Page 118 - Rich Dad's Increase Your Financial IQ: Get Smarter with Your Money

If the dream turns into a nightmare and the feel-good bubble bursts, heads
will roll again. They may not roll physically, but heads will roll politically,

professionally, and financially.

Value Not Based upon Inflation

The value of my $17 million apartment house is not based upon inflation or
the price of the building. While price is important, I am not counting on the

price of the building going up due to some magical, unseen market
condition. I am not counting on an increase in net worth to feel good, or
worrying about a market crash and feeling bad. That is why the booms and
busts of the markets do not concern me that much.

The value of my apartment house is based upon the rent my tenants pay.
In other words, the true value of the property is the value my tenants think
the property is worth. If a renter thinks the apartment is a good value at
$500 a month, that is the property’s value. If I can increase the perceived

value of my property to my tenants, I, not the market, have increased the
value of the property. If I increase rents without an increase in perceived
value, the tenant moves to the community down the street.
The value of rental real estate, in this case my apartment houses, is

dependent on jobs, salaries, demographics, local industry, and supply and
demand of affordable housing. In a housing crash, the demand for rental
units often goes up, which means demand and rents go up. If rents go up,
the value of my rental real estate may go up, even if the value of residential

real estate is coming down.
There are three specific reasons why I’m not concerned about market
crashes when it comes to the purchase of my 300-unit apartment house. One
reason is because Tulsa, Oklahoma, is an oil boomtown. High-paying jobs

are plentiful. The oil industry needs workers, and transient workers need
rental housing. The second reason is because a local college near the
apartment house is doubling its number of students, but not the number of
on-campus housing units, which increases demand for rental apartments. As

many of you know, there is another baby boom commonly referred to as the
echo boomers, a generation just now entering college, which is 73 million
strong. A majority of them will be renters. The third reason is because the