What Robert Kiyosaki's $1.2 billion debt can teach you about property

Photo by Gage Skidmore ---

Robert Kiyosaki, the perennially popular author of Rich Dad Poor Dad, is in debt. A lot of debt.

$1.2 billion is the figure he’s been casually tossing around during interviews.

Which sounds like an awful lot for a man who has made his name teaching people about their finances.

But that debt isn’t accidental. It’s not the result of a trade gone wrong, a series of disastrous decisions, or someone putting a decimal point in the wrong place.

It’s deliberate. Part of a long-term strategy to leverage property debt to build wealth.

Sound familiar?

We’re not suggesting that you take out billions of pounds worth of debt. What Kiyosaki is doing is an aggressive approach built on continually refinancing on the way up.

But the reaction to him being in the red has surprised us. People seem shocked that a man who’s famous for his financial acumen is in debt.

They shouldn’t be.

Because leverage is the secret sauce that makes property investment work.

The cash trap

Some people are scared of leverage. They think investing with cash is the smart thing to do.

But compared to something like the stock market, investing in property using cash doesn’t make much sense. Factor in the hassle, the broken boilers, the illiquidity, and it’s just not attractive.

What makes it work is the mortgage.

The unique advantage of property is being able to use a sensible amount of leverage. You put in 25% of the money (your deposit), the bank puts in the other 75% (the mortgage), and you get to keep 100% of any gains.

A leveraged bet on inflation

You don’t need to pick the next property hotspot, you don’t need the market to boom, you just need prices to go up in line with inflation (which they have done for years), and you’ll do extremely well over the course of a decade or two.

All the while your mortgage stays fixed.

Let’s say you buy a £200k property. If it grows at just 2% a year (in line with the government target), that same property is worth nearly £250k by the mid 2030s.

That’s a £50k gain on a £50k deposit. You’ve doubled your money - and that’s before counting a single penny of rent or any value increases layered on top. And all the while, the same inflation that’s pushing up the value of your investment is slowly eating away at your debt.

It’s pretty wild when you think about it: property can have a terrible decade (like the one we’ve just had), you don’t have to buy anything above average, and you don’t have to do any major work to increase its value. But just by buying a property with a mortgage, you can still come out ahead.

Learn to love leverage

Are we saying that you should suddenly go and rack up eye-watering amounts of debt like Robert Kiyosaki? No. You don’t want to be leveraged to the hilt, stretched to the point where you’re forced to sell if things take a turn for the worse.

That’s when people make losses.

But if you get comfortable with it, leverage is the thing that makes property work in a way that no other investment can.

Most of us can’t borrow to buy shares. We can’t borrow to buy gold. But we can borrow to buy property. And that changes everything.