Robert Kiyosaki, the author of bestselling book “Rich Dad Poor Dad”, is reportedly $1.2 billion in debt. The self-proclaimed life coach, who has sold secrets of financial success to millions across the globe, is in staggering debt in connection to his real-estate investments. Much to the suprise of his readers, Kiyosaki openly flaunted his debt on social media, saying “If I go bust, the bank goes bust. Not my problem.”
In his book, Kiyosaki has extensively written about debt by dividing it into categories of bad and good debt. Simply put, bad debt is used to buy luxury liabilities and good debt is used for purchasing assets that secure cash flow. The author’s $1.2 billion debt in question is tied to an extensive real-estate portfolio comprising approximately 1,500 apartment units.
His ex-wife and business partner has clarified that the figure of $1.2 billion is total debt owed by investment partnerships, and not Kiyoski alone. Financial analysts speculate that Kiyoski’s own debt amounts to somewhere between $30 million and $60 million.Therefore, it seems that Kiyoski dropped the $1.2 billion figure to capture attention of his audience and build further on the narrative of his book.
Employing his strategy of good and bad debt, Kiyoski borrows money against equity accumulated as the apartment units grow in value. Since loan proceeds are not characterized as income by the Internal Revenue Service (IRS), he is able to secure tax-free cash which is reinvested in other assets such as gold, silver, and Bitcoin. Moreover, each apartment unit is protected by a corporate firewall since it is placed inside an isolated isolated Limited Liability Company (LLC) independent of other units. Therefore, in case if one unit defaults, the others remain unaffected.
However, this strategy comes with hidden risks and potential pitfalls. In case the rental market declines, the debt payments remain fixed at the same amount. In this case, high leverage can also cause a bankruptcy more quickly.
“Leverage works beautifully on the way up, but it is like a financial chainsaw coming down when values stop climbing”, said John Poole, a prominent consultant, speaking to the New York Post.
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