Joseph F. Smith vs. Robert Kiyosaki

“The Latter-day Saints have often been warned and are now earnestly admonished not to hazard their homes, and with them their wives and children, upon the altar of financial speculations. … If the Latter-day Saints will give heed to the prudent admonitions and lessons of the past, they will hesitate in the presence of the alluring temptations which are now everywhere held out, to mortgage their homes, their places of business, the canals, and the farms, for the means with which to speculate and grow rich. …

The admonitions here given are directed especially to those disposed to mortgage for the purpose of speculation, and not to those who may find it necessary through building societies or otherwise to secure homes by monthly or other periodical payments. The latter practice may lead to economic habits, while speculations too frequently create a spirit of extravagance.”

–Joseph F. Smith as quoted in Teachings of the Presidents of the Church 

“There are many financial experts who say ‘get out of debt,’ ‘pay off your credit card bills,’ or ‘pay off your mortgage.’ Many of them seem to think all debt is evil. [See the Quotes and Links areas for examples of prophets preaching to 'get out of debt,' 'pay off your credit card bills,' or 'pay off your mortgage']

‘Debt is not the problem,’ my rich dad said. ‘It’s what you buy with debt that can cause you problems.’

Between 1995 and 2005, savers — people who saved money in bank accounts or in mutual funds — were the big losers. They lost because the stock market crashed. Between 1995 and 2005, many of the debtors who took advantage of low interest rates to invest in real estate made fortunes in the biggest real estate boom in the history of the world.

Understanding how to use debt to increase their fortunes is another reason the rich get richer. ”

–Robert Kiyosaki in an article on Yahoo Financial, Author of the Bestselling Rich Dad Poor Dad books 

It’s important to note that much of what Robert Kiyosaki teaches is better termed “Real Estate Speculation” than “Real Estate Investing.”  His recommendation is to use borrowed money to buy real estate in order to flip it as soon as possible for a profit.  I believe that the primary reason real estate went up so much between 1995 and 2005 is because there were a lot of people out there trying to follow the advice of Robert Kiyosaki and others like him.  I have a friend that tried to build a house in Arizona during the boom time.  He had moved there with a new job and was an ideal candidate for any builder, but the builders were having to hold lotteries to decide who got to have their house built because the demand was so high.  He wasn’t chosen so he was forced to rent.  Now, finding a house to rent was no problem.  There were streets where half of the houses were for rent.  They were almost all owned by people that were determined to make money in the real estate market by buying a house with 100% financing and then flipping it a year later.  They subscribed to the get rich quick programs of Robert Kiyosaki and so many others.  You can look at the places hit hardest by the housing bust that has come on in the last couple of years, and this spirit of speculation is rampant in all of these places.  Phoenix and Las Vegas are probably the best examples but there are others.  This type of investing turns the real estate market into a giant pyramid scheme.  Some people who get in and out early make a ton of money, and the great mass who finally decide to get in at the end lose fortunes.

Real Estate Speculation leads to other casualties as well.  When the prices of houses go up, people have to spend more of their money on mortgages and in some cases, Mothers have to go outside the home to work simply to help pay for an adequate place to live.  The ideal situation is not a rapidly rising real estate market, but rather, a society in which any family can afford to own a home that is adequate for it’s needs. 

Putting money into real estate as a long term investment is not a bad idea, but putting yourself in serious debt to do it is extremely unwise.  By following the prophets we can avoid these kinds of mistakes and have the peace that comes with being debt free.

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