Flashback Fridays: Casey and Kiyosaki, Part 3

You can see my previous posts about this video here and here.

In this third installment, Casey talks about the first property he bought for investment purposes back in 2005. Before we get to that point, though, here's what Casey says at the 7:05 mark of the video regarding one of the ways that he racked up debt on his credit cards:

"Yeah, I did do my round of seminars and, you know, going to ‘boot camps’, they call ‘em, it’s a weekend seminar where they cram you with all this knowledge and sometimes it’s kind of like drinking out of a fire hydrant, there’s so much information. And you pay thousands of dollars for those things. I’ve also done some books and tapes and study-at-home courses."

Then at the 8:03 mark:

“..the first set of boot camps, I spent 15 thousand dollars on, and I put it on credit cards ‘cause they told us, you know, ‘Raise some capital’, or, it was ‘seed capital’. Well, they were telling us, you need more money for their boot camps, you know, it wasn’t even for the deals. And so I did raise some ‘seed capital’….that was my plastic, right?....and 15 thousand dollars later, I’m committed, ‘cause I spent all this money. I need to make this thing back. And my wife hates credit. She hates debt, and so I’m using her credit cards. And so she tells me, ‘You need to pay this thing back fast.’”

Okay, so Casey basically lays it out by saying he spent $15,000 on these ‘boot camps’ and he was motivated to get that money back, so Casey goes out and buys a property. At the 9:35 mark:

Casey: “I bought it for 360 (thousand).”

Kiyosaki: “Holy moly….this is after your condo or your residence?”

Casey: “Yes. This is just for investment purposes. A motivated seller….the internal price was actually 330, okay? What I did is I negotiated for some repair money to come out of this price, so when I closed escrow, $30,000 was a cash-back-at-close, and that’s what paid off my credit cards. And then 3 months later, I sold it for 360, ‘cause this was the loan amount. It was 100% financed. And so I sold it for what I bought it for, but I already had the $30,000 I took out on purchase. And that was, you know, it was repair money. That one really didn’t need too much repair, really, that was money so I can float this deal. I paid a payment with it….I only had to do one payment, I ended up selling it and pay off my loan. So that was my first deal.”

Whether or not the deal worked, Casey extracted $30,000 when he bought the property, not when he sold it. Therefore, Casey would have profited from the deal whether or not the property went into foreclosure.

But also look at how Casey said he used the money while keeping in mind what he said earlier in the video about the boot camps:

"...I negotiated for some repair money to come out of this price..."

But then he says:

"That one really didn't need too much repair, really, that was money so I can float this deal. I paid a payment with it."

So Casey admits that one monthly payment was made with the money before he sold it. Based on the financing, this payment was probably somewhere in the $1500-$2000 range depending on the structure of the mortgage.

But the $30,000 he pulled out on the front end was also used to pay off the $15,000 from the real estate seminars. And that's not all, as Casey notes at the 12:05 mark:

“Besides the 15 thousand I had on my credit cards, I had another 15 (thousand) on credit cards from other things…marriage, some other things that…just, things we’re carrying, and so I was thinking, what’s the fastest way to pay off that 30 thousand dollars of credit I have, or that debt? And I thought, well, I can create a chunk by doing a real estate deal the way they taught us in these seminars, and so, you know, this time it worked…"

So what does using the money for "marriage" and "things we're carrying" mean? The only way to find that out is to pull all of Casey and his ex-wife's credit card statements for 2005 and possibly 2004 to figure out what was paid off. And if he used $15,000 to pay for real estate seminars and $15,000 for other expenses on the credit cards, where does that leave the money for repairs?

Note that what Casey did is illegal because he didn't tell the lender that extra money would be used from the financing for other things, like paying off real estate seminars, making a monthly payment on the house, and other expenses on the credit card statements related to "marriage" or "things we're carrying" which could be anything from wedding ceremonies and honeymoons to blue-collared shirts and Jamba Juice.

For the lender, it's water under the bridge because the lender was paid back, but what Casey did was illegal because he duped the lender into providing more financing than what was needed to buy the house. This allowed Casey to use the money for whatever he wanted.

And there was even more incentives to use cash-back-at-close for everyday expenses on his subsequent properties because around the time that his first investment property was sold in January 2006, he left his job at Pride Industries to become a full-time real estate investor.

In Part 4 next Friday, I will conclude the video review.