Robert Kiyosaki & the Anatomy of a Financial Statement: Property Management
Posted by business | management | Posted on April 12th, 2010
Robert Kiyosaki likes real estate investing is because real estate touches each part of his financial statement. Starting with his best-selling book Rich Dad Poor Dad and continued in many of his subsequent books, Robert explains how real estate gives cash flow to his income statement and on the expense side of the income statement he’s able to deduct the property’s depreciation as an expense.
When seen from the balance sheet, he’s able to gain appreciation on the asset side and the leverage provided by the bank rounds out the liability side of the balance sheet.
Through a property management company you can also access the four parts of the financial statement. Here’s how:
Balance Sheet: Asset-side
Every property producing monthly rent is an asset. It is possible to sell the rights to manage the property to another property manager for a lump sum of money.
Balance Sheet: Liability-side
Robert uses his banker’s money aka leverage in order to purchase a large property with only a small percentage as a down payment. When the property goes up in value he is able to keep the entire appreciation amount without having to share it with the bank. He can use leverage and still get the benefit of 100% of the appreciation.
In the property management business, leverage is achieved through controlling the income of a property. A property that is producing $500/month in rent gives a property manager $50 in income. If the property manager feels that $500 is too low for the area, the manager can increase the rents by 10% to $550 and the management company’s income will go up 10% accordingly. How many companies can increase their income by 10% without a causing uproar among its clients?
Income Statement: Income Column
As a property manager, you take your 10% management fee directly off the top after the rents have been collected. Here again, if the manager feels that rents are too low, the manager simply raises the rent and increases the income to both the manager and the property owner. It’s win-win!
Income Statement: Expense Column
While Robert Kiyosaki is able to depreciate the building as an expense, a property manager cannot take this tax advantage because a property manager doesn’t own the building-the owner does, however, a property manager is able to make money off the expenses incurred by the owner of the property.
Let’s say that a tenant calls to say that the plumbing underneath the sink is leaking. The property manager sends out his repairman to fix the leak. The repairman sends a bill to the property manager for the $12.00 plumbing parts plus $30.00 for his hourly rate.
The property manager now marks up the bill by lets say $10.00 and now charges the property owner $12.00 for the parts and $40.00 for the repair time. The $10.00 is for the property manager’s orchestration of taking the call from the tenant and sending out the repairman.
Now multiply this scenario by the management of 200 properties and you’ll find that expense mark-up is a significant source of a property manager’s income.
As you can see real estate allows an investor to utilize all four parts of a financial statement. As a property manager, you can piggyback on the owner’s shoulders and receive some of the same benefits of cash flow and leverage and you can actually profit from the property in ways an investor cannot i.e. expense mark-up.
And here’s the best part and the prime example of a property manager’s ultimate leverage: the manager isn’t responsible to the bank for making the payments on the mortgage. The owner is responsible! The property manager is able to make money off the property without being personally responsible to the bank for the asset that creates all the money in the first place.
What a concept!
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Repeat the last few seconds of your previous videos with the next one…
It’s really hard to figure out what’s going on…Especially when you have to wait for the video to load, and you forgot how the last video ended…
Thanks~
Oh man I love Robert Kiyosaki. As the previous poster said the purpose of his books is to make himself richer but I do believe there is something to be learned from all of them. He changes your way of thinking and opens you up to a whole new world of not just being happy with being financially responsible but instead financially proactive!
so saving the climate will let us survive without having to do major ass adaption, a low carbon economy will create more jobs and help us get out of the recession and we will be leaving a healthier, more intact planet to future generations! is that bad?!
I think you're taking his advice out of context — he was being cynical.
His complaints mirror my own on mutual funds: there are better and more liquid assets out there for the price. If you have some sort of employer matching, you'd be a fool to not take advantage of a company sponsored 401k program. However, if you're investing mostly out of your own pocket, owning mutual funds makes no sense. Fund Managers are not in business to make you money, they're in business to make money on fees. To do this, they don't have to give you a great return on investment. They just have to succeed in not losing your money. You could do just as well, or better, buying ETFs on major market indexes with significantly reduced fees. If you invest $10,000 today and get a yearly return of 12%, that would be worth $300k in 30 years. If you make the same investment, but pay out 2% in fees annually, you end up with $175k. For this reason, most mutual funds underperform market indexes. Further, liquidity can sometimes be an issue with mutual funds. An ETF can be traded at anytime, whereas most mutual funds are traded at the end of day.
I would rather be in control of my own destiny. I own no mutual funds. I keep 1/3 of my total accounts in ETFs. What I buy depends on my mood, the flavor of the day, but I generally stick with IWM, SPY, QQQQ, DIA, EEM, & FXI.
Yahoo has a pretty good ETFs site: http://finance.yahoo.com/etf
Try the ( richdad.com ) site. He predicted all this market crashing stuff 5 years ago. He da man.
Go to the bookstore and ask for the sequel to Robert Kiyosaki's Rich Dad Poor Dad. I read the sequel. It is as informative as the first and has a lot of new ideas.
Remember Kiyosaki's ideas will only work if you internalize the concepts and adapt it in your daily life.
He has some useful knowledge, but no board game is worth $200. Plus he has written a lot of book, and I somehow doubt that their isn't a lot of redundancy.
On the other hand, (if i remember correctly) in his first book, "Rich Dad, Poor Dad," he did point out that a house was not an asset unless you rented it out and earned money from it. Most people didn't learn this lesson until 2007.
I don't think he is trying to con people, but he is overselling. It is like the difference between Scott Adams ("Dilbert") who will sell anything short of toilet paper with Dilbert's name on it, vs. Bill Waterson ("Calvin &hobbes") who won't even sell a t-shirt.
i have something else to add:
is it bad to conserve resources for future generations? even if global warming isn’t real, why should we leave a polluted, resourceless hunk of rock for our kids? climate change is real, (and we have solid, real proof that we are causing it), so we should have some moral and ethical considerations to save the huge amount of species here on earth, BUT we should think about our own KIDS.
Both Trump and Kiyosaki have declared bankruptcy more than once, if memory serves.
It is great that you want to know about entreprenuership and better yourself, but these two guys are NOT good sources of information.
Kiyosaki writes a regular column for yahoo finance, and his columns are regularly shredded by people who know anything about business, and the Wall Street Journal didn't like the book much either.
Please understand I am not knocking your desire for self improvment. Motivation from any source on that front is awesome and I congratulate you for working towards that end.
BUT
Be careful where you get your advice, and do a lot of reading before committing yourself to anything. It never hurts to educate yourself.
Well-meant, and freely given. Good luck in whatever you choose.
you know the earth is warming when people living in the Caribbean start complaining about the heat. and people in new york are actually glad when it gets warmer. record breaking temperatures
he outright says it would. did you watch the video?
I have created a simple, but useful page, which has all the links to this series of videos listed in the correct order.
The site name is of the standard format with the usual (US) extension after the dot. The site name is then followed by a forward slash and the name of the page, so the first word is my site name and the second bit is the page name (but you need to put D O T h t m on the end).
pharmgateway howitallends
Both exist in columns and rows, not one or the other.
and yes it is.
The columns represents action or inaction.. the rows represent the uncertainty of the debate “Alarmists being right or skeptics being right.”
Essentially Action is buying insurance, inaction opting out of insurance. Global Warming is the reason your making a choice to buy insurance or not..
The economic harm is the cost of the insurance.. The only Jedi Mind Trick is Greg implying that it wouldn’t cost money for insurance.
I don't know BUT, I did check out link below and it does not sound too good…
Not for nothing but the current growth in GDP is ~2.9% which would mean a total halt in economic growth.. During the Great Depression there was stagnant growth of around 1.7% (3% is $2.7 Trillion)
Also its no Jedi Mind Trick.. the columns represent the certainties… the rows are the variables.. which is why the economic harm is a certainty and global warming is still a variable.
You should know that.
If you pay me $200, maybe I would consider it. Otherwise, forget it. His advice is routinely terrible. In his latest Yahoo finance column he brags about his ability to time the market, claiming to have invested millions of dollars in the stock market last August. Well, that article must have been written before the recent market downturn, since he is now looking at hundreds of thousands in paper losses. So much for Kiyosaki and his dopey market timing strategies.
"I've been investing heavily in the stock market since August 2007. I've moved several million dollars into the market."
It means you find a property selling BELOW its real value. That allows you to make a profit just by selling AT its true value, even if the value doesn't go up.