Many people have read the various books in the Rich Dad, Poor Dad series of self-help books by Robert Kiyosaki. We’ve heard from people who love his work, and also from people who think he’s an idiot. While we don’t agree with everything he says, there is one element of truth to his books that is hard to ignore (because he repeats it so often):
“Fill your life with things that put money in your pocket every month.”
He defines the above category of possessions as “assets” (which we do not agree with — check your local dictionary). But the advice is still sound. If you are currently working for a living, you should set aside as much money as you can and invest it in things that produce a profit every month without you actually doing any work (known as “passive income”).
Eventually, if you keep doing that, you will be at a point where you don’t need to work for a living anymore. You sit back one day and realize that you can thrive just on the amount of money that is coming in every month from your “passive” investments. And that’s the day you officially retire from the rat race. But that begs the question, “What passive investments does Robert Kiyosaki recommend?”
Most people who have read the Rich Dad, Poor Dad books don’t actually know. He never seems to come right out and tell you to invest in anything specific, although most readers probably get the idea that he leans towards real estate investments.
There’s only one problem with that, which is the acquisition stage. Buying rental property is a difficult thing to do, even if you are a student of various “no money down” types of real estate schools or creative real estate financing. You will soon discover that most of the “no money down” real estate schemes focus on acquiring real estate with owner financing. The theory is that you acquire it with owner financing, wait a year or two for the value of the property to go up, and then sell it for a profit or refinance it at better rates. All the while you are renting it to someone who is paying the monthly bill for you.
That’s fine except for one thing — “no money down” real estate schemes only work when the value of the property goes up. What happens if it goes down? Basically, you lose your shirt because most of the “no money down” real estate schemes leave you in a precarious position financially for the first few years. If you are teetering on the edge of bankruptcy and things don’t work out the way you planned, it’s easy to tip over. But there is an alternative to this mess.
How this applies to log homes
Suppose there were a way to do the whole process backwards. The first thing you do is become financially free, and then you worry about making money. The concept sounds ridiculous, but that’s exactly what we teach in our class.
We tell students who are financially challenged that the very first thing they should do is try to get out from their current rent or mortgage payments. Very frequently this can be achieved by acquiring a free mobile home to live in while building the first log home. Once the first log home is finished the pressure is off, right? Without having to make the monthly mortgage or rent payment, life gets a whole lot easier.
It is fairly common for our students to find a piece of rural property from a farmer and buy it with owner financing. Because the property is unimproved and rural, it’s much cheaper to pay for every month than the student’s current rent or mortgage payment. Then all you have to do is build a log home on it. We’ve seen students build log cabins to code for less than $5 per square foot. In an industry where $35 per square foot is considered inexpensive, a figure like $5 per square foot is amazing. But it can be done with enough patience, time, motivation and energy. Granted, we are not talking about building a home with a yuppie refrigerator or anything fancy, but a home that is practical, inexpensive, comfortable and sturdy. Later if you have the budget you can always go back and add upgrades. Just get the basic necessities down before the extravagances.
After the student builds their first log home they are at a crossroads. It might be worthwhile to sell their log home for quick cash, live in it while starting the next project, or build more houses on the same land for rental or sale. We had one student who was very “financially challenged” that bought forty acres of land from a farmer with owner financing (this was very cheap, rural land). He put a free mobile home on the property and built his log home. He had absolutely no intention of doing anything other than moving into it and finding a job. But when he was finished, a nice young couple pulled into his driveway and asked for directions to town. They were looking around the area for a home to rent and got lost. Needless to say, our student ended up renting his log home to these people and living in his mobile home for another few months while he built another house to live in. Pretty soon this man had four log homes built and every one of them was rented. He stopped looking for a job and lived on the monthly rent instead.
Eventually he subdivided the property and sold each house on a private note (mortgage) and retired. This is sort of an unusual situation because, even though building log homes is a lot of fun, not everyone wants to be a “log home builder” for a living. Most of our students have other dreams and aspirations, but either learn how to build a log cabin because they want to own their own home without a mortgage, or because they’ve always wanted to have a log home.
Which brings us back to the Rich Dad, Poor Dad issue. It is sometimes possible to convert what Kiyosaki calls “liabilities” like your own home, into income-producing “assets” (using Kiyosaki’s definition of both words).
Four green houses, one red hotel
In one of Kiyosaki’s books he says that he learned how to get rich by playing Monopoly. Four green houses, then upgrade to one red hotel. We’ve never seen a green log house (unless the logs weren’t seasoned), but you get the idea. Instead of building rental properties or building log homes for anyone else, we usually recommend that our students simply build a log home for themselves using their own specifications. When they are done they can sell it if they choose, and use the money to build two more. Sell those and use the money to build four more. Sell those and build eight. Those eight log homes are representative of your one red hotel — selling them on a private note is something akin to automatic retirement, regardless of your age. You might be 18 or you might be 88. You can then use the rest of your life to do whatever you want, including building more log homes or doing whatever interests you.
Note: Rich Dad, Poor Dad is a registered trademark of its owner. We are not affiliated with Rich Dad, Poor Dad, Robert Kiyosaki, Cashflow Technologies or The RichDad Organization in any way. This is just a commentary about some of the issues raised in the Rich Dad books.
I always liked the Rich Dad Poor Dad theory in general but didn’t like how Kiyosaki didn’t give many concrete examples of how to implement his ideas.
So I was happy to see you have some concrete ways to apply some Rich Dad princples in your 8 ways to make money with log homes article.
A couple of those ideas sound very appealing to me. I look forward to learning how to build my own log homes at your class, and apply some of this stuff to my life.