From the Rich Dad Radio Show: Find out what the top performing real estate investment is.
Episode aired on 7 August 2019, by Robert & Kim Kiyosaki featuring Victor Menasce.
I was 19 when I was introduced to Robert Kiyosaki, author of Rich Dad, Poor Dad.
Through my recollection - and I might not be 100% accurate on this - Rich Dad, Poor Dad was about Kiyosaki’s upbringing as a child of two men, and his extracted learnings from both. The first, his birth dad, was a well-educated Japanese immigrant who was a professor at a university in Hawaii. The second, his adoptive dad whom his mother later married, was an extremely financially successful person.
In his book he wrote about watching his Japanese dad work hard and trade hours for money. Each time he advanced financially, he would invest that wealth in a larger home, and a larger mortgage. He died poor.
Rich dad on the other hand was shrewd and savvy. He taught Kiyosaki about making money work for you, and earning while one sleeps.
The original 1997 cover.
The modern book cover.
I remember the day I was introduced to Kiyosaki very well, because it was my first exposure to financial education. I was en route to the airport. My best friend’s dad, Mr L, had one of his CDs playing in the background while giving me a lift.
It was poetic and ironic- Mr L, a VP at an established firm giving me a lift, while my dad, a taxi driver, was out working.
I thought Kiyosaki’s teachings were genius. Though I’d never gotten down to finishing his book, his name stuck throughout the years like a first-love.
You could imagine my delight in my recent discovery of his podcast. Not only that, the first episode that caught my attention was one on real estate.
I thought that was my sign. It’s time I receive Kiyosaki’s wisdom!!
Then I remembered that I have a blog, and I could even share a summary and my take on it. I learnt something new from the guest interviewee, Victor Menasce,
I did quick notes of the episode and fact-checked the credibility of Victor Menasce. For good measure, I looked up Kiyosaki too.
I’ll be damned.
Rich Dad is a fictional character. I found so many negative reviews of Kiyosaki and his teachings!! Why!!!!
From the Daily Mail.
My first-love was a sham. :(
So I collected my broken heart, and looked at it from an objective point of view.
You know what, this episode was about Menasce’s experience and advice. For someone who is a full-time real estate investor, syndicator and knows a niche category in the market, his advice could be worth considering.
Or debating.
What is the #1 investment in real estate. What is the most important, most profitable real estate today?
Let’s start with the worst.
#7 Vacation Homes
What most losers do is they buy themselves a big home, and then the next thing they buy, is a vacation home.
I don’t think all vacation homes turn out to be liabilities, to be honest. As a matter of fact, I know a family friend whose 3 vacation homes in Cape Cod bring in a pretty penny. In the summer, they are always booked out.
A quick search on Airbnb revealed that the average nightly price of an entire house at the Cape is $348. At 95% vacancy, that’s $9,918/month guys!
If you could make those rental numbers work, the rest is risk management. Add security footage to your vacation home, hire a reliable housekeeper (if you rent through Airbnb you could build in housekeeping fees anyway), and pop in there once in a while to check the condition of the place.
You know what they say in real estate - location, location, location.
#6 High Income Single-Family Homes (for rent or flip)
And all of a sudden the economy turns and the first thing that people usually do, is that they go to something cheaper.
I don’t know any investor who focuses on buying high end homes for rent, but I’ve had experience with an investor flipping one. He did a great job with this $2.7M home, walked away with some money, but it was nerve-wrecking towards the end of the second month on the market.
Carrying costs alone was $17,000. We're talking 7% bank interests, property taxes, pool maintenance, landscaping services and cleaning services each time there’s a potential buyer visit.
Could one be dragged down when the economy turns? Yes, definitely.
#5 Multi-family Condos
They are almost worse than vacation homes… because of HOA.
Kiyosaki had a bad experience with a home owner’s association (HOA). He was apparently once made to repaint his property because the HOA did not like his paint color of choice. He thinks that HOAs are people with too much time on their hands and nothing better to do than to breathe down investors’ necks.
??? Umm...
Sure, there are some HOAs that are a little prickly, but condominium bylaws exist for a reason - it tells you what the condo’s rental policies are… and probably does provide a list of acceptable paint colors too, if they are that particular about it.
I don’t think people should shy away from investing in a condo just because a HOA exists. That’s just over-generalizing. In fact, if you’re a time-strapped investor who does not want to deal with landscaping, trash, snow removal, roof maintenance, septic and well maintenance woes, you most definitely want to consider a condo instead of a single-family home.
#4 Mobile Home Park
Kiyosaki recalls receiving this advice by a professional in this space: after you’ve invited people to move their mobile homes to your mobile home park, the first thing you’d want to do is to give people a tree. Get them to plant a tree in front of their home, so that it’s no longer mobile.
Yes, there are some investor-educators out there who like to dish crazy, underhanded advices. I too, have been a recipient of some.
My advice? Stick with your moral compass. Trust your gut. Be a good person. Make your mom proud.
#3 Homes in Masterplanned Communities
They look good, people like them, but they too have that dreaded HOA… which I despise.
You may be wondering, if it’s the same concept as investing in condos, why is this ranked higher. That’s because homes in masterplanned communities are single-family homes that come with land. Remember, it’s the value of land that increases over time, not structures.
Anyway, what’s with Kiyosaki and HOAs.
My thoughts on HOA are the same as expressed earlier. Don’t over-generalize.
#2 Single-family Homes in Moderate and Workforce Communities
If they don’t pay their rent, they’ve got no place else to go- unfortunately. So we take good care of them and they take good care of us.
You’ll always have a market for workforce... Generally I’d say 60% are great tenants; 40% you gotta watch. Anyway they are good people.
Agreed.
By far the best feedback that I’ve heard from landlords are about their tenants in these towns. Some of them have a relationship with their tenants for over 10 years! They pay on time and also pretty handy with minor fixes in the house. These are tenants who aren’t trying to lawyer up all the time. It’s a straightforward relationship.
As an additional point made, “If the economy turns, you’d also have a bunch of people downsizing to these homes."
#1 Senior Housing
It’s so far ahead, it’s in the excellent category, and everything else is fair to abysmal.
I’ve got no experience or feedback in this area besides knowing from a consumer perspective that these services are costly. The argument for the growth of this industry is no doubt the fact that the Baby Boomers generation has approached retirement and a later stage in life where they require more care.
What’s the market size?
76 million as of 2012. This article has the numbers.
Senior housing is a broad category; in this example, Victor Menasce is referencing mid-sized group assisted living, where there are at least 1 skilled nurse and a team of support staff.
Here are my 4 operational takeaways from his sharing:
1) ATTENTION: This is not a pure real estate play; it's a service business. For tax purposes, you’d want to structure it as a real estate business, but the reality is the real estate component is 20-25%.
For this reason, you’d want to be in the right headspace to run such a service business.
2) Don’t start too small.
People at times fall into the mistake of having just 3-5 beds to get their feet wet. From Menasce’s experience, 12-16 beds is the minimum threshold for economies of scale, because there are some unavoidable staffing head-counts:
Administrator
Driver
Cook
Registered nurse
Personal support worker(s)
3) Prioritize quality of living.
Remember that these seniors typically come from having lived in a single-family home their whole lives. They’re not looking to end up in a hospital-looking, or institutional type of accommodation with a better paint job and underwater treadmills.
Menasce would even purpose build his housing so that it caters to the functionality and environment that he’s looking for. These are his tips:
Have larger communal spaces like a dining area, where people can bond and celebrate holidays over a meal if they want to.
Never make residents share rooms. People want to keep their privacy and have the ability to sleep in if they want to.
Good to have a build-in toilet, with accessible showers
There must be 24 hour staff; you could keep the ratio of caregivers to 5:1 during the day, and 10-15:1 at night.
4) Don’t going into a market where it’s already saturated.
Menasce referenced San Antonio, where the market-wide occupancy is about 70%. He did not mention what the sweet spot is, but at least you’ve got a bench mark figure for poor occupancy. Aim to be above 70% then.
He advised looking at affluent suburban markets where adult children could afford to pay for their parents’ housing and would typically like to have their parents close by.
Someone forgot about multi-families?
I’m surprised that multi-families didn’t even make the list. They are known to be one of the most resilient class of real estate assets. I’d rank them above single-family homes in moderate/workforce communities.
How about multi-families in moderate/workforce communities? BAM!
I’ve also read about investing in self-storage facilities and RVs- anyone has experience in them?