Rich dad poor dad real estate investing worksheet
Also, ind two or three brokers who operate in that area. Call these brokers and ask them about the area. What has sold recently and for how much? What do properties rent for, and who rents here? How long are properties typically on the market before selling? Why do you want to do this? Most people do just the opposite—they invest very little rich people and poor time and a lot of money and wonder why they lose!
Why risk a lot when their cash is flowing. Just remember that pave their driveway. The fact that mistakes education, not themselves personally. If my friends with the 4-plex had started with a unit apartment building, that driveway would have cost them much more and would probably have caused them a much bigger inancial problem.
Figure out how to ix that problem, and you can instantly increase the value of that property. Nobody else would touch it. One not-so-small problem—no one wants to be in Phoenix in the summer, so most of the units sat vacant during those months. To make a long story short, we did our research and converted the property from short-term hotel rentals to regular long-term rental apartments.
We were winning on both cash flow and capital gains! Your job as a real estate investor is to seek out properties with problems—and solve them. The workbook has lots of valuable information about analyzing the numbers. Does the property meet your criteria? Does it have positive cash flow? Is there a good chance of appreciation? Get ready to begin your successful journey to Investing in Real Estate! What Are My Choices?
You can build wealth through real estate in several different ways. Below are what those choices are—and which ones Rich Dad recommends. Cash flow or capital gains? Long-term cash flow, with the potential for future capital gains.
Some investors buy a property only to turn around and sell it for the capital gains. Buy and hold or buy and flip? Buy and hold. This is a tried-and-true way to become ininitely wealthy. If you buy well, hold on to the property, and manage it wisely, buying and holding can provide a good, steady passive income every month.
Plus, if the property appreciates in value over time, it not only gives you a monthly stream of cash flow but also still allows you to realize capital gains if you sell. On top of that, your tenants pay off your loan! Please consult your tax accountant for the best investment strategy for you.
No money down or money down? Remember the magic words—cash flow. You want the greatest return on your money and you want to leverage your money well. If you have a large sum of money to invest, you still want to leverage your money effectively, but you may be willing to put down more money in order to get a healthier monthly cash flow on your investment.
It all depends upon your personal investment plan. Vacancy rate A igure representing the annual percentage of units unrented or the percentage of time a single unit remains unrented during the year. Zoning laws Regulations governing land use, population density, and building size and use. Set by local governments, zoning laws typically change as communities develop; you can also request changes or exemptions.
But what exactly are you looking for? And where do you ind it? Along the way, keep in mind that cardinal rule. Establishing Your Criteria Two of the most important things to keep in mind about properties are cash flow and appreciation. No matter what your level of experience, these should always be your two primary criteria. Keep your eyes peeled for areas that are up-and-coming. Real estate in general tends to appreciate over time, but you want to ind areas that are appreciating even more.
A good idea is to look not just at the residential area, but nearby commercial areas as well. Are there new or high-end stores opening in the area? Are there new ofice buildings being built or companies moving in?
These could be signs that the neighborhood is improving or in demand, and you may be able to get in on the ground floor of a booming market. Read the following questions and answers, then ill in the Basic Criteria worksheet. What Type of Property is Right for Me? Start small Start with a small property—a single family home, a duplex, or 3-plex. Mis- takes are part of the process, and you should expect to make them. With each mistake, you become smarter and your next investment easier.
So make your mistakes on small properties, learn from the mistakes, then move on to larger properties. Stay close to home Ideally, look for rental properties that are near where you live. That makes it easy to drive around the neighborhood and see what new properties are on the market, watch the selling prices and purchase prices, talk with the neighbors, and keep a pulse on your particular market. Establish cash flow as soon as possible Your goal is positive cash flow, ideally from day one.
Hold on to the property as long as it produces a reasonable income stream. Or hold on until it appreciates and you can sell it, moving the gain to a larger property with an even stronger cash flow. As far as rich dad is concerned, the best investments are those that keep the cash flowing year after year. First, decide how much you have available as a down payment.
Not having the money often makes you smarter because you have to think of alternative ways to come up with what you need. To ind a good bargain, learn to see beyond the obvious. Sometimes properties in obvious need of work can become wonderful opportunities—if the price is right, that is. However, when you irst start out in real estate investing, you may not have the time, or the up-front funds, to take on major renovations.
Also, consider the age of the property when thinking about renovations. Often, older properties need more work. For now you just need to start considering potential sources of funds. Where Do I Look? Start with your own neighborhood or one close by, so you can go there again and again. As you start your search, keep the following tips in mind. Note any changes, and pay particular attention to For Sale signs.
How fast do they go up—and come down? Who are the most popular agents? Talk to people who live in the area and ask them about it. You might be surprised at the answers. Scan the Internet There are hundred of sites full of real estate deals. Compare the price ranges and rental rates in different neighborhoods.
This comparison will help you identify an area or neighborhood that shows promise. Talk to the Local Chamber of Commerce All chambers of commerce produce studies that provide information on planned future developments, both public and private. This information can be valuable when looking at the potential growth and change in a neighborhood. Identify Useful Governmental Agencies and Oficials Governmental bureaucratic red tape can be maddening, but you do need to know something about the laws affecting the rental market in your chosen area and the real estate laws in general.
Take the time to ind out which state and local governmental agencies regulate the real estate and housing industries in your area. Always consult a lawyer if you have doubts or questions. They can provide you with the most up-to-date information on current and future plans for the area in which you wish to invest. But to pick out the good deals from the not so good, you also need to look deeper. You need to look at the numbers. By the end of this chapter, you might be well on your way to your irst successful deal!
What is a Pro Forma? A pro forma is a type of inancial statement for an investment property. But unlike a cash flow statement representing current income and expenses, a pro forma is a projection of anticipated income and expenses. Where do you get pro formas? Ask the agent, whose job it is to gather the information on a pro forma in order to market the property to potential buyers. Remember, pro formas are selling tools, and they typically paint a rosy picture. They may assume an increase in rents, as well as decreases in the vacancy rate and in expenses.
On the next three pages we will discuss the components of a pro forma, look at a sample pro forma, and analyze it. The deinitions that follow will help you understand the information on just about any pro forma. The Numbers The numbers on a pro forma will tell you whether a property qualiies for further review. The numbers tell the story.
Many of the individual items on a pro forma are self-explanatory. A few are deined more thoroughly below. Cash on Cash Return The annual cash flow divided by the down payment as- sumed by the seller. On a pro forma this is simply an indicator.
CAP Rate capitalization rate The net operating income divided by the purchase price, expressed as a percentage. The CAP rate, which excludes the amount of debt, is an indicator of the value of the property. Unit Mix The number of units on a property. Unit type includes studio, 1 bedroom 1 bath, 2 bedroom 1 bath, and so on. From the igures for number of units, square footage per unit, and monthly rent, you can calculate the rent per square foot and the total monthly income from all the units of each type.
Vacancy Rate: The percentage of rent you will not collect because of unrented units. Other Income Other sources of income such as parking fees, laundry service, etc. Operating Expenses All the expenses of operating the property. Reserves Money set aside for repairs and improvements to a property. Debt Service The amount of principal and interest, based on the inancing pro- posed on the pro forma.
Your skills as a real estate investor improve with every property you analyze. Kim and I, after reviewing thousands of pro formas, are able to assess within seconds whether a property is worth pursuing. Upscale neighborhoods will naturally carry a higher price tag, but remember to think in relative terms, and look especially for prices that may be lower than the average for the area.
Also, is the neighborhood up-and-coming or deteriorating? Price per unit, price per square foot For multiple unit properties, these are good igures to look at for comparisons. You might ind a property with a high price per unit price divided by number of units , but if the units are larger than average, with greater square footage, the price per square foot might be competitive. As you become more familiar with a given area, these igures will become key indicators.
Unit mix Look for a mix of unit types that matches the needs of the area. Studios might do well in a college town, but two bedroom apartments might be a bigger draw in a downtown location. Vacancy rate Always assume some sort of vacancy rate; ask your broker what the average is in the area. A high vacancy rate may actually represent an opportunity: It can justify asking for a lower price, and if you can see ways to turn the situation around, you can greatly increase the value of the property and the cash flow to you.
A poorly managed property will reveal itself in high expenses. Note that in the preceding example, expenses are only broken down annually. You can divide by 12 to get a monthly igure if you want. That could be a major plus depending on the state of the economy.
You might also be able to inance through the current owner to avoid going to a bank for a loan. Cash on cash return Simply put, the higher the cash on cash return, the better. There is a hard copy of this worksheet on the next pages, or you can use the online worksheet on the rich dad web site at www. Transfer the numbers from the pro forma to the Real Estate Evaluator. Make adjustments to the various numbers to give you several scenarios for the property.
For example: Income Are the rents competitive? Can you increase the rents? If so, how much can you increase them and still be competitive in the market? Vacancy Is the vacancy rate realistic? If you are conident that the rate can be reduced, you may want to calculate the numbers based on a lower rate.
Expenses As you gain more experience it will become easier to assess the expenses of a property. Which expenses seem high and which seem low? Make adjustments. Financing Put in the purchase price you want to offer. What is the down payment you may be paying? What are the loan terms—amount, term of loan, interest rate, closing costs? Is there a signiicant difference? If so, keep this in mind as you arrange inancing. You will see that as you change any or all of these numbers, your analysis will also change.
On the electronic worksheet at the rich dad web site, the cash flow and cash on cash return will be automatically calculated for you. So work the numbers, be creative, and create a inancial strategy that makes the investment work for you. Have fun with it and learn! Cash on cash return A percentage igure determined by dividing the annual cash flow for a property by the actual cash you invested. This could include down pay- ment, closing costs, and ix-up expenses.
Deferred maintenance Necessary repairs and upkeep that have been left undone by the seller. Maintenance that has been deferred can represent an opportunity in a deal, allowing you to negotiate a lower price.
Can you increase the income? Can you improve the value with some simple ixing up? Can you build additional units on the property? This is where you can get very creative. How can you best optimize this property? If you have some answers, then you may have a deal in the making. Use the following checklist to evaluate potential opportunities; refer to the explanations below for more information.
The more positive check marks, the better. A pro forma is simply a forecast of the future. For example, if the vacancy rate is high, how can you reduce it? That will immediately increase the value of the property. Once someone igured out how to solve that problem and got rid of the pigeons for good, the value of that real estate jumped. Remember, your job as a property owner is to uncover the problem and solve it.
Can the vacancy rate be lowered? Are there other income-generating items that can be added, such as vending machines or laundry facilities? Is there an entertaining or meeting area that can be rented out to tenants?
What if you were to set up several computers where tenants could get onto the internet for a fee? How can you increase the income of the property? Expenses How can you reduce the expenses of this property? Is the owner paying for the water usage? If so, you may be able to charge a portion of the water bill back to the tenants.
This is known as sub-metering. The same holds true for the electric bill. Are the real estate taxes in line? Shop around for insurance. Review the service and vendor contracts. How is the management of the property being handled? Is there a more eficient way to manage the property? Financing The plus here could be twofold. First, if there is existing inancing on the property that you can take over or assume, you might be able to save a good deal of time compared with applying for a new loan.
Typically the qualifying process is much simpler and faster. The same holds true if the seller is willing to carry some of the debt on the property. Secondly, the interest rate on the existing loan may be less than you can currently get for new inancing. Amenities The checklist opposite will give you a sample of ideas to consider when evaluating a property.
For example, although a pool may be a nice addition, how often is it actually used by the tenants? How much savings will you incur if you illed in the pool and replaced it with nice landscaping—or better yet, storage units that tenants could rent from you? By adding other amenities such as ceiling fans, new carpet, internet access, or a security system, you can justify a higher rent.
Physical Plant What can be physically added or changed to the property itself to increase its value? Is there room to build additional rental units? Can you build storage units as mentioned above that could be rented out to tenants? Can the property be divided up subdivided and a portion sold off separately to put cash back in your pocket? Can you change the way the property is being operated to make it more proitable—for instance, change it from a vacation rental to a long-term rental?
Change it from student housing which typically is vacant during the summer months to non-student housing? Zoning dictates what can and cannot be built on a piece of dirt. Become familiar with your local zoning process by attending local planning commission meetings. You may be able to have your property re-zoned for example, from single family to multiple tenant, or from a two-story building to a three-story building , which could open up opportunities for increasing the value.
Take note of any future changes to the master plan of the community. Many cities are adding light-rail transportation. If your property has easy access to good public transportation, that could make the location attractive to your tenants. Is the area part of a city improvement project? If so, this could add tremendous value.
There are also numerous city programs that will lend at low interest rates or give property owners money to improve their properties. And Now If you have access to the seller then ask the seller. Ask the broker. Ask the property manager if there is one.
A good manager can provide a wealth of information. Make an Offer and Tie Up the Property Many people believe the next step is due diligence—before they make an offer. Due dili- gence, a detailed analysis of the property, takes time and effort. It costs you nothing to make an offer. The purpose of an offer is to see if the seller is serious.
That is when you begin your due diligence. It saves you a lot of time—and avoids lost deals. Contingency A condition in an offer sheet or contract that must be met before the deal can go forward. Counter offer A response to an offer to purchase a property that introduces new or different terms and conditions. Due diligence A research and veriication process that provides accurate and in- depth information regarding the physical, inancial, and legal attributes of a proper- ty.
Real estate purchase contract Also known as an agreement of sale, a legally binding agreement between buyer and seller stipulating the terms and conditions of the sale of a property. In real estate there are universally accepted written documents and procedures that outline the conditions and terms of any sale. Employee The Employee values security above all else. They hate the feeling of fear that comes with economic uncertainty.
Self-employed The Self-employed person likes to be their own boss and does not want their income to be dependent on other people. They expect to be paid more if they work more and are fiercely independent about their money. Unlike the E, the S responds to fear not by seeking security, but by taking control and doing it themselves. The S is often a hardcore perfectionist who values independence and being respected as an expert in their field. An S essentially owns a job and is the system that makes money.
In many ways, this is the riskiest quadrant. Failure rates are high and success means working even harder and for longer. The wise S sells their business at its peak, before they run out of steam, to someone with energy and money, then takes the earnings and starts something new. The key to success in the S quadrant is knowing when to get out. Business owner Unlike the Self-employed person, the Business owner does not want to do it all themselves, but to surround themselves with others who do the work.
Henry Ford is a prime example of a B quadrant. Ford challenged them to come and ask him anything they liked. The intellectuals lobbed several questions at him. When they were done, he called in his brightest assistants to give the answers. He told the intellectuals that he hired the smartest people to come up with answers so that his mind was clear to do more important tasks, like thinking.
The B owns or controls a system that makes money. Investor The Investor makes money with money. The I quadrant is the playground of the rich, where money is converted into wealth. In the I quadrant, money works for you. Types of investors Some forms of investment, such as getting an education or saving money in a retirement plan, do not really belong in the I quadrant. Rather, the I quadrant is about investments that generate income on an ongoing basis during your working years.
Ideally, everyone should put some money in the I quadrant, where it can make more money. Many people are afraid to start investing because they are afraid of risk. They want to play it safe by keeping their money in a bank or handing over the decisions to a professional investment manager. Assets and liabilities The key to being a successful Investor is learning how to manage risk. You have to get a financial education so that you can invest with your mind, not your eyes or your emotions. Your mortgage is an asset for the bank, not for you.
Even if you pay off your mortgage, your house is still not an asset—it has to be maintained, and you have to pay property taxes on it. Your savings are an asset, but any debt is a liability. A financially successful B will have the skills, time, and money to support the ups and downs of the I. The goal of quadrant B is to own a system and have people work that system for you.
There are three main ways to do this. The first is the traditional C-corporation, where you develop your own system. The second is to buy an existing system in the form of a franchise—this can be tough for someone with an S-mentality who wants to do their own thing but is still a way to learn a lot about running a business. The third way is network marketing, or direct distribution marketing, where you become part of an existing system.
This can be a good way to generate enough income to begin investing; just make sure you pick a network marketing organization that is focused on educating you and helping you to succeed, and that has a proven track record and a strong mentorship program.
Changing who you are The hardest part about migrating from the left side of the quadrant, the E and S side, to the right side, the B and I side, is changing the way you view and get money. The risky side of the quadrant The left side of the quadrant is the risky side. As an E, you are dependent on someone else for your income. The right side is the safe side of the quadrant.
Play Monopoly Whenever people ask Kiyosaki the secret to his getting rich, he replies that he played Monopoly as a kid. The game taught him that the way to win is to buy four green houses and then trade up for a large red hotel. The same rule worked in his life. When the real estate market was in bad shape, the author and his wife bought as many small houses as they could, with the limited money they had.
When the market improved, they traded up—now, the cash flow from their large red hotel, apartment houses and mini-storage units, pays for their lifestyle. To move from the left side of the Cashflow Quadrant to the right side, the thing that has to change is not what you do but rather how you think. Kiyosaki lived modestly for years, working hard not to pay bills but to acquire assets. Think rationally Money is emotional. Just take a look at the stock market, where greed and fear dominate.
Remember, failure is inevitable. Eventually, you will stop worrying about failure because you will realize that you can always get up again. A winner takes the opposite approach—as soon as a stock starts to go down, they sell and take their losses. When a stock is rising, they hold on until they know it has peaked. In other words, the key to being a great Investor is to act rationally and be neutral to winning and losing.
Step 1: Mind your own business Start by figuring out your personal financial statement. Write down where you want to be, financially, in five years, and a smaller short-term goal of where you want to be in one year. Make sure your goals are realistic.
Step 2: Control your cash flow Look at your Step One financial statements. Which part of the Cashflow Quadrant does your income come from today? Which part do you want most of it to come from in five years? Now, draw up your two-part cash-flow management plan. Next, focus on reducing your consumer debt. Use only one or two credit cards every month and always pay off new charges every month.
Once you have paid off the first card, move on to the next one.
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Welcome to my world. A world of possibilities, a world of learning, a world of understanding. A take charge world. Through me, people of all walks of life, from around the globe have a shot at their dreams. See, I am not just a company, I am an awakener. I am a teacher. I am a community builder If you play into your fear, it can cripple you from ever getting started. Or, you might get started, but at the first bump in the road call it quits.
Hopefully you realize that investing requires sacrifice and resisting the impulse of instant gratification. Real estate investing is a people business, and most people can perceive when someone is acting out of greed in their dealings. In order to be successful you will need to surround yourself with competent, good character individuals.
Most people who claim to be uninterested in money also resent the fact that they have to work eight plus hours every day to make money. There is a difference between contentment a good quality and apathy a bad quality. It is a good desire to have enough money to not only provide for your family, but to live an enriched life - however you might define it. And when you possess this desire, you can then assess your current system of generating income, and begin to identify more efficient methods of building wealth.
Real estate is one of the best investments you can make for the following reasons: A great property puts money in your pocket through forced appreciation and cash flow rent. As long as you continue trading up in value, you can avoid being taxed on the gains until you liquidate. Investing in real estate can keep you from simply working harder for the benefit of others - like most jobs.
Acquiring assets instead of just a bigger paycheck can empower you to escape the financial struggle of working your whole life for someone else. Kroc understood that the land and location of each franchise were the most significant factors of his success. Keep expenses low, reduce liabilities, and diligently build a base of income producing rental properties. If money works for you, you keep the power and control it. The law: awareness of accounting corporate, state and federal regulations.
Know and follow the rules to avoid unnecessary fees - and prison. Tax advantages A corporation can do many things that an employee cannot, like spending money on pre-tax expenses company cars, gas, travel, insurance, etc. Protection from lawsuits. You can utilize the law to protect your assets by controlling everything, but owning nothing. As your real estate investment portfolio grows, it is in your best interest to explore the benefits of establishing an LLC limited liability corp.
The rich invent money - you need courage as well as competence to get ahead in this world. For the poor, old ideas and methods, and the fear of change are their biggest liability. Limiting your options, through a lack of financial intelligence, has the same detriment as clinging to old ideas. Analysis paralysis is like waiting for all the traffic lights to turn green for five miles before you start your trip. At some point you have to overcome come to terms with not knowing everything before you make your first move.
Financial intelligence involves the ability to create as many solutions to a problem in order to create wealth. The rich realize that their single most valuable asset is their mind. By training your mind well, taking advantage of fantastic free resources books, podcasts, articles, videos , you increase your potential to create enormous wealth through real estate investing. They are seen with your mind.
Yet if you look at the way humans are designed to learn, we learn by making mistakes… Failure is part of the process of success. But failure is not only inevitable, but necessary in the process of learning and growing. What they fail to realize is that they are missing out on many life changing opportunities. Analogous to a shopper buying a computer off the shelf.
Analogous to someone who buys computer parts and builds the computer themselves. Being a creative investor allows you to create huge wins, but it requires three main skills: Find the opportunities others missed. You must be able to see past a run down, undesired property, and perceive the underlying potential. You must be adroit to overcome obstacles and consider all available options. Raising money: creative investors need to know how to raise capital, and attain financing through more suppliers than the bank.
They know how to purchase great deals oftentimes with little to none of their own money down. So instead of faking it, they identify and work with smarter people than themselves. You want to know a little about a lot. Learning new skills not only grows you as a person, but makes you much more marketable.
Investing in real estate will force you to learn many new skills, including negotiation, sales, marketing, networking, business management, leadership, entrepreneurship and much more. If you want a lifetime of learning and the opportunity to work hard for financial independence, then real estate investing may be for you.
The main management skills needed for success are: Management of cash flow: before buying a property, you need to have an accurate understanding of its monthly cash flow.
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