Ken McElroy - ABCs of Buying Rental Property: How You Can Achieve Financial Freedom in Five Years

A RICH DAD ADVISOR BOOK

ABCs OF
BUYING RENTAL
PROPERTY

HOW YOU CAN ACHIEVE
FINANCIAL FREEDOM IN FIVE YEARS

If you purchase this book without a cover you should be aware that this book may have been stolen property and reported as unsold and destroyed to the publisher. In such case neither the author nor the publisher has received any payment for this stripped book.

This publication is designed to provide competent and reliable information regarding the subject matter covered. However, it is sold with the understanding that the author and publisher are not engaged in rendering legal, financial, or other professional advice. Laws and practices often vary from state to state and country to country and if legal or other expert assistance is required, the services of a professional should be sought. The author and publisher specifically disclaim any liability that is incurred from the use or application of the contents of this book.

Copyright 2020 by Ken McElroy. All rights reserved. Except as permitted under the U.S. Copyright Act of 1976, no part of this publication may be reproduced, distributed, or transmitted in any form or by any means or stored in a database or retrieval system, without the prior written permission of the publisher.

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Printed in the United States of America

First Edition: September 2020

ISBN: 978-1-947588-12-7

eBook ISBN: 978-1-947588-13-4

092020

Foreword

The Definition of Intelligence

K enny and I met during the great Flipper Fest. The real estate Flipper Fest played out between the years 1997 and 2007. You know you are in a Flipper Fest when youre standing in line at a supermarket and the checkout clerk, now a Realtor, hands you his or her business cardwinking, nodding, and saying Call mewhile theyre bagging your groceries.

During the decade-long Flipper Fest, Kim and I explained to countless people, We do not flip real estate property. We are real estate investors.

I remember walking through the Phoenix airport when a woman recognized me and said, I have a 3-bedroom / 2-bath house I just bought for $86,000. If you give me $5,000 cash, Ill let you have it.

And what would I do with it? I asked her.

She looked at me like I had holes in my head, saying, Flip it.

I dont flip real estate, I replied politely.

And I thought you were a big-time real estate investor, she said to me, sneering indignantly. Her parting shot: Youre just like everyone else a big fat phony.

Meeting Ken McElroy was the proverbial breath of fresh air. My wife Kim and I nearly cried when Ken said, I dont flip real estate either. And when Ken followed those words with I invest for cash flow, we knew we had found a partner.

My favorite definition for the word intelligence, If you agree with me you are intelligent. That made Ken McElroy, in our minds, the most intelligent person in the world.

When a person quickly flips a house, they are subject to ordinary income taxes. If they do enough flips, payroll taxes are added on. When investing for cash flow, an educated real estate investor can invest for both lower capital gains taxes and cash flow and pay little to nothing in taxes, legally.

An educated cash flow investor also knows how to flip a property and minimize (if not avoid entirely) flipper taxes legally. An uneducated flipper will likely always pay the highest taxes.

Since the day we met, Ken, Kim, and I have acquired numerous apartment complexes across the southwestern United States, totaling over seven thousand rental units at a cost of over a half billion dollarsusing OPM, debt financingearning us millions a year in income, with most of that income tax free.

On the day we met Ken, not only did Kim and I meet a very intelligent person, we gained a business partner, a fellow teacher, and a lifelong friend.

Almost every week, someone will approach me and say, Because of your books, I am getting into real estate.

And, whenever I hear those words, I smile, thank them for saying hello and reading my books. I also warn them: Be careful. Invest in your financial education before investing in real estate.

Unfortunately, rarely do I have the time to explain why I say, Be careful. The following are a few of the reasons for my warningsand why I encourage everyone to invest first in their real estate education, before they invest in real estate.

Real Estate is the best investment in the world, in my opinion, for the following reasons:

1. Real estate is about investing with debt, or OPM: Other Peoples Money.
2. Real estate can generate cash flow income for years.
3. Its likely you could pay little if anything in taxes.
4. We can find opportunities and buy more real estate when markets crash, often acquiring the properties of flippers.

Real Estate is the worst investment in the world for the following reasons:

1. Real Estate is illiquid. That means, if you make a mistake, real estate can be extremely difficult to sell or sell quickly. If you make a mistake in stocks, bonds, mutual funds, or ETFs, you can liquidate easily, which means you can sell quickly and cut loses almost instantly.
   If you make a mistake in real estate, you may go down with the Titanic.
2. Real Estate is a business. Real estate requires real business skills and a business mind. Real estate is management intensive. Many real estate dreams turn into real estate nightmares, not because real estate is bad, but because the investors business skills are bad.
3. Real Estate is not for do-it-yourselfers. Stock, bond, and mutual fund investors can get away with being do it yourselfers. Real Estate investing is about rules, regulations, laws, records, repairs, losses, and management.
   Real estate is about debt. And debt can be a loaded gun. Debt can make you very rich or kill you.
   Real estate is a business that requires debt financing and professional management which is why real estate investing is a team sport, played by a team of professionals. Professional real estate investors must have a bookkeeper, lawyer, accountant, and insurance agent on their team.
4. Real Estate is about maintenance and repairs. Real estate investors must have a handyman on call 24 hours a day, 7 days a week, unless the investor enjoys fixing toilets at midnight.

These are the reasons why Ken McElroys real estate books, especially this book, are priceless for beginner and advanced real estate investors alike. They will teach you how to maximize the advantages of real estate investing, because I would prefer that you become a smart and rich real estate investor, rather than the captain of the SS Titanic.

These are the same reason why Ken McElroy, an expert in the field of real estate investing, is our partner, advisor, and trusted friend.

Robert Kiyosaki

Text Boxes

I use four types of text boxes to summarize key points in this book. The boxes for each type are numbered in chronological order. At the end of the book, I summarize the content in these boxes.