Anatomy of a Financial Statement - Property Management

Robert Kiyosaki likes real estate investing isthe manager feels that rents are too low, the
because real estate touches each part of hismanager simply raises the rent and increases the
financial statement. Starting with his best-sellingincome to both the manager and the property
book Rich Dad Poor Dad and continued in manyowner. It's win-win!
of his subsequent books, Robert explains how realIncome Statement: Expense Column
estate gives cash flow to his income statementWhile Robert Kiyosaki is able to depreciate the
and on the expense side of the incomebuilding as an expense, a property management
statement he's able to deduct the property'scompany cannot take this tax advantage because
depreciation as an expense.a property manager doesn't own the building-the
When seen from the balance sheet, he's able toowner does, however, a manager is able to make
gain appreciation on the asset side and themoney off the expenses incurred by the owner
leverage provided by the bank rounds out theof the property.
liability side of the balance sheet.Let's say that a tenant calls to say that the
Through a property management company youplumbing underneath the sink is leaking. The
can also access the four parts of the financialmanager sends out his repairman to fix the leak.
statement. Here's how:The repairman sends a bill to the property
Balance Sheet: Asset Columnmanagement company for the $12.00 plumbing
Every property producing monthly rent is anparts plus $30.00 for his hourly rate.
asset. It is possible to sell the rights to manageThe property manager now marks up the bill by
the property to another property manager for alets say $10.00 and now charges the property
lump sum of money.owner $12.00 for the parts and $40.00 for the
Balance Sheet: Liability Columnrepair time. The $10.00 is for the manager's
Robert uses his banker's money aka leverage inorchestration of taking the call from the tenant
order to purchase a large property with only aand sending out the repairman.
small percentage as a down payment. When theNow multiply this scenario by the management of
property goes up in value he is able to keep the200 properties and you'll find that expense
entire appreciation amount without having tomark-up is a significant source of a manager's
share it with the bank. He can use leverage andincome.
still get the benefit of 100% of the appreciation.As you can see real estate allows an investor to
In the property management business, leverage isutilize all four parts of a financial statement. As a
achieved through controlling the income of aproperty manager, you can piggyback on the
property. A property that is producing $500owner's shoulders and receive some of the same
month in rent gives a property manager $50 inbenefits of cash flow and leverage and you can
income. If the manager feels that $500 is too lowactually profit from the property in ways an
for the area, then her or she can increase theinvestor cannot i.e. expense mark-up.
rents by 10% to $550 and the managementAnd here's the best part -and the prime example
company's income will go up 10% accordingly.of a property management's ultimate leverage:
How many companies can increase their incomethe manager isn't responsible to the bank for
by 10% without a causing uproar among itsmaking the payments on the mortgage. The
clients?owner is responsible! The property manager is
Income Statement: Income Columnable to make money off the property without
As a property management company, you takebeing personally responsible to the bank for the
your 10% management fee directly off the topasset that creates all the money in the first place.
after the rents have been collected. Here again, ifWhat a concept!