Page 121 - Rich Dad's Increase Your Financial IQ: Get Smarter with Your Money

1. The income column. The first step after acquiring the property is to
increase the rent. The property is already profitable and cash flows with

existing rents. In other words, I am already making money from day one.
Even so, the objective or business plan is to raise the rent per unit an
additional $100 a month over the next three years by the following means:

1. Raising the existing rents that are under market.
2. Installing washers and dryers in all the units and charging extra for
rent.
3. Completing improvements to the property like landscaping and new

paint.

All of these can be completed by using the bank’s money, not mine.
When we provided the bank our business plan, these improvements were

part of it, and were factored into the total loan amount. Multiplying 300
units by $100 over three years, this increases the entire project’s monthly
income by $30,000 a month, or an additional $360,000 a year. This increase
in income is an example of control and leverage.

If the plan works, three years from now my financial IQ #4 (leverage)
will be infinite because the increase in income will be achieved by no
additional capital from investors, just good knowledge of how to manage
the asset (control) to higher and higher profitability. The increase in

financial IQ is infinite because the increase in income will be achieved
using investor control and the bank’s money.

2. The expense column. The next controllable objective is to lower
expenses. This is done in different ways. One specific example is by
reducing labor costs through reduced administrative costs. Since we own
other properties, many costs can be brought back to the main company.
These are sometimes called “back-office expenses.” They are the cost of

accountants, bookkeepers, attorneys, and administrative staff. Other
expenses that can come down are insurance, property taxes, water
consumption, maintenance, and landscaping through better cost

management and economy of scale. Also, expenses can be reduced and
income can go up by keeping turnover low, the time it takes to re-rent an