This article was inspired by the views of Robert Kiyosaki and Donald Trump.
I have gathered them from this book: Why We Want You Be Rich.
Further refinement and help with the implementation are available through our Invest Academy.
Kiyosaki’s opinion in short:
The investment in securities (shares, bonds, fonds) is risky because you do not have any control over it – unless you buy the whole company or so many shares that you get a chair in the board or directorate. This is how e.g. star investor Warren Buffett does it.
Because of that lack of control, the whole investment industry recommends: Diversify, diversify, and again, diversify.
Is the risk lowered by that?
However, the same goes for the chances of profit, too.
You get what everyone gets – minus the diversification fees. This decreases the profit further.
Still, nothing has changed regarding the lack of control.
Let us talk about vacation real estate in Florida. The following also applies to other regions, such as Texas, from where I have just come back.
100% Control Over Investment
Usually, a house belongs to you/your family alone. You do not share it with other investors. You can make decisions on your own, which is why you have the absolute control over your investment – within the framework of statutory provisions of course, but this applies to everything in life.
Kiyosaki divides the control into 6 areas:
Let us have a detailed look at these points:
You decide regarding the terms and conditions of renting out.
You inform yourself – possibly again with our help – about the average rental days per year so that you can make a projection regarding the rental income per year, under consideration of seasonal fluctuations.
You inform yourself – possibly once more with our help – about the expected expenditures. The property tax is easily assessable (in Lee County e.g. the waste collection is included), if applicable the pool cleaning, and the electricity.
Of course, one should also consider that durable goods, such as a refrigerator or the roof, tend to get damaged every few years. This means you have to take care of a monthly saving. Our “achievers” know this as the “dishwasher-effect”.
The primary asset is the house, possibly including fixtures.
According to an old merchants’ adage: The profit is in the purchasing. But even if the property appraiser or real estate portals estimate a different value during the course of the years, that only becomes of interest to you at the moment of selling.
The headline could have also been called “leverage effect”. You get a leverage effect, if you use the time and/or money of other people. We train both during our coachings.
How would you answer the question, “Which is cleverer: buying a vacation home in cash or making a down payment for three vacation homes?”
We regularly get organized financings with a 30% down payment for our academy people – even if you are a foreigner in the USA and your income and your current assets are in Germany, Austria or Switzerland!
You, of course, do not want to get phone calls coming in at three o’clock in the morning due to the different time zones, just because the toilet flush does not work. For this purpose and such tasks, you should use a good property management company.
Depending on how much you want to be actively involved in the operation of the vacation home, the property management company can even take over completely. In this case, this costs a little more (see point 2). However, it will cost the time of others, not yours (use leverage, see point 4).
Of course, there is an insurance for your home, so that your asset does not disappear, not even after a hurricane.
Another type of insurance is to structure real estate within a company. Depending on the individual case, the appropriate choice is a corporation or an LLC.
The Biggest Mistake
The biggest mistake that we Germans like to repeat – especially if we are financially well – is to either buy existing vacation real estate during the second or third visit in Florida or to sign a contract for a new construction. Payment: Cash.
Where exactly is the mistake?
Begging your pardon: in the own lack of knowledge.
This at least applies to many of the people that I have met personally.
Please consider every purchase of a vacation home or other real estate a separate business unit.
What is it supposed to do?
It should generate money for you!
Robert Kiyosaki would say, “create a positive cash flow”.
For this purpose, two important factors are required:
- You have to really know the market (or have very very good consulants).
- The house has to generate more money per month (annual average) than it costs (including the cost for financing!).
In the past, many spontaneously purchased vacation homes turned into success stories nevertheless, because the real estate market in Florida has grown continuously. This is especially due to the comfortable climate, the comparably cheap prices and the tax differences in the USA!
Please consider the following recommendations, if you want to build a real estate portfolio in the USA, which generates constant profit for you, just as it says in our pipeline article.
If you already have more than enough money, want to live in a beautiful home during your vacations yourself and perhaps rent it out to friends from time to time, then you might want to disregard our recommendations: Probably, it is the comfort and romance of the own property that has more value for you.
This starts with simple (English) terms from the real estate industry, continues through the local market and ends with the particularities for foreign investors.
- Build a network
Good relationships have more advantages and can often save you cost-intensive detours.
- Start with a small object
You will make mistakes, regardless of how intensively you have implemented the first two recommendations. Mistakes are part of the game and you learn the most from mistakes. It is best to make the mistake at the beginning with manageable investments. The mistakes will not cause you sleepless nights, either. An example of such a mistake is forgetting to charge the “tourist tax”.
You can gather all that knowledge and experiences on your own – e.g. with the help of Google searches and online forums.
Good news: You can rely on the knowledge and the experience of our Invest Academy and its participants if you network with each other. This would be the path of professionals.
If you are still at the very beginning, a subscription for our monthly update might suffice for you to up-to-date with the subject. This is free of charge.