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Speaker 3For the average guy, girl out there, when the market crashes, they crash too. Their 401k crashes. Their retirement plan crashes. They don't know how to make money when the markets crash. So that's really the key importance, I think, for financial education, because there is going to be a crash. And are you prepared? And can you take advantage of it?
Speaker 4This is the Rich Dad Radio Show. The good news and bad news about money. Here's Robert Kiyosaki. Hello, hello, hello. Rich Dad Radio Show. The good news. The bad news and bad news about taxes. Any comments, Kim?
Speaker 3Yeah, well, I like these series. And because we, as you just mentioned, there's the four asset classes. There's business, real estate, paper assets, stocks, bonds, mutual funds, and commodities, gold, silver, Bitcoin, oil, gas, things like that. And we always say that, you know, you got to find the asset that fits you, fits you best. So we always recommend, go look at all the different asset classes, see what one fits you best. And then the next sub, the next piece of it is taxes. Because everything is taxed differently depending on how you buy. Real estate can be taxed different ways depending how you buy and when you sell. Same as paper assets, same as commodities. We've got two great experts and you'll know now why they are our Rich Dad advisors because they do advise us and they advise us well. And they take us, they take us far in the, you're going to hold up your quadrant. They're going to, they take us far in the B quadrant as well as the I investor quadrant. B is for big business. I is for investor. And that's where we all like to play.
Speaker 4We're entrepreneurs, big business. We have brands. And I is we do most of our money in real estate. And then we save gold, silver, Bitcoin, and other commodities. One last thing I want to say this because Jim Rickards brought it up the other day. He says the most misused word is diversify. You know, when a financial planner tells you diversify, they really are saying de-worsify. So you'll say, well, yeah, I'm diversified. I have oil, I have gold, I have real estate, but they're all in paper assets. And there's a difference between paper assets and real gold, real silver, real real estate and real businesses. So a stock is not a real business. It's a share of a business. It's a derivative of a business. So when these effing financial planners tell you you diversify, they're lying to you. Just because you have a paper asset and one of them doesn't mean you're diversified.
Speaker 3And that's what Rickards was saying. He said, and especially given in these times and where we're going in the future, he said the best assets to be in today, this was according to Rickards, Jim Rickards, was real estate, gold, silver.
Speaker 4He doesn't like Bitcoin. I like Bitcoin. He's not a Bitcoin fan. Anyway, with that, we've had Tom introduce, Kenny, introduce yourself, please, to the gang here. And, you know, Kenny is our go-to guy because without him, we wouldn't have made so much money. So it's a combination of Tom and Kenny. You can't do this, well, at least I can't. So Kenny, give us an introduction about yourself and how you make us millions and millions and millions and millions in real estate using debt. -
Speaker 5Sure, thanks, Robert. Well, as you guys might know, I wrote the books for the Rich Dad series, the ABCs of Real Estate Investing and the Advanced Guide and the Property Management book. But primarily what I do is invest in real estate. So we have multifamily, we have self-storage, we have office, we do land development, and that's what I do full-time. As you know, Robert and Kim, I think why wouldn't you use other people's money? That's basically what it is. It's borrowing money from a bank. You know, people put their deposits in the bank and then they give them to me to invest in property. And so that's, it's the greatest thing ever. And then we only have to come up with the down payments. And so we use debt and then, you know, Tom works his miracles on the depreciation side. And the bonus depreciation and all the other advantages that we get on the tax side. So we make millions and millions of dollars every year and we pay very little taxes and sometimes none. -
Speaker 3And to your point, Robert, about you can't do this on your own. When we met Kenny, we were doing it on our own and I was basically handling all the properties and we didn't have a lot at that time. We had two apartment, three apartment buildings and some single families and I couldn't handle it. I couldn't handle anymore 'cause I took up all my time. And so when we met Kenny, I'm like, "Oh yeah, can you manage my properties?" And he said, "No." He said, "I cannot." So we only work with like 120 units or more. And that's when the team came together because as I was doing it on my own, I can only go this far. And I know a lot of people that are in real estate that can't go farther because their time is all they've got. So you've got to bring a team on. So we had Kenny and then we brought on Tom and it's the team that lets us grow. -
Speaker 4Yeah, that's a very important point. ♪
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Speaker 4Most real estate investors are here. You know, they have a duplex or a fourplex and then property management gets them. - Yes. - And so what Tom, what Kenny said to Kim, it nearly broke our heart. Kenny said- - That was him. - He said, Kim was so proud. "I have a 30 unit apartment, huh?" Kenny says, "It's too small." Not that you can't do the same tax laws, but Kenny, Kenny can't manage you, manage it because in real estate, unlike stocks, see the reason stocks are good, or paper is good, there's no management. But real estate is management and Kenny comes from the management style. So when Kim and I met him 20 years ago, he was like godsend to us. He says, "This guy can manage property." And unless you've been in real estate, you don't know that is the McGilla. If you can manage real estate, you got it, right Kenny? -
Speaker 5Yeah, in fact, even when somebody's giving you money, it doesn't matter who, that's the number one question they ask. Who's your team? How are you gonna manage it? Who's gonna manage it? Who are they? What's their experience? And so it's the most important thing 'cause handing somebody money is not that hard, but then having that money produced is hard. - Yes. - So Kenny,
Speaker 4how did you get started? I mean, you started as a management guy, right? -
Speaker 5Yeah, I did. I started, you know, I was in college, you know, trying to, you know, not rack up a lot of student debt, even though I had some and I was managing a property and I was getting paid a whopping $600 a month. And I was, and I got a three, one bedroom. And I was managing an apartment building in downtown Seattle. And I liked it. I actually really liked the business. And I felt like it was really horribly managed when I moved in. And I was like, well, if I just get people in here that can pay rent and I can clean this place up, it'll be a lot less work for me. And I did that. And then the owner came over about three months later and he's like, hey, thanks for cleaning this place up. And you know, incomes up, place looks great. And I was like, I need to be on that side of the desk somehow. So that's when I started to, had my mind shift is like, okay, how do I, how do I buy these and then apply these same management principles? And as you know, I've been in the management business. We still have a management company. I really, really, really love the business. And, but you know, there is a lot more fun to it than that, actually. You know, when you take somebody's money and you invest it, it's fun, I think, because now there's a way, okay, how do we create, how do we make this money, make more money? -
Speaker 4And the reason that Ken and I always talk about this, this is a financial statement, okay? So you have income, expense, asset, liability. For the people on the B and the I side, the biggest liability is cash. - Yes. - Am I correct, Tom? -
Speaker 6Absolutely. - It doesn't produce, it doesn't produce anything. -
Speaker 4No, they're printing, they're printing it. They're printing it. Since 1971, they've been printing it. So what happens is when Kim and I make money, income comes in here and we have cash, we've got to move it into debt. We're converting cash into debt as fast as we can. But the key is Kenny's now is property management and then investment. investor management and market management. so that's why anybody saving cash today and living debt-free it's good advice if you want to be poor correct now but don't switch into real estate unless you're willing to understand what kenny knows about real estate so that's why his three books give us your three books again kenny
Speaker 5the abc is a real estate investing the abc is a property management and then we have an advanced guide to real estate investing and that's
Speaker 3what you need to understand because when you say move your money into debt if you don't know what you're doing and you're buying a property and you have no education you have no experience you don't know what you're doing that that's going to be bad
Speaker 4debt and i remember i remember you have a dad kim her dad was hardcore stock guy you know he was hardcore buy hold and pray in the stock market and that worked for him but i told him we're buying real estate he says i refuse to fix toilets well so do i that was
Speaker 3my that was my plan i was going to have dad was going to be a business partner my dad was going to be my business partner on this property and i called him i said what do you think about buying this little single family house well i don't want to fix property and i don't want tenants calling me at this time of day and i don't want to fix leaky roofs and i'm like i don't i don't think i want to do this like this i said i don't think you do either thank you
Speaker 4very much so just remember paper assets are for some people commodities stock i mean gold silver oil for some people businesses are for some people and real estate is the best because right now the problem with kim and i our income is going up this
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Speaker 4com for details and if kenny doesn't find us a property pretty soon we're going to pay taxes so tom would you explain that psychology because this is on the b and the i side and because tom when
Speaker 3we talk about taxes tom always says can you find another property can you find another
Speaker 6property can you get more debt yeah right so so you have to start with the premise of course as we've said on the other um episodes that the tax law is a series of incentives to do what the government wants done and one of the things the government wants done is they want housing built okay and they want commercial property built so what they do is they say well we'll give you a tax benefit so that you're willing to go and risk your money put in the effort and the time to go get and and actually and to borrow money as well because the government of course wants you to borrow money because that increases the amount of cash in the economy and so it's all good for the economy so what happens is that the benefit of the tax law is that the government is willing to give you a tax benefit it's what's called the primary benefit it's what's called depreciation and depreciation is magic okay because while you're while your property is going up in value and you're increasing your rents you're actually getting a deduction for more than what you paid because you get a deduction not only for the amount of money you put in but you get a deduction for the amount of money the bank put in so so the debt is important you know from a tax perspective it's not just the amount of money you put in it's the amount of from a return standpoint but it's also important from a tax standpoint so critical that you understand debt if you're going to get into real estate and get the tax savings that you guys talk
Speaker 4about so let me let me show you in a picture okay so let's say kim and i have a million dollars coming in from our businesses it's a liability to us because they're printing more money today so i want to take this million dollars over here i want to give it to kenny he's going to amp it up to 10 million and exactly as you said because the government wants you to borrow money because the dollar became debt in 1971 when nixon took the dollar off the gold standard they dropped the interest rates because they want you to borrow money if they don't want you to borrow money they'll raise interest rates it's really that simple so let's say it goes to 1 million here to 10 million here what that does is reduce taxes here is that correct tom right because that that
Speaker 6one million dollars is not just a liability because they're printing it but it's a liability because it's a liability because there's four hundred thousand dollars of taxes associated with that million dollars of income and and really the one of the best ways to get rid of that four hundred thousand dollar tax liability is to take that money and convert it into real estate because then the government gives you this big deduction for your money for the bank's money and it offsets that million dollars of taxable income your taxes go away so
Speaker 4that's why you know kenny hears a panic in our voices all the time kenny kenny have you found a property yet because if he doesn't find any property tom is going to make me pay taxes is
Speaker 3that correct
Speaker 6tom the irs is going to make you
Speaker 3pay and just to be clearly clear here and also to be clear this formula is not just a u.s formula this formula is worldwide correct
Speaker 6it is the u.s right now has the best tax laws in the world when it comes to real estate there's no question but every country allows depreciation on investment real estate so what do you
Speaker 4have to say because this is where we're always calling you we have too much cash you've got to provide this for us so we can go into debt here and we can reduce taxes does that fit your psychology your your belief system
Speaker 5oh yeah i mean tom always says it perfectly in my opinion he says if you want to see what the irs wants just look at their codes and what the irs wants us to do is invest in housing period and that's why we have that's why we get that's why we get the best benefits from it so so we invest that money we get the uh the debt from the bank and which is we're beating inflation and then with depreciation and other things we're actually able to take that money out tax-free so we're getting income so we're investing our money we're getting our income tax-free and if it's a value-add deal which you guys have been involved in a lot of with with us you know then you actually get your money back and then we have of course what we call infinite return which is you've now gotten your money back and and you paid no tax and that's a cash out refi so you're paying you don't pay any tax on that and you still get income so you so you give me money i give it back and you pay tax legally um uh you know over that depreciation amount only so let me explain
Speaker 4what i just said so this 10 million dollar property do it's throwing income here cash flow let's say it goes up to 20 million what what kenny's talking about is we borrow this episode is
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Speaker 4out again and that comes to us tax-free but that's now tax-free money so we go from 10 million to 20 million due to inflation of what you want to
Speaker 5call it well i i call that forced equity so i i buy a property at 10 million with the idea of bringing it to 20 before i buy the value add yes i already know how i'm going to do it it's not just market driven you know we're actually doing things to make it work 20.
Speaker 4yeah so when when kenny pit just a deal to us. We already know I'm going to put a million here. It's going to go to 10. It's going to go to 20. We're already getting income from the property. When the property goes to 20, we borrow out the 10 tax-free. Is that correct, Tom? Well, that's right.
Speaker 6And then you borrow out the 10, but then you reinvest that 10 into new property because you've got to constantly be investing in real estate. That's why I'm always after you guys. Look, you're making money. We need to constantly be reinvesting that money into real estate. And that's really how this system works. Now, real estate, let me say one last thing on the importance of real estate from a tax standpoint. It is one of the few places where you can actually reduce your taxes today and never pay taxes in the future. Now, you've got to have the right financial education. You've got to have the right tax advice, but you can literally eliminate your taxes from your business and never pay tax on the income from the real estate in the future, even when you sell the real estate. I mean, it's unbelievable the tax benefits in real estate.
Speaker 4They don't teach you this in school, but they'll tell you, put your money in a 401k, which to me is a loser's game, but it's better than nothing. And don't do this at home if you don't know anything about real estate because property management is the hardest part of this game. So when we come back, we'll be going more into why real estate is, in my opinion, the best income, especially if you don't want to pay taxes. We'll be right back.
Speaker 840 trillion. That's what America owes, and it's climbing every single day. Jim Rickards, one of the smartest financial minds alive, is predicting $200 an ounce for silver, $10,000 an ounce for gold. Robert Kiyosaki tweeted that recently, and then he said, silver is the best choice right now. Not stocks, not bonds, not cash, silver. And Robert's question to every person listening right now, what are you doing about it? Because here's the truth, most people won't say out loud. Savers of cash are the biggest losers. Every dollar sitting in your savings account is losing value right now, every single day, while the government prints more of them. The rich have known this forever. Robert has been buying silver since 1965, gold since 1971. Not ETFs, not derivatives, the real thing. And right now, silver is still sitting under $100 an ounce. If Rickards is right, that's not a small opportunity, that's a life-changing one. Priority Gold created the free Rich Dad Wealth Kit to help you take the first step. Three guides, gold, silver, wealth defense. Move your IRA or 401k into real assets, tax and penalty free. Visit richdadlovesgold.com right now. Again, richdadlovesgold.com or text guide to 24999. 40 trillion in net. Silver under $100. Actions speak louder than words. What are you doing about it? Again, richdadlovesgold.com or text guide to 24999 to get your free Rich Dad Wealth Kit.
Speaker 4Welcome back, Robert Kiyosaki, the Rich Dad Radio Show, the good news and bad news about taxes and why the rich don't pay any taxes. We're going to talk about why the rich don't pay any taxes legally and why the small employee and the small business owner pays the most taxes. Any comments, Kim?
Speaker 3Well, yes. And as I've said before, you know, taxes are so misunderstood and everybody thinks taxes are evil. But as Ken and as Tom were saying, that taxes are an incentive for doing what the government doesn't want to do. So they're giving us tax breaks to do what the government doesn't want to do. Create housing, create office buildings, things like that.
Speaker 4And borrow money.
Speaker 3And borrow money.
Speaker 4And for those of you listening, you can't see this. That's why we have cash flow clubs or the cash flow game, because you can't learn this stuff by thinking about it anyway. The beauty of a cash flow game is you have to do it. Be and do it. And if you don't want to do it, then buy a 401k and pray. I mean, that's really where it's about. So our guest today, again, our tax advisor, Tom Realright, and our real estate partner, Ken McElroy. Because Ken has made us wealthier over and over and over. Again, in 2008, when the market crashed, we all.
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Speaker 4Thought we were died and went to heaven because the real estate prices dropped, but so did interest rates. And so as soon as the market price, market real estate dropped and interest rates dropped, Kenny says, I'm going to borrow 300 million. And when Kenny builds into his business plan that he's going to take that three, whatever the, he's going to make the property more valuable and we're going to borrow out the equity. We don't have to flip. The property, some way, borrow out the equity. Again, we don't pay any taxes and it comes on that Tom.
Speaker 6Well, yeah, for sure. I mean, first of all, the reason you don't pay tax when you borrow money is because you, that money is still owed to somebody. And so it's not income to you. You, you're going to have to pay it back. But the great thing about real estate, of course, is that your tenants are going to pay that back all along the way. The government's going to give you this incentive called depreciation and allow you to use that depreciation. To offset that income coming from the tenants that's paying down or amortizing your debt. So it's kind of the perfect storm in a good way. It's an incentive to do what the government wants done. That's right in the inside investor that I quadrant and that's where you get zero tax.
Speaker 4And it's all based on debt and taxes. So when somebody says live debt-free, I check out.
Speaker 6Because a lot of taxes if you don't have any debt.
Speaker 4Yeah, and other the reason is 1971. When? Nixon took the dollar off the gold standard. The dollar became debt and the only way money is created is when you borrow money. That's what I want you to have credit cards and all this because if you stop borrowing the whole economy seizes up comments on that Kenny.
Speaker 5Yeah. Well, I think the other thing that a lot of people miss is that when we look at real estate, we look at real estate from a long-term cash flow standpoint. We're not trying to time things obviously we don't want to buy at the top just like anybody doesn't want to buy. At the top, but if it cash flows, even today as hot as the market is at the cash flow, we actually buy it. So that's why I'm still buying, you know, is if the numbers make sense. And so we're we've always been cash flow driven and we've always been, you know, how do we use the real estate to pay less tax legally? And that is the rules of the game. This is not, I mean, this is stuff that you can learn. Anybody can learn this stuff and we're all playing by the same rules.
Speaker 3And Robert, you said something earlier. About when the market crashed, you know, in 2008, when the market crashed, we did very, very well. So one of the keys to financial education is we knew and Kenny and Tom and Andy Tanner with paper assets, cash flowing paper assets. When the market goes down, we do really, really well for the average guy, girl out there. When the market crashes, they crash to their 401k crashes, their retirement plan crashes. So that's the really the key importance. I think for financial education. Because there is going to be a crash and are you prepared and can you take advantage of it?
Speaker 4And the tax law wants you to borrow money. And I think that I think is funny. When somebody asked me the day Kenny Kenny says, what's your net worth? I said, oh, about a negative billion. Yeah, they don't realize that debt is money, right? Came money in 1971 and the more money I borrow. It's tax-free money.
Speaker 6That's exactly right tax-free the government.
Speaker 4Wants you to borrow money because if we don't borrow money, the whole frickin economy grinds to a halt. My correct on that one.
Speaker 6It's just like said Kim, you know, the the tax law is incentive to do what the government wants done. Well, one of the things the government wants done is they want that money borrowed from the banks to flow through the economy. And so that not being taxed on debt is an incentive to borrow and we can't ignore that. That's what it is. It's an absolute tax incentive. to go borrow money. -
Speaker 4And there's one more advantage I wanna talk about Kenny, and this is the brilliance of his. His financial plan is this. So Kim and I make money here. - In the income column. And then that means we pay more taxes. So we've got this cash here. We move it to Kenny. And let's say we go from 1 million to 10 million. His business plan is gonna take that property up to 20 million. And then we're gonna borrow out the 10 million. So it's 10 million tax free. So the thing I wanna talk about is Kenny, when that property we saw, I think it was in Texas, was 400 units. Vacancy was 900% and the place was empty. The prior tenant was a real thief and went in there and stole all the copper wire and all the, you know, just tore everything apart. This place was a mess. There was nobody living there. Then they weren't collecting rent. - And there was a fire. And I walked in there and Kenny and I look at this thing and there's a toilet. The toilet had been taken out. And the guy was sitting on the toilet in front of the fireplace. And I go. -
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Speaker 4I'm walking out of here and Kenny, Kenny goes, oh, this is wonderful. This is wonderful. Remember that one?
Speaker 5Of course, I have a lot of stories like that. You know, if the property was incredibly well located, as you know, it was very, very poorly run and very poorly managed to the point that the bank actually took it back. It was owned by Bank of America. That's what's happening next. And, you know, Kim kind of touched on this. Banks actually get in trouble when they get their loads back. That's not a good thing. That's called toxic debt. And it affects the bank a lot from a share of a price, from, you know, being able to lend more money and all. It's not a good thing. So it was owned by the bank because of the prior owner and the prior management. He tried to do his own management in-house and ran the thing into the ground. The bank took it back. This is a very common story. The reason we bought it, the bones were good. I always like to say the bones are good and the location was amazing. Of course, being right next to USAA Insurance in San Antonio, which is a massive employer. I think last I checked, there was like 15,000 people that work there. So, you know, so for me, it's just fixing it back up and getting it. And you know what happens is the whole neighborhood loves you, you know, because the people living there and all the things that are going on, the city council, the mayor, they all know what's happening at these places. And so when you go in and buy something and infuse new life into it and fix it up and get better people in there and the thing starts humming along and running the way it's supposed to run, the whole community embraces you. And we took that property. If you remember, we bought it for, I bought the note for 20 million from the Bank of America. I put seven and a half into it. And when we were done two years later, it was worth 42 million. And we bought it for, you know, we put debt on it. We paid everybody back their initial investment. And we've owned that thing cash free. You know, we have no investment in that deal. We still own it today. It kicks off a million dollars a year of cashflow.
Speaker 4Okay. So not only Kim, you know, Kim and I donated part of the million here.
Speaker 3I asked to call them.
Speaker 4The 7 million in from the, because cash is a liability to us because they're printing it. So it goes in here. You put it into $20 million. You ramp it up to 40. And meanwhile, we're getting cash flow. And Tom, why are we paying no taxes on all this?
Speaker 6Well, because first of all, you're paying no tax on the debt because you're going to pay that back. Second of all, you're not paying tax on the income from your business because the depreciation from the real estate is offsetting that income. So here's the thing.
Speaker 4It's the income from rich debt. Right. Understand that the reason we're bees and eyes is that by investing in real estate, in the B, we make the money in the B and we invest with Kenny in the I and that offsets our taxes in the B. Am I correct, Tom?
Speaker 6That's correct. Now, one thing that you mentioned all the time is in the I quadrant, that's not just any investor, that's the inside investor. And that's very important in the US, especially if you're a casual investor, you don't get the same benefits. You must be a professional investor and an inside investor. And then not only, do you get all the better interest rates, you get the better deals, you get things before they come on market, et cetera, but you also get better tax results because Kim is an inside investor. She's a professional in real estate. She spends a lot of time at real estate and that's what allows her to get these tax benefits that the average casual investor is never gonna get because they don't understand how the law works.
Speaker 4So this is where Kenny kicks in. So we saw this piece of crap property. I was ready to run. But I saw that I still have that toilet in front of the fireplace is burned in my mind. And I realized the guy who owned it before we did his business plan was to just strip it. Is that correct? He collected all the rents and stripped it. That was his business plan. So Kenny goes in there with his team and I didn't believe Kenny. I saw his team. I forget your guy. This guy, he looked at it. He was just as excited as Kenny because he knew he could fix it. Is that correct?
Speaker 5Yeah. Yeah. Yeah. He was an expert. He was an expert like you. He just, he was mission driven. He knew exactly what we needed to do. Again, Robert, once you start to do this, whether it's one unit, in this particular case, it was 400 that we needed to fix. It was a 680 unit property. It's just a, it's just math. Literally, some units are a thousand bucks. Some units are $10,000. You have to figure all that out before you buy it. That was a big number. That's why we raised all that extra money. And the bank wants that. The community wants that. Everybody wants that. Everybody wants somebody. It's no different than if it's a house in the exact same condition.
Speaker 3But it's also part of your formula, Kenny. And you touched on it earlier. Your formula is you, number one, you like properties with problems. But number two is you look for a property where there's jobs. And that was that fit that core formula to a T.
Speaker 5Right. It's easy to buy something that's fully, you know, 100% occupied. You're not going to get, you're not going to move the needle a lot there. I'd rather personally buy something that's 100% vacant and then figure out how to occupy it. And that's management. And then that also, if you, you know, if the building is vacant, it's worth a lot less than if it's full.
Speaker 3And that's how you double your value, double the worth of your property.
Speaker 4So keeping the math simple. So Kim and I have a million on, to us, the cash is a liability that coming from Rich Dad. We move it in to the 20 million. It goes in the asset column. We turn it into debt. We took cash, convert to debt. Kenny improves the property to 40 million. So meanwhile, we're making all this cash flow from the original $20 million debt. But let's say he raises it to 20, 40. That 20 million comes out as debt. Why is that tax freedom?
Speaker 6Because you have to pay it back. So the government says it's not your money. It's the bank's money. You're using their money, but you have to pay it back. So you're not taxed on, but here's what's even better. Not only are you not taxed on the debt, you get to deduct the interest. So if you put your own money in, you don't get to deduct the cost of putting that your own money in. But if you borrow the bank's money, you get to deduct the cost of putting their money in. That's, and by the way, that's something that's true all over the world. All over the world, you get to deduct interest expense, but you don't get to deduct your, the amount of money you put in as capital. -
Speaker 4So Kenny, that's called an imp, 'cause when I met Kenny for the first time, this was 20 something years ago, everybody was flipping property.
Speaker 5Remember that? - Of course, yep. They're doing it again right now. -
Speaker 4Tom, what happens when you flip? -
Speaker 6You have the worst kind of income, what I call earned income, which is like ordinary income with the additional tax of social security on top of the ordinary income. So you're at the super highest rate, that 60%, bracket that you talk about in the S quadrant, that's for flippers. and let me ask
Speaker 3you one more thing tom because here's one other huge tax benefit that i like okay let's say you have a property and you're going to put down 20 of the 100 cost you put down the 20 in cash but you still get a hundred percent of the tax benefits correct that is
Speaker 6correct so you leverage your tax benefits in other words you get five times the tax benefits than if you just put down the then if you paid cash for it in
Speaker 4the tax law which is tom's book tax-free wealth there's appreciation depreciation and amortization right so by doing this formula appreciation is tax-free correct depreciation is income tax benefit tax benefit and amortization is the bank gets their money back that's tax-free money too
Speaker 6well that's tax-free because the depreciation you Don't do this on your own no i mean kenny definitely
Speaker 4could not fix that toilet i know that for for certain but the guy he brought in he was all excited about it because i saw this toilet as a horrible thing sitting in front of the fireplace with all the copper wire ripped out of the drywall i was ready to run it was like 80 vacant it was a nightmare but to kenny on the finance side it was because he knew his business plan was to take it from 25 to about 45 million.
Speaker 3And going back to where we first started talking about when we met and Kenny said, I can't manage your 60 units, 70 units because it's too small is because he had this whole team that he has on his side that that would be too small for his team to manage. And it wouldn't bring him any financial benefit as well. So that's the importance of a team.
Speaker 4It doesn't mean don't start small. No, start small. Start small. Yeah. But the benefit is you always have dreams of going too big on this side here. Right, Kenny? Because he started as a property manager in college.
Speaker 5Absolutely. I started, well, actually, my first investment was a two bedroom, two bath. I used my own money. And now, you know, the deals that we're doing obviously require like $20 million down. And, you know, I use other people's money. So you go from, you know, using your own to learning how to use other people's. And that's actually the way the system is set up. That's capitalism. Yeah, it's literally set up that even even people, people put their money in insurance policies and pension plans and 401ks and all that kind of stuff. There are people managing that money. And when you get your statement, somebody is putting it somewhere to make it, you know, make that money, money. So, you know, and so you just want to be on that side of it. You know, we borrowed from insurance companies, we borrowed from pension groups, we borrowed from banks, we borrowed from life, life companies. When all this stockpile of money, people are investing, you know, investing or saving, it needs to go to you. So there's a velocity of money that has to happen
Speaker 3somehow. And my final comment is, if you're starting small, and you're just starting, don't use other people's money until you know what the hell you're doing. That's a big responsibility. Learn on your own money for a little bit. That's what Kenny did. That's what we did. And then once you've got the experience, you got the knowledge, then you can take it to the
Speaker 4next level. And please get, you know, if you want to go to the next level, start small, get Tom's book and get Kenny's book. Because it's a very sophisticated game. So anyway, I want to thank the two of you. Thanks for making us. The thing that's really funny is, Kenny keeps giving back our money. And our problem is, we have to give it back to him.
Speaker 3He just keeps it. He pretty much just keeps it.
Speaker 6So Kenny says, I have 10
Speaker 4million for you. So where are we going to put it? You know, because if I take that money, it becomes tax. I've got to move it back into debt. I've got to move it back into, and then Kenny's got to have a business plan that's going to take the 10 million, let's say, turn it into 20 million. Final words, Tom.
Speaker 6This is a complex game. So don't think it's that simple. I would echo your point, Kim. Start with your own money. Start with your small deals. But remember that as you get more experience and more education, you're going to need up your team as well. I mean, you guys, I mean, let's, let's face it. You haven't always had me and Kenny on your team. So you had to up your game too. And as you upped your game, you had to, had to increase the level of your team members. And that's critical because not everybody, you know, you can pay a lot of tax and still own real estate if you don't have the right team members. Great, great point.
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Speaker 4Final words, Kenny. Thanks for your time today. Cause you guys, you guys, you're putting another big deal together and put it together. Cause I don't want to, I don't want to pay any more taxes.
Speaker 5Well, first of all, I want everybody to know that we all kind of started without knowledge, all of us, you know, even on this, on this call here and this new, and I didn't know how to do any of this stuff in the beginning. And, and I just learned. And I said, well, if he, if that person can do it, you know, how, how, how did they do it? And, and I was surrounded by family members and friends that didn't, they just said, you can't do that. You know, there's no way to do that. And I learned how to do that. And now they're like, how did he do that? And so the point is, is you have to, you have to surround yourself with people that know how to do it. Ask a lot of questions.
Speaker 4Definitely achievable. I think the best, the best tip that you made was when you did a good job managing that guy's property, but the check went from you to him.
Speaker 5It did. It went the wrong way.
Speaker 4Talk about a wake up call. Yeah, I know.
Speaker 5I've, I increased the value of his real estate a lot, which was my job, by the way. I'm glad I did it. I'm proud that I did it. He was happy. I was happy. But, you know, he got the benefit.
Speaker 4Yeah. And the tax breaks. So anyway, thank you guys. And we'll be right back. Thank you, Tom.
Speaker 3Thank you, Kenny.
Speaker 4Welcome back. Robert Kiyosaki, The Rich Dad Radio Show. This one was debt and taxes. Why the government wants you to get into debt. And so everybody says live debt free. That's another point of view. We don't do that. Any comments, Kim?
Speaker 3Yes, this was a great, this was a great show. Really appreciate it. Always appreciate talking to Tom and to Kenny because I always learn something because Kenny's always working on something and Tom's always learning more about what is happening in the business. And the tax laws. But I think Kenny said it really, really well. He said all of us, when we started in real estate, we didn't know anything. We knew very little. You had your rich dad's knowledge, but then you had to put it into practice. So what a lot of what we were talking about today was some advanced things in terms of infinite returns and raising money. Just want to say if you're just starting, start small, use your own money, learn, get the experience, get the knowledge I learned because when the one thing I learned the most on was this one property we bought in Scottsdale, Arizona. It was 18 units and I inherited the property managers and they were brilliant and they lived on the property and they taught me property management. Had I not had that, that property, then I would not have learned anything. So understand what level you're at and get Kenny's book. Actually, all his books, the rich dad, um, hang on.
Speaker 4Oh, ABCs of real estate. The ABCs of real estate.
Speaker 3The ABCs of property management and the advanced guide to real estate investing. And Tom real rights book is tax-free wealth. So I would highly, highly, highly
Speaker 4recommend reading those.
Speaker 3How big was your first deal?
Speaker 4Two bedroom, one bath.
Speaker 3How much? $45,000 us.
Speaker 4How much did you make?
Speaker 3$25 a month. Yep. That's how I started. But the formula, same formula. It's the same formula as a two bedroom, one bath as, and then a same formula as Kenny's talking about 400 units, same formula.
Speaker 4And what I tell is when I came back from Vietnam, I wanted my rich dad to teach me. He says, that's not his job. He says, you got to go learn. So I took real estate classes and my first class was on infinite returns. So my first property was in Maui on the, on island of Maui. And it was a one bedroom, one bath condo was $18,000 down. And my job was to buy it with no money. So I put it on my credit card. I borrowed $1,800. I put it, I put that was 18,000. I put 10% down. And I made $25 a month, but I understood infinite returns. So at the age of 25, I knew I never needed money again. Now that kind of messed me up because once you get a taste of not needing money, kind of goes to your head, but we all go through, that's all part of the learning process. So again, it was a one bedroom, one bath house, $18,000. I broke up my master card to put $1,800 on it. And I was making $25 purely on debt because debt is government. Government wants you to borrow because in 1971, the US dollar became debt. I just like using debt. I love debt, but that's why Kim and I have so much money to save in gold, silver or Bitcoin, because we don't need cash once you know how to use debt. It's one of the most important things, but don't do this on your own. Start small, I take classes, we're constantly studying. Kenny teaches all the time on YouTube and things like this, so does Tom, and you can always learn. So anyway, thank you all for listening to the Rich Dad Radio Show. And that's why, you know, I just love debt and not paying taxes. Thank you for listening to the Rich Dad Show. -
Speaker 3This podcast is a presentation of Rich Dad Media Network. -
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