Page 304 - Why We Want You To Be Rich - Donald Trump, Robert Kiyosaki.pdf

298 I CHAPTER TWENTY-SIX

When I buy a piece ofreal estate, I am only concerned about price at the
time ofpurchase (the same as Mr. Buffett) because price determines returns.
What I am looking for when I purchase a property are the following four
streams ofincome (or cash flow):

1. Income (cash How): This is hopefully called positive cash flow after
all expenses are paid, including my mortgage payment and taxes.

2. Depreciation (phantom cash How): Depreciation appears as an
expense when it really is income that comes from a tax break. This
confuses many people who are new to investing in real estate. It is
cash flow or income you do not see.

3. Amortization: This is income to you because your tenant is paying
down your loan. When you pay the mortgage on your personal
residence, this is not income to you but an expense. When your
tenant pays your loan down, it is cash flow.

4. Appreciation: This is really inflation that appears as appreciation.
Ifyour rental income goes up, you as an investor can refinance and
borrow your appreciation out as tax-free cash and have your tenant
pay for the amortization ofthe new loan amount. In other words, it
could be tax-free cash flow.

This is an example of the intrinsic value of a well-financed real estate
investment, purchased at the right price and well-managed. As a real estate
investor, this is what I invest for. I invest for increased value and cash flows.
Investors who buy property to sellare often calledflippers,but I call them
speculators because this is not really investing. They are focused on capital
gains, but those gains are often taxed at higher rates when they do not
reinvest their money but spend their gains instead. Unlike such speculators,
I invest for cash flow and increased value.
Warren Buffett also does not like to sell because selling shares triggers a
tax and a tax reduces his wealth. For those ofyou who know Mr. Buffett's
formula, he is into compounding his returns and not sharing his returns
with the government.