Book Review: Get Rich, Stay Rich, Pass it On
September 29th, 2008 by KenricA few weeks ago I was contacted by someone respresenting the authors of the book Get Rich, Stay Rich, Pass it On. I was offered a chance to write about their book on my blog so I requested a copy. Coincidentally, I was just sent another book to review which I am currently reading. I hope the trend continues and that book reviews will come a regular in this blog.
Book Review of: Get Rich, Stay Rich, Pass it On by Catherine S. McBreen and George H. Walper, Jr.
I knew nothing about this book when I received it. I must admit that books with words like Get Rich in the title don’t give me a great feeling when I first open it. I have read many how to get rich books and none of them have been worth much in my opinion.
With that said, this book is not about how to get rich. This book reminded me of the book, The Millionaire Next Door, which surveyed millionaires to find out what they had in common. The Millionaire Next Door was centered around millionaires’ habits and spending. For example, it would state that 30% of millionaires never paid more than $40 for a watch.
Get Rich, Stay Rich, Pass it On also surveyed millionaires to find out what they had in common. However, the data that were collecting was about how millionaires became millionaires and what they invested in. That made for a much more interesting book. The average person does not really benefit from knowing that millionaires don’t buy $1,000 watches. But they could really benefit from learning how millionaires made their money.
When you cut through all the data, the book basically concludes that there are two secrets to perpetual wealth:
#1 - Own income producing real estate
#2 – Investing or owning continually innovative enterprises
If you’ve been reading my blog, you know all about secret #1. I certainly agree that owning real estate that produces passive income is a way to perpetuate wealth.
Secret #2 may seem new to some, but it’s really just saying that you should invest in or own businesses that will continue to grow. In fact, I agree with secret #2 100%.
What is a continually innovative enterprise? It’s a business that continues to grow and change with the times. For example, if you had a company that manufactured VHS tapes, if may have been a great business in the 80′s and early 90′s. But today, you would be out of business if you did not innovate or expand. You cannot create perpetual wealth with a business that does not innovate. You’re business may have made $200,000 a year in the 1980′s, but what’s it making in 2008?
So let’s say you got that out of the way. Now you have a business that will continually make $200,000 every year for the next 40-50 years because as CEO you will keep it up with the times. The next step is to use that $200,000 and invest it into income producing real estate. Many people who own businesses will reinvest their business earnings or use business expenses to purchase real estate. Secret #2 perpetuates secret #1.
If you owned a retail shop that has been successful in a strip mall. A logical next step would be to try to purchase the strip mall. Why continue paying rent when you can be using those rent payments to build equity and gain a real estate investment. This is one way that you can use secret #2 to accomplish secret #1.
I hope that someday my ebusinesses will require me to move into an office and hire employees. When that time comes, I will definitely be looking into purchasing, not renting an office building.
This book is about perpetual wealth. It focuses on how to pass wealth through generations. I agree 100% with the authors in that the only way to really do this is through business and real estate. I felt that Get Rich, Stay Rich, Pass it On is decent book. To me there was nothing that was eye opening to me, but then again I pretty much agreed with it 100% so I guess I already knew the secrets.
Posted in Personal Development | 9 Comments »
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I would have thought a book with this title would have a lot about estate planning. So it doesn’t?
By moom on Sep 29, 2008
No, there isn’t that much about estate planning at all.
By Kenric on Sep 30, 2008
Hi Kenric,
This is a nice review. You should consider creating a post of your top books or recommended reading list. I would be curious to see what books make the cut :)
-kate
By Kate on Sep 30, 2008
I got through the first 30 pages or so and decided that it was the worst book I had read in some time. The methodology is all about looking at what worked in the past. Well we know that real estate worked very, very well in the past.
It may work in the now, but it’s not cut and dry – invest in real estate – make lots of money and be rich.
Real estate in lot of areas is getting to the point where people’s income is growing proportionally to it. In the past when women were joining the work force and becoming lawyers and doctors families had two incomes, so why not sink the extra money into a home? Well that pushed up prices (in my opinion). However, there’s no magical third income coming to help push prices up higher. What’s going to be the catalyst?
I think the real estate market now is just like a lot of other investments now – you have to look at it from today’s and tomorrow’s perspectives – past performance is not an indicative of future performance. Money can still be made by buying low and selling high, but it’s not as simple as just buying anything as this book made it seem.
I have owned a property for 4 years now and it’s worth 10% less than what I paid for it. It’s in a desirable area with great jobs and growth. I think it’s just not as automatic as many make it sound.
By Lazy Man and Money on Sep 30, 2008
With real estate I think that the pass 8 years or so has everyone thinking that you make all the money on appreciation.
You don’t need appreciation to make money on real estate. If you buy a $400,000 house with a 30yr fixed loan and it breaks even for 30 years, you have made $400,000 in 30 years.
I know its not as easy as that with maintenance and vacancies, etc… but the fundamentals are sound.
Even if the house is only worth $350,000 you own a $350,000 house free and clear.
By Kenric on Sep 30, 2008
The break-even plan is what I’m going with now. I’m renting my place out at what I think is about break even. My wife’s old condo (she had it before we met) has been vacant for 3 months now, so that definitely an issue (as you mention)
However, it’s worth noting that the down payment at 6% interest in some internationally diverse stocks (assuming after taxes, fees, etc.) may also produce $400,000 of value in 30 years (with no work)
The idea of this book seems to be that you make 5 million or more in 10 years, not $400,000 in 30 years.
By Lazy Man and Money on Sep 30, 2008
The difference in direct ownership of real estate vs paper assets is leverage and time. Leverage allows you to buy an asset you cannot afford to pay cash for and have the income to service the debt. The idea is to let a series of tenants pay off the mortgage over a long holding period and provide you a cash flow that increases over time.
Like stocks, the value of real estate does not increase linearly over time. If you bought high, you will have to wait for the market to recover. But it will recover, and values will increase at least the rate of inflation.
If a rental is vacant for three months, the rent is above market. Slow rental market? Lower the rent below the competition and pick your tenant. If the property is horribly cash flow negative, especially if the condo market in the area is weak even in a strong market, then sell. Find a more productive piece of property (or two) and put your money there.
Stock returns may beat those of unleveraged real estate, but astutely purchased and properly leveraged real estate will beat stocks. Carefully tended businesses that grow can do even better.
By Another Investor on Sep 30, 2008
Leverage and time aren’t very useful if the investment doesn’t appreciate.
“But it will recover, and values will increase at least the rate of inflation.” What is the evidence of this? I think it will increase at the rate of wages (and there are some scientific studies to say that this is true).
My wife has lowered the rent to 20% less than the last tenant – still nothing. Guess what, at that price it’s not break even any more. Remember that was the premise that LLI said up above – break even. Just pointing out that it’s not the answer. It was break even then, but isn’t any more in this market. Of course you can’t just “find a new property” like you suggest, because that requires selling it (with it’s own costs) at which point it’s a loss.
In the end, Another Investor, has one good point, “astutely purchased” real estate. However, I could say that astutely purchased stocks out-perform read estate. There were stocks that went up 70% today. I don’t know too many real estate properties that go up 70% in one day.
By Lazy Man and Money on Sep 30, 2008
That seems like a very interesting and helpful book there I’m going to go and check it out thanks for the tip
By Estate Planning in LA on Dec 17, 2008