This book paints a pretty accurate and gloomy picture of what property management is all about. The author does not exhibit much enthusiasm about property management. It’s a necessary evil to real estate wealth but can be outsourced or leveraged to outside service. Managing the property manager is what this book is all about. I tend to agree with the author, after managing my own rental property for over 5 years, that it’s not for the faint of heart and it’s way too time consuming to be worth doing it yourself. In any case, the author does offer some good advices on what to look out for. The explanation of the financial statement is helpful and the impetus to maximize the rent and its translation to the value of the property drive home the points.

Here are the outlines of the book:

5 tasks of dealing with tenants: 1. find them, 2. collect rent/fees, 3. Be a sounding board for them, 4. Address their maintenance issues, 5. Enforce policies and contracts.

On laws: Have a solid lease, document everything, know when to fold ’em (let the residents win the battle), LLC’s. Tip: one of the most empowering things you can say is “read your lease.” Always document everything when it comes to resident communication.

Cash flow management: Income/expense statement is your property’s report card. Income – Expenses – Debt = Cash Flow. Tips: a seasoned property manager will immediately see that rents are increased. Never assume that previous year’s actual numbers will hold true in today’s market. Loss to lease = gross potential income – actual potential rent income.

Revenue: Gross Potential Rent Income – Gain/Loss to Old Lease – Concessions – Other Loss – Vacancy => Effective Rental Income + Other Income = Total Income

Operating Expenses: Professional Management + On-site Management/Payroll + Administrative + Advertising + Tax and Insurance + Utilities + Repairs and Maintenance = Total Operating Expenses.

Tips: pre-negotiated contracts with set pricing for their approved vendors (carpet cleaning, interior painting, electrical repairs, heating and air-conditioning service, plumbing repairs, appliance repairs, landscaping, pool service, pest control). Keep a capital reserve in order to complete large, onetime capital projects. Never forget your property’s value is based on its net operating income. Anybody managing anything will cost either time or money.

Net Operating Income = Revenue – Operating Expenses
Cash flow = Net Operating Income – Capital Expenses – Debt Services

Finding good property manager:
Match the needs of your property in terms of age, structure, equipment, grounds, local laws, amenities, administrative needs, and size to the types of property management companies: commercial, HOA, Mini Storage, shopping center, multifamily, single-family/small property. And Operating capacity: national/international, regional, mom-and-pop, realty company, owner/resident management.

Examine the
Employees training, job satisfaction
Systems: policy and procedures, accounting
Structures

Do you search
Level 1: Finding the players
Level 2: Meeting the players: the office visit – check for property condition, club house, staff, collateral/marketing materials, tours/models, and office.
Level 3: picking your player. Management contract: Fee structure, accounting systems, responsibilities, and expiration.

There are lots of sample forms, property management agreement, and etc. in the appendix. Good references.

When Robert Kiyosaki started writing this book on line. I was invited to read the book as it evolved. This book in its physical form really summarizes and refreshes my memory. The book, except for the frequent repetition, drives home Rich Dad’s message. We’re living in a rapidly changing global-economy world. It’s not your father’s world any more, given the new financial crises, waves after waves. Time to learn while riding on the roller coaster ride.

4 main forces that keep people struggling financially: taxes, debt, inflation, and retirement.
1. Conspiracy against our education: academic, professional, and financial education (most important in the information age). New rule of money #1: Money is knowledge.

2. Conspiracy against our money: The bank never goes broke. New rule of money #2: Learn how to use debt. New rule of Money #3: Learn to control cash flow. Observe three things: jobs, people, and cash – where they are flowing to and from.

3. Conspiracy against our wealth: socialism taking control. US-type (deflation) vs. German-type (inflation) depression. New Rule of Money #4: Prepare for the bad times and you will only know good times.

4. Conspiracy against our financial intelligence: The invisible bank robbery: 1. Fractional reserve banking. 2. Deposit insurance. New Rule of Money #5: The need for speed. Those who will succeed in the future will be entrepreneurs who understand how quickly business and money are changing, and who have the ability and flexibility to quickly change and adapt.

The author’s crystal ball: 1. Old industries are dying, 2. taxes will rise, 3. US is the biggest debtor nation in the world, 4. China is threatening the reserve status of the US dollar. 5. The US consumer is loaded with debt and strapped for cash. 6. Unemployment is rising. 7. Technology is invisible and relatively inexpensive., 8. Our school systems have not prepared students for the information age., 9. Frugality is now cool.

New Rule of Money #6: Learn the language of money. Knowledge begins with words: words of a poor person, middle-class person, and a rich person. Capital gain (gambling) vs. cash flow (focuses of investments). Cash flow for average people: 1. savings, 2. stocks, 3. pensions, 4. annuities.

The secret of success: Sell, become a student of the word Sell. Financial Fairy Tale #1: Live Below Your Means. #2: Go to school so you can get a secure job. #3: Social security and the stock market.

Building for the future: Integrity #1 Mission, #2 Team, #3 Leader, #4 Product, #5, Legal, #6 System, #7 Communications, #8 Cash Flow. New Rule of Money #7: Live is a team sport. Choose your team carefully.

Financial Education: An Unfair Advantage. 1. Expanding your means rather than living below your means. 2. Printing your own money. New Rule of Money #8: Since money is becoming worthless and less, learn to print your own. Learn by: reading (10% retention), lecture, participating in group discussion increases retention, via simulation or games.

15 financial lessons: 1. The history of money, 2. Understanding your financial statement, 3. The difference between an asset and liability, 4. The differences between capital gains and cash flow, 5. The difference between fundamental and technical investing. 6. Measuring the asset’s strength. 7 Know how to choose good people. 8. Know what asset is best for you. 9. Know when to focus and when to diversify. 10. Minimize risk. 11. Know how to minimize taxes, 12. The difference between debt and credibility. 13. Know how to use derivatives. 14. Know how to your wealth is chosen. 15. Know how to make mistakes.

There are lots of wisdom from the author’s father, Sam Halpern, in this book. The story started out at the present when the author moved back to his parents home where he captured all the nuggets of wise quotes from his father. The quotes started out as innocent, funny twitter one-liners, which eventually evolved into this book. The chapters were organized as themes of their own but chronologically organized from the author’s birth to the present.

The father, Sam Halpern, is a wise man whose cavalier personality and the mastery of foul language makes this book particularly funny and the truth hard hitting.

I enjoyed the story of Sam’s chasing after the noise after the 1am curfew and ended up being full monty in front of his wife’s sister. Another funny story was when the author was crawling under the chairs when his father was giving a speech on Nuclear medicine to the physicians. His father’s belief in religion and afterlife is very clear – non-existent – focus on living, dying is the easy part. How true! The father at one time forced his son to apologize to the entire class of his faking the scientific experiment project, which speaks loudly about the father’s integrity.

My favorite quotes are below:
On getting his son to consume all the energy from the candies, “Don’t come back in until ready to sleep or shit.” On sportmanship, “No, you can’t go getting mad at people because they’re shitty. Life will get mad at them. Don’t worry.” On getting a dog, “.. if someone has shit on their hands, it’s an indicator that maybe the whole responsibility thing isn’t for them.” More funny quotes: “Well, I’ll say it’s never a good sign when a fat kid laughs at you.” “.. it’s disturbing to smell your wife on your thirteen-year-old son.” On LEGOs, “Listen, I don’t want to stifle your creativity, but that thing you built there, it looks like a pile a shit.” On sharing, “ You always have the right to be an asshole – you just shouldn’t use that right very often.” On dealing with bullies, “… It’s not the size of the asshole you worry about, it’s how much shit comes out of it.” On his 8th-grade graduation ceremony, “… why don’t they just throw a fucking party every time you properly wipe your ass?” On accidentally eating dog treats, “… Fuck it, they’re delicious. I will not be shamed by this.” On being intimidated, “Nobody is that important. They eat, shit and screw, just like you….” On his first driving lesson, “… OK, first thing before that first thing; Farting in a car that’s not moving makes you an asshole.” On curfew, “… That’s your curfew: not waking me up.” On democratic system, “ … Yeah, democracy ain’t so fun when it fucks you, huh?” On taking his girlfriend to Las Vegas, “… The only thing you’re old enough to do is rent a hotel and – ah, I gotcha. That’s smart.” On house-sitting, “Call me if something’s on fire, and don’t screw in my bed.” On furnishing one’s home, “Pick your furniture like you pick a wife; it should make you feel comfortable and look nice, but not so nice that if someone walks past it they want to steal it.” On today’s hairstyles, “Do people your age know how to comb their fucking hair? It looks like two squirrels crawled on their head and started fucking.”

The foul language may at times be disturbing but it’s the hard truth that most people would be uncomfortable with. Good to have a dad like that for boys; don’t beat around the bushes just let you have the truths. For girls, this may be a little obtuse. In fact, I’ll bet if Sam has one girl, his demeanor/conversation may not be quite the same. Overall, it’s a nice short book to read on vacation – not too serious and full of life lessons.

Ernest Hemingway was born in 1899 and died of suicide in 1961 of age 61. Born to a reasonably well off family (father being a physician) and surrounded by sisters, he possessed an healthy amount of egotism. Determined to be a hero, he volunteered to participate in World War I by becoming an ambulance driver for the Red Cross in Italy. He became an hero when he rescued a couple of Italian soldiers risking his own life, though the extent of his injury may had been exaggerated or fibbed as he had been prone to do.

Throughout his life, he seemed to be living from one marriage to the next (total of 4) and traveling in and out of country as he continued fine-tuning his writing. The author sited several of his writings as exemplary but wasn’t generous in the portrait of Hemingway’s personal life. Most of the characters he used in his writing are taken from the people he met as most authors do. He had a dark side that he seemed to be most critical of the people who treated him the best, like some of his early mentors and his mother. This might have been a early sign of his bipolar disorder.

Unfortunately, Hemingway’s drinking and his two plane-crash accidents contributed the his poor health and early demise when he took his own life. But he was able to do one of the best work like “Old Man and the Sea” at his old age of 52, recovering from the low point of his writing. In 1954, he was award the Nobel Prize for literature.

I enjoyed his writing in “Old Man and the Sea;” it was simple to understand and yet elegant. After knowing a little of his life story (Wikipedia Link here), now I can truly appreciate his other work like the short stories. Will be reading them soon.

100 best companies to work for yield 14.16% vs S&P’s 5.97% and Russell 3000’s 6.34% return.

Levity Effects:
Humor -> Communication (Enhance negotiation skills, build rapport between leaders and employees, grab attention, relax listeners, making them more receptive to your message, make the information more memorable.
More efficient meetings (improved decision making, braking down barriers). Informal relationships with employees (sense of belonging). Remarkable presentations (zap rule: audiences needs a zap at least every 3 to 6 minutes during a presentation to stay focused and interested). Training that sizzles. Humorous communications (voicemail announcement, emails) Bottomline: your people will be a hundred times more likely to follow you and produce for you, if you can simply lighten your communication up a bit.
7 proven ways levity will keep ’em awake in your presentation: 1. Relax (You have to relax. You must be calm. Don’t forget. You’re just talking to people.) 2. Begin with a joke. 3. Talk to the audience, not at them. 4. Empathize with the audience. 5. Add levity. 6. Be human. 7. End on time and with a finish.

Fun -> Creativity (innovation) 1. Make the work environment more fun. 2. Expose and awaken latent funness from more serious employees. 3. Hire employees who are more fun and creative.8 questions that you can ask to help identify a potential levity-minded employees or leader: 1. Tell me about a time you used humor or a lighter tone to diffuse a difficult situation. 2. How have you used your wit to win over an audience, maybe in selling a product or making a big presentation? 3. If we asked former bosses about you, would you say you’re a fun person? Why or why not? 4. Explain your overall philosophy of having fun at work. 5. What’s the most fun event or activity that you’ve ever participated in at work? 6. If you could create your perfect work environment, what would it be like? 7. Your manager has asked you to come up with a creative solution to a problem.. Understanding that we believe fun spurs creativity, how would you get started on tackling the problem? 8. Tell me how you would bring fun and energy to our company.

Respect -> Trust. Humor earns some respect: the conditions necessary to make a joke effective are the same conditions necessary to make a business work: communication, understanding, common ground, trust and respect. Nine-to-five Adversaries: sharing a laugh with someone is an incredibly powerful way to foster trust and rapport. 10 steps to build a trusting environment: 1. express simple kindness, courtesy, and politeness. 2. Be tolerant of people when they make mistakes. 3. Listen first; talk second. 4. Stop butting in when other are speaking. 5. Give employees credit when their ideas work. 6. Refuse the urge to insult, embarrass, and disparage others. 7. Involve people in decisions that affect their work lives. 8. Apply the rules to everyone the same way. 9. Let people balance their work lives and home lives. 10. Praise five times more than you criticize.

Lightness -> Health
Shared meaning (intimacy in humor, unspoken bond). Healthier homes (increase the immune system’s activity, decreases stress hormones, increase the antibody immunoglobulin A). Healthier cultures (happy workers are more productive. 8 ways laughter strengthens your sanity: 1. helps us connects with others. 2. get rid of bad feelings, 3. yanks us out of our antisocial shells, 4. gives us passion, 5. makes us feel great, 6. laugh things off instead of complaining about them, 7. get rid of frustration, 8. laugh when you’re nervous.

Wit -> Wealth
Lowers turnovers. Recharges batteries (fun breather allows employees to approach work with renewed energy and passion). Humor increases personal success. Humor makes you employable.

How to build a culture the encourages consistent fun throughout the year: 1. Build from respect, 2. Have employee champions, 3. get senior management buy-in, 4. link fun to work, 5. keep it personal (e.g. celebrate birthdays), 6. recognize, recognize, recognize, 7. Be consistent.

142 ways to have fun a work. I’m sure there are more. This list is already worth the price of the book.

Levity for life: bringing home the fun.
Lighten up at home: Start each day smiling in the mirror. Smile at your family. Spend time with your peeps. Go easy on the kids. Go easy on your sweetheart. Take stock (note how you treat those around you.)
Lighten up in public: Smile at strangers. Lighten up on vacation. Lighten up at public events. Lighten up in traffic. Lighten up in restaurants. Lighten up in private: take better care of yourself. Develop tolerances for others’ misguided attempts at humor. Work on your sense of humor.
3 steps to developing your own unique sense of humor: 1. exposure. Read. The more you read comedy or satire, the more saturated your brain becomes with wittier dialogue and comical expression. 2. Inventory: as you discover hat you find amusing, take note of it. Remember it. File it away. 3. Application.

A few red flags to avoid: 1. Kidding (“just kidding!”), 2 Mockery: a mean-spirited joke at someone’s expense, 3. Sarcasm, 4. Anger.

This book is a fun read as an audiobook. I was surprised how the authors managed to stretch out the topic to so many pages. At times, it was repetitive (how many times can you say “humor,” “fun,” “lighten-up,” and etc.). Yes, the power of humor is multi-dimensional. We all can use more of it.

STEPS:
Start
Team building
Evaluating (Strategize)
Path (Creation an Action Plan)
Start (again)

Jump Start:
3 Principles of wealth building:
1. Leverage of Money & Time (Put your work into 4 categories: energy (gain energy while doing), excellent, competent, incompetent, leverage others for incompetent category, and create a system for excellent and competent area. This allows you to do more of the “energy” work).

2. Velocity – increase the velocity of your money: Look for untapped cash reserve, access the equity of your real estate, eliminate bad debt, increase good debt, monitor all assets, increase your time leverage by the use of systems in your business and investments, and exploit every legal tax loophole available.

3. Cash Flow: In business, collect on receivables faster, give discounts for case, use good debt, apply for credit from suppliers, maximize short-range and long range income, weight the cash consequences of every change in your business, watch your current statistics closely.

Seven steps of Jump Start!
1. Create a business: hobby vs. business, independent contractor (20 IRS factors), change the type of income your business receive into portfolio or passive income. Have your LLC own the business building. Business structures: LLC, Limited Partnership, General Partnership, S Corp (flow through income tax, no self-employment tax, good for a small business with loss or income < $50K), C corp (its own tax schedule, income > $50K. Business Structure Considerations: Tax planning, Funding sources and exit strategies, asset protection. This huge chapter has a very comprehensive explanation for various corporate structures.

2. Discover your hidden business deductions. Commonly overlooked business deductions: auto, bad debt, business start-up (legal, business structure setup, filing fee, accounting fees, office equipment, office furniture, costs of investigating business, office setup costs), education, entertainment, legal and professional fees, travel, interest, moving expenses, software, charitable contribution/promotion, taxes (sales tax, etc.). Hidden business deductions: boat, children, clothing, gifts, home offices, medical reimbursement, personal care, pets, travel/vacation. Tax credits: work opportunity credit, welfare to work credit, ADA tax credit. Others: group life insurance.

3. Pay your taxes. 7 ways to minimize taxes: 1. Business structure timing (fiscal year). 2. Timing payroll withholding (at the end of year), 3. Wise use of tax deferrals, 4. Income splitting with business structures, 5. Income splitting with dependents, 6. depreciation, 7. carryforward losses. Passive losses can be used to offset passive income unless you’re real estate professional. RE Dealer vs. RE developer (subject to uniform capitalization rules) status.

4. What’s left goes into real estate. Smart Real Estate Investing: Buy the building your business is in. Then charge your business rent for use of the building. Holding titles: joint tenancies with or without survivorship, community property, tenants-in-common, land trust (privacy). Transfer title to a land trust, then transfer (no public record) your beneficial interest to an LLC.
5. Real estate income comes out tax-free.
6. Buy a house the right way.
7. Make your home give you money (equity).

Four ways to make money from real estate: cash flow (cash-on-cash return), tax benefits of ownership, debt pay-down, appreciation. In high appreciation area, two strategies: 1. rent-to-own program. 2. Buy and resell.

Protecting your own home: 1. Homestead exemption, 2. Single-member limited liability company (use a land trust to avoid due-on-sale clause), 3. debt.

Home Loopholes: 1. Live in your home for two years… 4. renting room, 5. Above $140K income, move interest deduction off Schedule A through home office deduction. 6. Home equity loan full deductibility: prove the additional debt is used for investment or business purposes (out of schedule A). 7!9. Controlled entity sale (to your own multi-owner LLC) at the appreciated value to step up depreciation. Use the same strategy to save the “two-year” residency requirement. Be flexible between cash-flowing properties and appreciation strategy.

New Tax Strategies for C Corporations:
Getting money out of your C Corp: tax-free benefits, salaries, loans (lend money to your investment LLC or LP), and money partner(form an LLC, in which both you and your company are members. The corporation provides and money and you provide the management). Double taxation occurs when dividends are paid. Avoid control-groups situation by mixing up controlling owners. Double taxation is still cheaper than flow through at 35% personal tax rate.

7 secrets of C Corporations
1. Own tax rate: first $50K is 15%. 2. Medical reimbursement plan (can’t discriminate against other employees). 3. Disability insurance (tax free). 4. Accumulate dividend income. 5. Receive dividend income. If there is no ownership in the corporation paying the dividends only 30% of the dividend income is taxable. If owns 20% or more, only 20% of the dividend income is taxable. 6. Ability to borrow from pension plans. 7. Ability to go public.

When NOT to use a C corporation:
1. Your business has losses. (can’t offset the loss against other income). 2. You business has high income. (may need to distribute in salary), 3. Your business is a qualified personal service corporation. (stuck with a professional LLC, professaional LLP, or an S corporation. 4. Your business is a personal holding company. (high capital gain tax rate, and liquidation of the company). 5. You want a simple structure. (need professional bookkeeping).

This book went from A to Z on how to the rich structure entities to take advantage of their benefits. Quite an eye opener. The key takeaways for me are the use of different strategies for different economic conditions (cash flow and appreciation of real estate), deeper understanding of the S- vs. C-corporations, the idea of using debt to protect your real estate assets, and many other ideas. I’ll probably have to get an updated edition when it comes to the time to “Jump Start” the process for myself.

The 10 advantages of real estate investment:
1. Cash flow, 2. Control (unlike stocks which you lose control to the company officers), 3. Appreciation, 4. Leverage and Other People’s Money (OPM), 5. Depreciation, 6. Refinance, 7. Asset protection, 8. 1031 exchange, 9. Hedge against inflation, and 10. Physical asset.

Why multifamily apartment?
1. Cash flow (commercial leases last many years). You can quickly increase of the value of an acquisition by increasing its net operating income and sound management principles.
2. Demand: upcoming wave of renters from baby boomers, echo boomers, and immigrant.
3. Affordability
4. Business cycles: not affected by business cycles like rising interest rate.
5. Maintenance: less than Commercial properties. On-site technicians can be supported. Refinancing to take some equity out. 1031 exchange.

Two real-world examples were given by author: 1 was a construction play: buying an existing property with an adjacent empty lot to be built up. The other one was an operations play: increase revenue and reduce expenses, then refinance to take original investment out.

The author then debunked the myths:
Myth #1: You need a lot of money. No, you just need a good deal. With each successful deal you will have more and more investors beating down your door to place money with you and your investments.
Myth #2: You have to start small. Large apartments are secured by the assets themselves because their values are based on performance and cap rate, where as small family home rentals require cash assets and its appreciation depends heavily on the neighborhood.
Myth #3: You need midas touch. No magic, just know how and common sense.
Myth #4: You have to know somebody. “In investing, it’s all about what you know because what you know will determine who you know. In order to find a good deal, you need to know how to spot one.
Myth #5: You have to be a seasoned negotiator. “If you have a “hard-sell” a deal, then it probably isn’t a good deal.

Key indicators for success:
The market: 1. Cycles: buy at low point. 2. Population and employment growth. 3. Supply and demand (construction vs. absorption). 4. Barriers to growth: a. submarkets that are fully built out or developed, b. government-protected land, c. city boundaries, d. zoning changes, e. natural formations such as mountain ranges or bodies of water. 5. Urban renewal: an effort to reestablish cities’ downtown areas as thriving civic centers where people live, work and play. Where the urban renewal is just beginning, there are huge opportunities.

The next 10 markets to watch: (this list may be obsolete)
1. Seattle, 2. San Francisco, 3. Los Angeles Metropolitan Area, 4. Las Vegas, 5. Austin, 6. Denver, 7.Tucson, 8. Phoenix, 9. Boise, 10. Albuquerque. Do you own research. Level 1: at home. Level 2: travel to your proposed market and meet with area experts. Level 3: Speak with trusted business partners and discuss your findings with them.

The Purchase Process
1. Offer: verify the income, expenses, net operating income, calculate the value, loan payment and your rate of return.
2. The Purchase and Sale Agreement (PSA)
3. Due Diligence
4. The List: leasing information and policies, financial and operating reports, income and expense items, studies, legal and construction documentation, exterior inspections, interior inspections.

Equity and Financing: Assume or obtain a new loan.

Assembling Your Multifamily Team:
1. Property manager, 2. Lawyer, 3. Accountant, 4. Mortgage Broker, 5. Commercial Broker, 6. Insurance Broker, 7. Contractors, 8. Appraisers, 9. Architect, 10. Tax Consultant, 11. Environmental Consultants, 12. Engineer.

To Infinity and Beyond: Author’s call to action.
1. Keep good records, 2. Limit your liability, 3. The sky is the limit!

As an small-apartment owner, this book gives me a new perspective to think “big.” There are definitely many advantages to own/operate as a share of large apartments. The author made a very good, convincing case. His two examples really hit home for me. But I wonder how hard it is to look for “good” deals when there are so many of the same class of people like Ken Mcelroy scouting the field for the next big deal. Gotta to keep my eyes open.