Robert Kiyosaki likes realty investing is as a result of property touches each half of his financial statement. Starting together with his best-selling book Rich Dad Poor Dad and continued in several of his subsequent books, Robert explains how real estate offers cash flow to his income statement and on the expense facet of the income statement he's ready to deduct the property's depreciation as an expense.
When seen from the balance sheet, he's ready to realize appreciation on the asset aspect and therefore the leverage provided by the bank rounds out the liability aspect of the balance sheet.
Through a property management company you'll be able to conjointly access the four elements of the monetary statement. Here's how:
Balance Sheet: Asset Column
Every property manufacturing monthly rent is an asset. It is attainable to sell the rights to manage the property to a different property manager for a lump sum of money.
Balance Sheet: Liability Column
Robert uses his banker's money aka leverage so as to buy a giant property with only a tiny share as a down payment. When the property goes up in worth he is in a position to keep the whole appreciation amount without having to share it with the bank. He will use leverage and still get the good thing about a hundred% of the appreciation.
In the property management business, leverage is achieved through controlling the income of a property. A property that is manufacturing $five hundred/month in rent gives a property manager $fifty in income. If the manager feels that $500 is too low for the realm, then her or she will be able to increase the rents by ten% to $550 and the management company's income will go up 10% accordingly. How many corporations will increase their income by 10% without a causing uproar among its clients?
Income Statement: Income Column
As a property management company, you are taking your ten% management fee directly off the prime after the rents are collected. Here once more, if the manager feels that rents are too low, the manager simply raises the rent and increases the income to each the manager and the property owner. It's win-win!
Income Statement: Expense Column
Whereas Robert Kiyosaki is able to depreciate the building as an expense, a property management company cannot take this tax advantage because a property manager doesn't own the building-the owner will, but, a manager is able to create cash off the expenses incurred by the owner of the property.
To Illustrate that a tenant calls to mention that the plumbing underneath the sink is leaking. The manager sends out his repairman to repair the leak. The repairman sends a bill to the property management company for the $12.00 plumbing elements plus $30.00 for his hourly rate.
The property manager now marks up the bill by shall we say $10.00 and currently charges the property owner $12.00 for the parts and $40.00 for the repair time. The $10.00 is for the manager's orchestration of taking the call from the tenant and sending out the repairman.
Now multiply this situation by the management of two hundred properties and you may find that expense mark-up may be a vital source of a manager's income.
As you'll be able to see real estate allows an investor to utilize all four elements of a financial statement. As a property manager, you can piggyback on the owner's shoulders and receive a number of the identical advantages of money flow and leverage and you'll be able to actually make the most of the property in ways that an investor cannot i.e. expense mark-up.
And here's the simplest half -and the prime example of a property management's ultimate leverage: the manager is not responsible to the bank for making the payments on the mortgage. The owner is responsible! The property manager is in a position to make cash off the property without being personally accountable to the bank for the asset that creates all the money in the first place.
Author Resource:
Adam has been writing articles online for nearly 2 years now. Not only does this author specialize in Anatomy of a Money Statement - Property Management
You can also check out his latest website about
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