Russell, are that you are the real deal.

4:50You practice what you teach. And you practice what you preach. You don't just talk about real estate. You are real estate investors. You're real estate developers. And that is crucial to us because we want real teachers who are doing the real thing, not fake teachers who talk about it but don't do it. So anyway, this is Robert Helms. How long have you been in real estate? All your life, haven't you? Pretty much bought my first property when I was 23. I wish I had bought him when I was 18. And we wish we had kept it, right? We all wish we had kept all our properties. In fact, I remember when you were on the summit, we had this panel where we had Ken McElroy and Kim and my dad.

5:25And we had all had the same thing in common. We all started with a little two-bedroom house. And it's like that's where it starts. You don't have to start with grandeur. Trump started there too. Yeah, exactly. And, you know, I think people swing for the fences today. I think you're absolutely right. That's one of the myths or one of the mistakes people make is they think they have to go big when they have no experience, no education, and they wonder why they lose money. You're going to mess up. Why not mess up on a small deal? With small money, with small cash. They're so vain. They're so vain.

5:57I can't believe it. One of our former ex-partners, I'm a real estate investor. I have owned three homes. I said, did you live in them? Yes, I'm a professional. Anyway, you can't talk. What would you say to that, Russell? You can't talk to idiots. Anyway, so Russell, welcome to the program. Russell Gray, real estate guy, radio host. Yeah, thanks for having me. I'm a little bit different than Robert Helms because I didn't grow up in a real estate family. I did buy my first property when I was 19, so I beat you there. First rental property when I was 24. But what I really am famous for is being the king of mistakes.

6:37and, you know... You can't be the king. I'm the queen. I don't know. I've made a lot of mistakes, and I think probably the biggest mistake that I made along the way, besides selling properties, not realizing that I should have been collecting them. So I was excited about the equity, and then I wanted to put the equity into business, and I didn't know how to keep things separate, but I think the biggest thing for me talking about vanity is that I always thought I was smart enough to figure things out, and instead of... now that I've had a chance to be around many, many successful people, one of the common denominators that I see about really successful people is they're humble.

7:12They ask for help. They ask questions. They listen intently. And then they think about what was said and they trust their own judgment. And I was none of those things. And so because of that, I made a lot of mistakes. But I learned. I think I've learned. And we're obviously doing things better now. I would say for Kim and I, we've never lost money in real estate, but we have made a lot of mistakes. And our mistakes really haven't really come from our side of it necessarily. It came because we trusted people. And every realist, I think the humility of it all, the humbleness, is anybody who's successful in anything has been screwed.

7:49And when you get screwed, I tell you, it's, you know, I trusted him or her. How could they have done that to me? Have you had that, Robert? Oh, my gosh. The show's not long enough to go into that. But we have. And it's not just on the transaction side. I see the same thing on the education side. They lead you down a path. People that may or may not have any experience, that doesn't matter. They can flash the checks in the front of the room. That's how you know when you start seeing check after check after check in the PowerPoint presentation. You know, I say, how do you get a check? Here's a check for$50 ,000 from the title company.

8:22Well, you know what? If I deposit$50 ,000 to the title company and say I've changed my mind, what do they do? They send me a check in my name from the title company. So those aren't hard to get. But it's such a good point. And trust is a thing that takes time to build. I think that's what – I mean one of our key lessons has been oftentimes we trust but we don't verify. So when we take our – when I take my eye off the game and off the numbers and all of a sudden I'm over trusting and giving too much responsibility and then it comes back to bite me. So that's a lesson I'm trusting. I've now learned this lesson that I will continue to trust but I will verify.

8:59It's so critical. Yeah. So, Russell, you know, I mean, you amazed me because you're one of the smartest guys I know. I mean, academically, your mind is like a little computer. But you didn't finish college, did you? No, I was too impatient. I'd been raised by a man that had dropped out of college. Smart. I mean, he got a scholarship, free ride to Stanford. Very smart man. But I think I came along and I don't know, kind of screwed things up for him. So he and my mom dropped out and he went into work. But in his late 30s, he started a high tech company in Silicon Valley, took it public. And it was right.

9:37Yeah, it was right about that time as I was watching his career. And I just felt like I tried college and I played one quarter of football. And then, you know, I just wanted to get married. I wanted. So I started a business and bought a house, got married. I did all that by the time I was 19. And then I sold out of the business and I sold the property and I discovered equity. I found out that I made more money in the equity on the business and the property than I did in actually both my wife and I working full time for that same period of time. So that kind of got the bug there. And I think the advantage that I had because I didn't have the patience to go to school was that I always felt disadvantaged.

10:15So I became a voracious student. Right, you are. You're amazing. I mean, when I need to know something, I call Russell. Yeah. I just, you know, I read all the time. I study. I like to listen to smart people. You know, in the beginning, I was afraid to get into conversations. And over time, in fact, it was at one of your events, Robert. I ended up seated next to Richard Duncan, Ph.D. economist. Oh, my gosh, yeah. I've told this story on our show several times. And I was just, I'd gotten destroyed in 2008. And it was because of my ignorance of what was going on in the bond market. I didn't understand the bond market.

10:49You did the gold and – Gold versus U.S. dollar. Gold versus U.S. dollar event here in Scottsdale. And I ended up seated with Richard. And he was saying that he thought oil was going to go to$5 a barrel and gold was going to go to$5 ,000. And I said, you know, I'm way out of my league here. But I can understand how either one of those things can happen. But I'm struggling to understand how they both happen at the same time. And he looked at me and he goes, that's a good point. And I was like, wow, I just made a good point to this really smart guy. But what it did, it gave me the courage to get into conversations.

11:25And from that point on, I learned a lot faster because I wasn't afraid to talk to smart people. So, Kim, how about you? I mean, what is your path? When Kim and I meet people, oh, do I actually jump into real estate? I want to just get some handcuffs and tie them down and say, look, wake up first, right? Yeah, well, it's the same as Robert's saying. I mean, I started with a little two-bedroom, one-bath house, and then we went to another single family, another single family. It was a process. There is no get-rich-quick. There's just not. If they're telling you you can get-rich-quick in real estate, I would run.

11:57I mean, it's been a process. The formula is the same for the two-bedroom, one-bath house and for the 200-unit apartment building. The formula is the same, but it takes time. It takes making mistakes. We've made all the mistakes, as you guys have. The tenant moves out. I raise the rent, I raise it too far, and then nobody rents. Or how about the tenant who moved out with all of our appliances? Yeah. Yeah, we had that. We also had a property manager who started his own business on our credit card from our apartment building and bought microwaves and ovens and tools and started selling them. And, I mean, we had all sorts of things happen.

12:36We've had tenants move out in the middle of the night. Oh, my gosh. Yeah. But it's a process. And that's why we can all continue to keep investing and keep buying real estate because we've made all these mistakes. And we have a whole thing, a bag of tricks that we can pull from when we need. So when we come back, we're talking. This is Robert Kiyosaki of the Rich Dad Radio Show, the good news and bad news about money. We love real estate. We've made fortunes out of all of it. But there's a lot of bad news that went right behind of it. And again, every time I see these idiots who just jump right in and they bet all their money, you know they're going to get hammered.

13:14And the reason I say that is we're going to talk about next how do you know the bubble is about to burst. The end is near because we're old enough to have seen the booms and the busts. And I think we're cruising up to one of the biggest busts in world history. So stay tuned. Once again, this is the Rich Dad Radio Show, the good news and bad news about money. Our guests are Robert Helms and Russell Gray, co-hosts of the Real Estate Guys Radio Show, and also the Summit at Sea Real Estate Guys Cruise, which I highly recommend if you're really dedicated to learning and not flipping and flopping all over the place.

13:56So when we come back, we'll be talking about a lot of things, but I want you guys to think of something while we're on the break. What is the biggest BS, blue sky pitch, you've ever seen? Because we've seen them all. These guys get up there. These guys get up there. They generally are very attractive or good-looking husband and wife and all this. And the suckers float in with checks and credit cards. It's such BS. We'll be right back. Still haven't bought gold or silver yet? Neither had thousands of people before they called Priority Gold. Most of them had the same three reasons. First, I thought precious metals were only for the wealthy.

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16:32welcome back robert kiyosaki the rich dad radio show the good news and bad news about money and i'm talking to all you want to be a real estate investors out there i meet so many people who are so vain you know all real estate yeah i made some money and i'm just going to jump right in. The other guy that gets me is a person who says, you know, I say, how many courses have you taken in real estate investing? They go, I have a real estate license. Well, that means you're an idiot. That's all it means to me. What does real estate license have to do with real estate investing? Zero. I mean, I can't believe how vain these guys are.

17:07You know that most real estate agents own nothing and they're giving you advice on investing. So that's why I'm really glad we're having this program. Our guests today are Robert Helms, Russell Gray. And once again, you can listen to the Rich Dad Radio Show anytime, anywhere on iTunes or Android, and all our programs are archived at richdadradio.com. We archive them because we're only an education company. We have nothing to sell, and that means we're education. If you listen to this program one more time or two more times, you'll be twice as smart as you'll listen to us one time. But most importantly, friends, family, and business associates, especially that idiot brother-in-law if he always thinks they're gonna jump in and invest in real estate because the market is hot, You're about to get hammered.

17:48So it's a very – I'm enjoying the show because it's the dark side of our business. Any comments, Kim? Well, I just think it's interesting. And I love having Robert and Russell here because they are the real deal and they are the real estate guys. And they are practicing what they preach. They've been investing since they were 19 and 23 years old, so they know what they're doing. But I'm just – I was just looking at this article and I'm like, where does this advice come from? So they're talking about if a recession comes and if there's a dip in the real estate market or the recession comes, what should you do?

18:18Well, here's advice. Well, if you own property or assets, sell some so that you have cash. OK. How hard is it to find a cash-flowing property, Robert? How hard is it? Oh, my gosh. It's hard. It is hard. It's getting harder, right? Yes. And that's one of the keys. This is such an important topic because if you think we're near the top, there are things you can do. But it's probably not the stuff you're going to read in most articles written by a journalist that makes$3 ,200 a week. I think that the big thing is how people approach the problem. And this is where you guys at Rich Dad have really been thought leaders because most people look at investing as trading.

18:54Buy low, sell high. Exactly. They've been conditioned to buy low, sell high. That produces commissions for the brokers. That produces capital gains for the tax man. And it produces cash that feeds the bankers. And so the education has been slanted. And it's Wall Street education, but people approach real estate the same way. You have a completely different approach, which is a more fundamental approach, which is the income. And if you focus on the income, you have staying power. You can ride the ups and downs. The price doesn't matter. What matters is the cash flow. And as long as it's positive, you're in.

19:24And over the long term, even just the pay down of the loan and modest inflation will build reliable, resilient wealth. But people don't think that way. It's called structured finance that we control. Yeah. That's why I like it. I mean, even in 2008 when the whole thing came crashing down, we were fine. We were fine. We took – there was little dips because people couldn't afford some of the rents. And so there were some dips. But we were okay. It still cash flowed. It still – we didn't have this major problem. So let's get into the fun part, the most stupid things. See, I think we're in a massive bubble right now.

19:57And commercial real estate funded by private equity is going to be the biggest hit. Crazy. I walk up and down Arizona. There's cranes all over the place. Look at Phoenix. Every single postage stamp of land is being built upon right now. It's commercial. It's not like a single family, a little guy building a little rental property. Right. These are very big projects. And I understand the game. But just before the bubble burst is when all the fruits and fruitcakes come, the fruit flies come flying out there. So what is one of the worst? You know, like 2007 was a great time because you all know it was going to come down because everybody was into flipping real estate, right?

20:40So what was one of the worst things you saw, Robert, during that period just before the crash of 2008? Well, Russell, remember this. We were at an event and there was a guy on stage guaranteeing. That's the word he used. That's the word. I guarantee this property will go up in value. We looked at each other and like, that's a problem. I remember you talking about how when the gal at the checkout counter at the grocery store is giving you real estate advice, you know it's too late. She's just got a real estate license. That's a clue. That's a clue. Or when people couldn't afford a$600 a month rent, but they could go down the street and buy a$300 ,000 house for nothing down and no qualifying.

21:16Crazy. Yeah. And we're there right now. Russell, what's one of the worst pictures you saw or the most interesting pictures, should I say? Well, I think that you had people – remember the days in Las Vegas? Yeah. Yeah, these condo developers, and you would literally stand in line for the right to buy a property that was overpriced. And you would get in and you'd make your deposit. And the entire game was to control as many of those units as you could with the idea that down the road, even later in the same day, you could flip out of it and make money because of the way these things were being rolled out.

21:46And so it was all predicated around this insane demand that had no basis in fundamentals or common sense. But it was like a feeding frenzy and people got so caught up in it, they stopped thinking. They were like animals feeding and trying to get their place in line. And when you start seeing that, and it happens on the lending side too, lenders become so desperate to loan. They lower the lending guidelines. They lower the down payment, raise the LTV. They make it easier and easier to get the loan without providing proper documentation. When you start seeing these things happen in the market, you know that it's this last flurry like a star that's about to implode.

22:28And that's in all markets. The stock market is about – I think we're about two years out from the stock market doing the same thing. It's just going to get so exciting and everybody is going to jump right in. And are you seeing this happening today? Yeah. Oh, yeah. You definitely see it. And the thing is it can be great because you can take advantage of some of the easy lending to excess equity. You don't have to sell the property to get liquid and be ready for the next thing. But when you do, you just need to make sure you're paying attention to the cash flow. And that's the thing you guys have just been always the thought leaders on.

22:55So, Kim, what's the worst pitch? Well, we don't have enough time. Yeah, we don't have enough time. But I do remember those really fat, fat, fat brochures of these new, right, new development. Here's this fancy, fancy brochure. And they're going to guarantee you an 8 % return on your money. Guaranteed. Now I'm like, how do you guarantee an 8 % return? Well, as Kenny says, the bigger the brochure, the worse the deal. Yep, yep. But they were counting. When you see nice brochures, run. And that 8%, they were counting on getting more and more people in to buy so that those people would fund the 8 % of the people.

23:30So it was kind of a Ponzi scheme. Yep. The funniest one I saw is because I'm, you know, the real estate guys, you guys know more about real estate. Kenny knows, Kim knows more about real estate than I do. But I do know shipping. So I was down with Trump. This was just before the crash, and these guys had taken an old passenger liner and condo converted. Remember that? I go up to this hot young thing, nice brochure, nice hottie. I said, tell me about this. Oh, and she's telling me about how this condo will float through the world and you can get on and get off and all this stuff. And I said, how old is the ship?

24:07She didn't know. And I went – my degree is in naval architecture. You see, a ship like those big passenger liners, they should only exist for 15 years. Useful lights are finished. So the only place that boat should have gone was not to a condo conversion. It should have been sailed over to Taiwan and cut up for scrap demand to a new boat. But she was selling these condos, and these guys were lining up to buy condos so they could float around the world. And I said, holy mackerel. You know, there's a sucker born every minute. My thing is the vanity of it. That's what upsets me. And the other thing is that people just don't know.