The Real Book of Real Estate

Robert Kiyosaki

📚 GENRE: Business & Finance

📃 PAGES: 502

✅ COMPLETED: October 21, 2020

🧐 RATING: ⭐⭐⭐

Short Summary

Robert Kiyosaki and friends provide advice and techniques every investor needs to navigate the ups and downs of the real estate market. The Real Book of Real Estate shows readers how to value a property, handle leases, manage tenant relationships, get financing, and more.

Key Takeaways

1️⃣ Commit — If you’re going to get into real estate investing, make sure you’re all-in. You can’t treat something like this as a hobby. Design a business plan and do your research before buying a property. Hold tenants accountable. 

2️⃣ Build a Team — Real estate investing is a team game — you can’t do it alone. Surround yourself with a strong team of real estate agents, contractors, and property managers. Lean on people for guidance, especially when you’re first starting out. 

3️⃣ Location Is King — You can fix a building, but you can’t fix a neighborhood. If the neighborhood is in an inconvenient area of town, it may be hard to attract renters. Try to find nice neighborhoods with easy access to entertainment and good schools.

Favorite Quote

"You can fix the building. You can’t fix the neighborhood."

Book Notes 📑

Introduction

  • There will always be a real estate market. Having a roof over your head will always be just as important as eating and drinking.
  • Real estate gives you much more control than other investments, like stocks.

Chapter 1

  • Tax laws reward real estate investors more than stock investors.
  • Real estate investing should be treated like a business and run like a business. Do it right. Don’t cut corners.
  • Focus on a certain type of real estate.
    • Ex. Single-family homes
  • Take accounting seriously. Accounting is so key to making good decisions. Good accounting gives you the information needed to make the right decisions at the right time.
    • Track every transaction you make. Update your bookkeeping once per week.
  • Quote: “If you don’t know your numbers, you don’t know your business.”
  • Common ratios to analyze property performance:
      1. Operating Income: Rents – Normal Cash Expenses 
      2. CAP Rate: Net Operating Income / Property Value
      • Shows how much the property is earning.
      1. Cash-On-Cash Return: Net Income From Investment After Taxes / Cash Invested.
      • Shows how much the property is making.
      1. ROI: Annual Increase in Value / Cash Invested 
      • Shows total return 
      1. Current Ratio: Current Assets / Current Liabilities
      • Shows ability to pay off liabilities.
      1. Return On Assets: Net Operating Income / Total Assets 
      • Shows profitability 
  • If your CAP rate falls under your interest rate on a home, it’s time to sell.
  • If you’re going to do this real estate investing thing, have great accounting processes and great reports.
    • You really do need to have accurate and good data and track it consistently.
    • Take the time and effort to get your numbers correct.
  • The fastest way to increase your ROI on a property is to take advantage of tax laws to lower your taxes.
    • Taxes are everybody’s single biggest expense every year.
    • United States tax laws benefit real estate investors.
  • Depreciation — Allows you to deduct money for items in the house despite the house appreciating in value over time usually.

Chapter 2

  • Forming a great team around you is critical to real estate investing. Real estate investing is a team game.
    • You should have different people serving different functions to help you.
    • Possible team members:
      • Real estate attorney
      • Accountant
      • General contractor
      • Real estate broker
      • Mortgage broker

Chapter 3

  • If you plan to build a house or complex, do your research into the area and find what buyers will want.
    • Research similar, existing houses or complexes and see what they look like.
    • When building a house or complex, you should have the mindset of operating the building after construction.
  • Location is critical in real estate. Things to consider:
    • Lifestyle and convenience
    • Location of schools, restaurants, movies, downtown, etc. in relation to your property. 
      • Things like shopping, grocery stores, parks, and sports facilities are important. 
  • Hiring a great contractor is also important. Don’t skip out on this. Pay a little extra to get a great and reliable contractor.
  • Also consider hiring a good project management company. These guys will oversee the project and find out what your property can charge for rent.

Chapter 4

  • Master your universe. This means being disciplined and doing your homework before investing.
    • Know the market, the city or town, your numbers, and the type of real estate you want.
  • Location, location, location. Look for the “path of growth” — where homeowners are buying land and new homes are being built. Where elementary schools are being built.
    • Always put location first. It trumps everything else.
    • If neighborhood looks like it’s declining, don’t buy a property there. 
    • Quote: “The building comes second.”
    • Quote: “You can fix the building. You can’t fix the neighborhood.”
  • Residential properties are always the first to decline and recover in the real estate cycle. Followed by multifamily and commercial properties.

Chapter 5

  • Establish an LLC to protect your property. If you’re sued, you can only lose what is in the LLC. The tenant can’t come for everything you own.
    • If you have multiple properties, consider putting them in different LLCs for protection. 

Chapter 6

  • Be very specific when going through the contract after buying a property.
    • Spell out exactly what you expect from the other party and when you expect it to be done. Create a timeline of sorts in the contract.
  • Read the contract you were about to sign very carefully. Make sure you can perform everything you are being asked to do in the contract.
  • Due Diligence — Period of time after accepting a deal where the buyer can run a check on the property to make sure it looks right before finalizing.
    • Be thorough with this after you buy a property. Make sure that everything checks out fine.

Chapter 7

  • Rezoning — Buying a property or building and changing its use into something else.
    • Ex. Buying an apartment complex and changing into a bunch of commercial office spaces.
  • If rezoning, think: Can this be turned into something different or better? What would improve the living quality and convenience of the people living in the area?

Chapter 8

  • It’s all about adding value in real estate investing.
    • Try to find beat up, run down properties to buy so you can improve them. This is often called “forced appreciation.”
  • Force appreciation increases the value of the house you just bought.
    • Don’t count on market appreciation when doing the math to buy a new property. Market appreciation is likely, but view it as a bonus.
    • Forced appreciation gives you direct control over the value of your property.
  • For beginners, focus on finding undervalued, Class C buildings to invest in.
  • Tips for starting your search:
    • Become an expert in a particular area.
    • Identify the least expensive area in that location.
    • Hunt for “problem properties” in that area.
      • Ex. Vacant, boarded up, peeling paint, etc. 
    • Do the work. Study and do the math. Be prepared.
    • Don’t be flustered by the real estate market. No matter where the cycle is at, you can always find good deals.

Chapter 11

  • When investing in real estate and redoing the interior to add value, ask yourself: What would the target buyer or renter want?
    • Put yourself in the target buyer or renter’s shoes.
    • Plant flowers, add new coats of paint, trim bushes and trees, etc. 

Chapter 12

  • Have a business plan for your real estate.
    • Why do you want the property?
    • What type of investment is it? Long-term? Flip?
    • How much risk are you willing to take? How much debt are you willing to take on?
    • Have an exit strategy.
    • Have a team around you.

Chapter 13

  • What you pay for a house has nothing to do what you can charge for rent. The market sets rent prices.

Chapter 14

  • Real estate is a business, not just an investment. You have to run it like a business.
  • The value of your property comes down to your net operating income (NOI). This is income after expenses.
    • NOI = Income – Expenses
  • Total income is key to maximizing your NOI. Three some drivers of income:
      1. Rent — Keep a close eye on your rent prices and other rent prices in the market.
      2. Occupancy — Find good tenants. Screen them. Run background and credit checks.

Chapter 15

  • 1031 Exchange — Allows you to defer taxes by rolling your gains from the sale of one property into the purchase of a new and similar property. There are six rules of the 1031 Exchange:
    1. Hold the property for investment purposes
    2. Adhere to the 45-day identification.
    3. Replace property within 180 days
    4. Use a qualified intermediary
    5. Follow title and holding requirements
    6. Buy a similar property of equal value