Book Review, Making Money, Real estate

Book Review: Why the Rich Are Getting Richer by Robert Kiyosaki

Why the Rich are Getting Richer is the latest book in the Rich Dad, Poor Dad series, and Kiyosaki continues giving readers nuggets of wisdom distilled from decades of thought about personal finance. Nuggets is an apt metaphor however, because like real gold the reader needs to sift through pages of repetitious fluff to find the hard-hitting material, all while avoiding the trash and fool’s gold that might lead them astray.

What might a reader then glean from reading this book? Kiyosaki makes excellent points that the rage over ETF funds lately in retirement planning is predicated on the assumption that the current world market trends will continue forever like they have the last century. This is a dangerous assumption when much of the developed world is hitting a demographic time-bomb, where an increasingly old population retires from work to live off their savings, draining the stock market as a whole.  He also states that the rich are not smarter than everyone else; they’re just less ignorant. They don’t ignore reality, or repeat mistakes, or fail to take action when opportunity shows itself. One might think this to even be the difference between the poor and middle class, not just the wealthy.  I’ve known several people who have had issues with alcohol; those in the middle class quit drinking after drugs got in the way of their goals. The poor did not.

Kiyosaki also makes the wonderful observation that debt financing is much cheaper than equity financing, because rates for the latter run at 5-6% for real estate loans. If you were to finance a deal with pure equity, the state and federal government would take 20-40% of your check away in taxes before you could use it.  As Kiyosaki puts it, “It’s better to rent money than to work for it.” Not only that, but renting debt for a business leads to tax deductions, but none are available to straight employees wages. This conception of opportunity cost and taxation blew me away when I read it and further solidified my esteem for real estate financing.

He also makes strident attacks against house flippers as missing the point behind real estate entirely. They are house traders not real estate investors, and miss out on the many income streams that rental property can bring in. At this point, Kiyosaki brings up a concept called phantom income, or a kind of income that avoids or limits taxation.  When you’re a real estate investor, and particularly when using 1031 exchanges, you can benefit from long-term property appreciation and loan amortization tax free. You can use the cost of running the business and servicing the debt to cut your overall taxable income to zero.  While anyone can trade a house or any other good, only those who continually put themselves in favorable profit and tax situations will win in the long run.

That being said, there are many flaws with the book. Kiyosaki claims that he is a best-selling author, not a best writing author, but after 10+ books the excuse is gone. He has plenty of money to hire somebody to edit/ghost write it.  The repetition of older material is extremely tiring, and I only got through it because I knew from past books that were actually was some treasure buried all this sand.

Worse than this however (and I’m not even touching his oil market conspiracy theories) is his deliberate misreading of The Millionaire Next Door. Kiyosaki claims that the book is time bound to the economic situation of the 1990’s, describes and employee mindset, and requires no real financial education.  The truth is, the book often mentions that the majority of millionaires are self-employed business owners. The principles it espouses of saving more money than you spend, not buying liabilities, and not taking on too much debt are sound principles period, not just in the 1990’s. This method does require financial education, just not Kiyosaki’s debt-fueled, tax manipulation variety.  There are various ways of becoming wealthy. All of them take study and effort.  All that changes is an individual’s tolerance of risk and debt.

In conclusion, the book is worth at least a skim for people looking for new ways to think about asset and wealth building strategies. I would not suggest buying the book, but just checking it out from the local library. In the meantime, the personal finance community awaits the day when Kiyosaki actually writes the substantive, fact filled, and concise book everyone knows he could write if he wanted to.

 

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