Real Estate Investor Magazine South Africa July/August 2019 | Page 35

INTELLIGENCE
Real Estate
Education
The (many) pros and (few) cons of real estate investing
BY KIM KIYOSAKI
ondering if real estate is right for you? See for
yourself. Donald Trump made his name and fortune
in real estate. He once said, “It’s tangible, it’s solid, it’s
beautiful and it’s artistic, from my standpoint. I just love real es-
tate.” Regardless of how you feel about his politics, you have to
hand it to the man—he certainly knows real estate.
I also know and love real estate. Robert and I began
investing in small, single-family homes in the late 1980s. Once
we were ready to graduate to larger properties, we purchased
a six-unit apartment building. Today, we own more than 1,000
apartment units. As you can see, we started small and grew
with time. Nearly every successful real estate investor I know
started small, too. You’ll learn why shortly.
To be clear, when I speak of real estate, I’m talking about
rental real estate that produces a positive cash flow—things
like single-family houses, a duplex, a triplex, an apartment
building, an office building, retail stores, shopping centers,
storage facilities, warehouse, etc.
W
Pros of Real Estate Investing -
Many reasons to invest
1. Leverage of OPM (Other People’s
Money). Here’s the concept in a nutshell: If you
2.
3.
4.
pay 10%-30% as a down payment, a bank, lending
institution or private party will provide the rest of your
funding. That means you can own a $100,000 piece of
property for just $10,000 to $30,000. Where else in life
can you get a deal like that? I talk a lot about financial
intelligence, and understanding OPM is one sign of it.
Cash flow. If purchased and managed properly,
your property can offer tremendous opportunities
for a monthly profit. This is called cash flow, and
this ongoing stream of income I receive from an
investment is the reason I love real estate.
Appreciation. If the value of your property has
gone up and you decide to sell, your profit is called
appreciation. Cash flow and appreciation are two
forms of revenue from rental properties. Remember,
even though you aren’t buying in hopes of selling to
earn a quick profit, you should always have an exit
strategy in place.
Fewer highs and lows. A cash-flowing
property is not subject to the daily ups and downs of
the markets. It is typically a longer-term play. As you
may know, a down real estate market can actually be
the best time to buy.
5. Tax advantages. Tax credits are available for
6.
low-income housing, the rehabilitation of historical
buildings, and certain other real estate investments. A
tax credit is deducted directly from the tax you owe.
You also get an annual deduction for depreciation,
which is typically a percentage of the value of the
property that you can write off as an expense against
revenues. Finally, in some countries, the gains from
the sale of real estate can be postponed indefinitely
as long as the proceeds are reinvested in other real
estate. What a bonus!
Less hectic. You usually have time to do your
due diligence, analyse numbers, make comparisons
and then make the best investment decision possible.
Cons of Real Estate Investing
I would be remiss if I didn’t mention a few
disadvantages when it comes to real estate
investments.
1. Time lag. Offers, counters, appraisals, inspections,
financing—they all take time. This is why patience is a
virtue. After you’ve been through it once, you’ll know
what to expect on future opportunities.
2. Not liquid. You simply cannot jump in and out of
real estate very quickly, making it difficult to convert
the asset into cash in a hurry. Remember number six
above, where I said time is on your side? Well, not if
you need to sell quickly.
3. Difficult and/or time-consuming. Of
the four asset classes, real estate is the second most
difficult (after business). Properties must be managed
on a daily basis, including vacancies and bad tenants.
This is also why I suggest starting small, where it’s a
lot less expensive to make mistakes while you’re still
learning.
And there you have it: If you can rise up to overcome those
few cons (which takes experience and education), you will
become a financially free woman who made her name and
fortune in real estate.
KIM KIYOSAKI, Renowned entrepreneur, real estate
investor, radio show host, founder and author of Rich Woman.
RichWoman provides financial literacy for female readers to
empower themselves and grow their investments.
RESOURCES RichDad.com
SA Real Estate Investor Magazine JULY/AUGUST 2019
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