Straight Path: Mental Shift

(Back to Intro)

Chapter 1 – The Crucial Mental Shift

Kris Krohn opens Chapter 1 of The Straight Path to Real Estate Wealth by quoting Robert Kiyosaki who noted in Rich Dad, Poor Dad that his “two fathers” had two different mindsets.

To reach financial freedom requires a willingness to embrace an uncommon way of thinking, and Kris makes it very plain that failure to do so will prevent success in applying his Straight Path approach. He bluntly states that “Straight Path real estate is intended for people with a specific worldview, much of which goes against the grain of popular culture and investment advice.”

Kris suggests that Americans have an “accumulation mindset” that has been promoted by the Industrial Age need for consumption. As a result, our ideas about retirement are tainted by a false idea of what is “safe” and what is “risky”.

We’ve been caught in “The 401(K) Trap”. We’ve been trained to believe that, if we work thirty years, contribute to a “qualified plan”, diversify our portfolio, and wait, “the market” will reward us with a large enough “nest egg” to allow us to live off the interest. Unfortunately, “the market” has not played nicely in recent years, cutting deeply into many people’s nest eggs even as the extremely low interest rates have made the size of nest egg required for retirement punishingly large. The average person now needs millions of dollars in their nest egg to retire comfortably.

Accumulation is not the answer

One of the misguided strategies encouraged by the “accumulation mindset” is that of making early payment of your home mortgage a top priority. While it’s important to reduce debt, early repayment of your mortgage can not only drain available cash. It can also create a negative return on investment. Taking inflation into consideration, the average return on home equity is a negative 3.6%. Why pay off your mortgage early just so you can lose more money?

Having $100,000 in home equity might look good on paper, but a better approach would be to invest that $100,000 into something that could produce a significant return, adding not only to your income, but to your “nest egg” as well. Eventually, you should pay off your mortgage, but don’t do it until after you have secured your retirement. That way, you can pass your house on to your kids rather than selling it to a finance company through a reverse mortgage.

Kris continues by saying that he believes in “disciplined saving and financial responsibility”, but he rejects the idea that “financial independence comes from handing our money off to institutions and praying that they’ll take good care of it.” We need “something more practical and likely to succeed”. “We need tools for outpacing inflation, beating burdensome taxation, transcending market volatility, and producing passive income.” Most of all, we need a fundamental shift in mind-set. We need to learn to create our own opportunity rather than waiting for “the market” to do it for us.

Because of the critical nature of this mental shift, Kris warns that real estate is not an “end-all, be-all wealth creation vehicle.” One can’t treat real estate as just a different kind of 401(K). It requires personal responsibility, innovation, and tenacity, but real estate can provide greater control, flexibility, and potential returns than most other methods of wealth creation. The alternative is to buy into the illusion that other vehicles are “safer”, but in the 2008 crash, “$1 trillion worth of stock value held in 401(K) and other ‘defined contribution’ plans was wiped out”, and if personal IRAs are included, that number reaches $2 trillion.

While others risk the whims of the stock market, Kris says that Straight Path investors are currently building safe, stable returns that will allow many to retire in ten years or less. He says, “The core difference between accumulators and investors is that accumulators try to create retirement from one or two household incomes, while investors create assets that work for them; the investors have multiple income streams to draw from and to leverage.”

Kris then goes on to share a case history of an investor who’s 401(K) went from $247,000 to $130,000 before he discovered the Straight Path. In the following three years, he added $250,000 to his net worth making more in three years than he had in the previous eighteen years of 401(K) investing.

What is an Investor?

Kris offers this definition, “A successful investor is someone who knows how to accomplish something that most people cannot do.” He sees investors as problem solvers possessing a different mindset than most. They see an abundance of options in situations where others struggle to see even a few. He believes it is a mindset that can be cultivated and provides another case study of a young mother of six who was feeling trapped in a less than desirable home. With the Straight Path approach, she was able to sell her current home, purchase a much nicer one, and generate enough additional income to cover it’s cost.

Kris recommends two concepts to help develop an investor mind-set:

  • A Possibility Attitude
    • Develop a positive, can-do attitude. It helps you see possibilities.
    • “You will become wealthy to the degree that you can see an abundance of options.” – Kris Krohn
  • The Law of Now
    • “Do not wait. The time will never be ‘just right.’ Start where you stand, and work with whatever tools you may have at your command, and better tools will be found as you go along.” – Napoleon Hill

Do What Works

Kris closes with this thought. “Do what works.” The old accumulation mindset has failed. Do the numbers yourself. How much will you need to accumulate to retire on your current income? The Social Security statistics are disheartening. Remember our earlier quote: “At age sixty-five, 75 percent of all Americans are dependent on relatives, family, and charity; 23 percent are still working; and only 2 percent are financially independent.” — You need a new plan.

Next week, I’ll be reviewing Chapter 2 – Overview of the Straight Path System.

If you want to read ahead, the entire book is available in hard copy at Amazon.com or as a free PDF download at http://book.gfiproperties.com.

And if you want to learn about Kris Krohn’s “real estate done for you” program, check it out at http://sbr.gfiproperties.com.

To Your Success,
Don Gibbons

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Straight Path: Intro

Introduction

The Straight Path to Real Estate Wealth is a book by Kris Krohn detailing his personal experience and the real estate investing system that has grown out of it.

Kris starts out his introduction with a bold and challenging statement, “The real estate system you’ll learn in this book takes the least time, effort, and risk, creates the most value for society, and generates the greatest returns for more investors in any given market than any other system you will ever encounter.”

I think we’re all interested in saving time and effort, and in avoiding risk, but for me, the idea of creating value for society is an important one. It reminds me of the top level of Maslow’s Hierarchy of Needs, the need for Self-Actualization. Some systems focus only on self-gratification – getting rich, being able to buy fancy cars and boats, being able to take trips to exotic places – but Kris has a different perspective. He understands that some of the richest people in this world are also some of the most spiritually impoverished, but he also recognizes that the ability to meet (and exceed) one’s own physical needs can be combined with the ability to meet the needs of others.

But does the system work as claimed?

At the time the book was written (2010), we were in the middle of a very hot real estate market, so some of the figures quoted in the introduction need to be viewed in that light. Kris  speaks of 50% annual returns, properties being purchased with 15% equity already in place, and a $50,000 increase in net worth at the time of property purchase, but the most important point he brings out is that his system, and his company (REIC at the time of writing, now Strongbrook Direct) are not in the business of teaching real estate. They are in the business of doing real estate. With 90% to 95% failure rate for those buying expensive training programs, this is an important distinction.

Kris points out that most investors who desire to get into real estate are faced with only two options, do it on their own with all the risk associated with a trial-and-error approach, or pay between $5,000 and $50,000 to some real estate “guru” for training that buries the investor in information that is difficult to translate into success. Having gone through the process himself, and having succeeded with the help of some compassionate mentors, Kris wanted to create a system where all the opportunities for failure could be eliminated. He wasn’t interested in selling information for a profit, he was interested in helping people find genuine success in real estate investing.

He named his real estate investing system, “The Straight Path” after the passage in Matthew which warns that there is a “straight” and “narrow” path that leads to life, but it is surrounded by a “broad” path which leads to destruction. Kris was determined to help people find “The Straight Path to Real Estate Wealth”. His book and his company are the tools he uses to guide people along that path.

Based on his experience, Kris identified six “core elements” of investing which had to be considered:

  • Time
  • Effort
  • Risk
  • Service
  • Market Conditions
  • Profit

His goal was to find the system which provided the best balance between these six elements. Some strategies might provide better value in one or two of the areas, but at the expense of the remaining areas. What he finally settled on was a hybrid approach to real estate investing, one which combined the best of more than one strategy.

At this point in the introduction, Kris takes a step back and describes his own journey from aspiring pre-med student to successful real estate investor. He talks about his gradual loss of faith in the “get good grades, go to college, get job security” mind-set, his struggles with pre-med classes, his shock at learning the Social Security statistics that “At age sixty-five, 75 percent of all Americans are dependent on relatives, family, and charity; 23 percent are still working; and only 2 percent are financially independent.”

The turning point for Kris was the year when he and his new wife realized they didn’t have enough money to meet their future needs. A local business man recommended a book on real estate investing which he read in three days. Armed with more hope than knowledge, he purchased his first house. He and his wife lived in for two years before selling it for $54,000 profit. By the time of this book was written, buoyed by his initial success, Kris had gone on to complete a total of 407 profitable real estate deals.

The Straight Path system has been tried and perfected. It can be applied by any individual, from college student with no job or credit history, to bankruptcy filers, to already successful real estate investors, and it works in any real estate market. Kris acknowledges that the system isn’t without flaw, but he notes that, “on the whole it eliminates the risk of unforeseen circumstances far better than any other system I have encountered.”

Next week, I’ll continue my review with Chapter 1 of the book, “The Crucial Mental Shift“, but if you’re anxious to read ahead, the book is available through Amazon.com or as a free PDF download at http://book.gfiproperties.com.

To Your Success,
Don Gibbons

 

(Next: The Crucial Mental Shift)

Welcome

Welcome to The Door to Freedom.

Due to years of bad decisions by our elected officials, the American economy is under increasing pressure, but there is still a form of wealth that provides economic safety, and no, I’m not referring to gold or silver. I’m referring to real estate, and it will be my pleasure over the coming months to provide information on acquiring and managing that form of wealth.

Sincerely,

Don Gibbons