Robert Kiyosaki, author of the bestseller “Rich Dad Poor Dad,” teaches people how to become wealthy beyond the 9-to-5 grind.
Read More: ‘Rich Dad’ Robert Kiyosaki Reveals Why the 401(k) Is a ‘Horrible’ Retirement Plan
Find Out: 5 Genius Things All Wealthy People Do With Their Money
Investing in real estate is a major part of his philosophy, but it’s a tough market to break into. That’s why Kiyosaki shared his two-step strategy for real estate investments with his audience.
The “Rich Dad” philosophy favors real estate investments. However, that doesn’t mean just any investment in property is a smart move. Kiyosaki says you need to choose the right kinds of properties to give yourself the best opportunity for success. His two-step strategy is designed to help you do exactly that.
Buy Properties Below Market Value
The first step in the strategy is to look for properties that are below market value. For example, the average home in Portland, Oregon, sells for $539,524, according to Zillow. If you were buying in Portland and using Kiyosaki’s philosophy, you would want to focus on properties below that price.
However, “below market value” can mean different things. For example, if homes in Southeast Portland sell for $500,000 on average, you would want to look for properties in that area that are available for under $500,000 — not just under $539,524.
A good rule of thumb is to look for properties that are being sold for meaningfully less than comparable homes in the area. That’s all you should be thinking about at this stage, even if the properties you find are in total disrepair. This brings us to the second part of the strategy.
Discover More: Warren Buffett’s 6 Best Pieces of Money Advice for the Middle Class
Choose Properties That Can Be Improved
Kiyosaki recommends choosing properties that have the opportunity to be improved. The idea is that through these upgrades, you can increase the value of the property and eventually sell it for a profit.
A 2023 study by Today’s Homeowner revealed the average return on investment for remodeling projects is 69%. However, there can be many steps between buying a property that needs improvements and selling it for a higher price.
These homes are often more work than you expect and can bring major stress into your life. There’s also no guarantee you’ll be able to sell the property for more than what you paid plus the costs of improving it.
That’s why you should invest in a property only if you can articulate a clear path toward profitability. That means knowing exactly what you’ll need to upgrade before reselling the home and getting estimates for how much it’ll cost to do so.
Once you get an estimate for your planned renovations, add that figure to the price you paid for the property. If the sum is still less than the average home price in the area, then it could be a fantastic investment opportunity.
Why You Should Make Only Local Real Estate Investments
Kiyosaki’s two-step approach to real estate investments comes with an important footnote. He says you should look for properties close to where you live. There are a few good reasons for this.
First, you have a better understanding of your local area. You know the best parts of the city and which areas are on the rise. You can use this insider information to make smarter investment decisions.
Second, local properties are easier to improve. When renovations begin, unexpected problems will almost always arise. You want to be able to go to the property and oversee these issues as they come up. If you invest somewhere besides your region, that could mean flying, renting a car and using vacation days, which can hurt your financial situation.
Finally, it’s much easier to find a great property in your local area than it is to buy elsewhere. Instead of chasing leads across the country, it’s a more effective use of your time and financial resources to become an expert on your region.
If you want a money-making opportunity with no geographic restrictions, Kiyosaki recommends looking into side hustles you can do from anywhere instead.
Final Take
Real estate investing is one of the cornerstones of Robert Kiyosaki’s wealth-building strategy. His two-step philosophy offers a framework you can follow to break into the market and start making money.
However, investing in property isn’t the best financial strategy for everyone. If you don’t want to become a landlord or worry that you won’t be able to sell for more than you paid, another passive income strategy could be a better option.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: ‘Rich Dad’ Robert Kiyosaki: Use This Two-Step Formula for Real Estate Investing
