Page 119 - Rich Dad's Increase Your Financial IQ: Get Smarter with Your Money

fixed interest rate on the existing loan is very low. Low interest payments,
lower expenses, and increasing income will increase property value, not

market fluctuations.
This means the 300-unit apartment house offers me both control and
leverage. My job as an investor on this apartment house is to increase my
leverage from 1:4 to possibly 1:10—i.e., doubling the value of the property

through operations, not the market. I can do this as long as I have control.

Leverage Is Not Risky

Many financial advisors will tell you that higher returns mean higher risk.
In other words, leverage is risky. That is absolutely false. Leverage is risky

only when people invest in assets that they have no control over. If a person
has control, leverage can be an applied with very little risk. The reason most
financial advisors say that higher returns mean higher risk is simply because
they sell only investments that allow very little control.

As mentioned above, my $17 million apartment house in Tulsa is a good
investment to use leverage with because I have control over the operations,
and the operations (i.e., the amount of income that is collected through
rents) determine the value of the investment. A house is not a good

investment, and leverage is risky with a house because you do not control
the value of the house. The value of a house is based on the market and the
purchasing power of the currency it was purchased with. These things are
out of your control.

What Is Control?

The major flaw in paper assets such as savings, stocks, bonds, mutual
funds, and index funds is the lack of control. And because you have no
control, it is difficult and risky to apply leverage. Because these paper assets

offer very little control, it is difficult to get a bank to lend you any money to
invest in these assets. So, what is control?
The diagram of the financial statement illustrates four of the main
controls a professional investor and a banker want.