What's up friend? Kris Krohn here. And today and especially to my real-estate
partners out there, I'm making a video talking about your first year of
investing and what success really looks like. I'm actually going to be diving in and
the profit loss statement. I'm going to talk about accounting. And ultimately, I'm
going to help you understand why you can make money and it looks like you lose
money in the eyes of the government. Trust me. All good things but your first
year is unlike any year after. So, I'm going to break it all down for you in this
video.
So, check it out. Today. I'm actually going to share with you the PNL from one of my
partners. We bought 7 properties in the first twelve months. And we just
celebrated our one-year anniversary. And I'm going through everything. I thought
you know, I really need to make a video to help my partners and people and real
estate understand what long-term investing looks like on single-family
homes when you're doing it the right way. It's amazing that if you're not an
accountant and you're just a real estate investor, you can look at the numbers and
get overwhelmed or not understand it. So today, I want to break it down for you.
Now, I really want to help you understand exactly what it looks like. So, check it
out. I actually have up here for K-I-N-P-O
LLC, the profit loss statement from April through June. So, not quite a year. But
pretty close. And you've got a property here on 1363 Congo Drive and 199 81 Park
Haven. This one's Osprey way. That one's a different one on Osprey Way. And then
we've got another page right here. And this will show you 1, 2, 3 more.
And then totals. And I want to share with you a couple of things that we track
that are important for us. The first thing is here we have our income .So, we
actually show all of our income across the board on these properties. And if we
just kind of go to the second page, I want to show you what this looks like.
The income across the board is showing about $31,000 of income on these 7
properties for not quite a complete year. Next, we have all of these expenses.
Business license and permits. HOA fees, insurance expense, interest expense which
is really big deal. Professional fees, management fees, property taxes, utilities.
Then we have our total expenses. Now, you're going to see in total that we
started with 31,000 of income but we only have 33,000
of expenses. So, we actually... It looks like we have $2,300
worth of loss. And what this is is that when you buy a property its
first year, you're getting it rented out, you're getting it set up. So you know,
think about it that for the year, it's only rented for many of these properties
for only 3 months or 5 months or 7 months or 9 months. None of them
are rented out for an entire year. So, when you look at the math on it, it's
like, "Wow, you bought all these properties it looks like you losing
money." But wait, it gets better. Then you take the depreciation and amortization
and pull those out. And a $2,300 loss and now turns into a $15,000 loss. And you're
like, "Kris! We're losing money. *Hand over fist* Why are we doing this?"
Friends, this is brilliant accounting. Thank You US government. Our Constitution
is a heavy promoter and supporter of real estate investing. And what this
really means is that on paper, it looks like we lost $15,000. In actuality, we
didn't. In fact, if we were to fast forward into the second year of
investing and have a full year on each of these properties, our financial
balance is actually going to be really positive. It's going to look really good.
That's a big part of our cash-on-cash ROI. Even after all that we're still
going to show a loss. Why am I so excited about a loss? Doesn't it seem like this
is upside down? Welcome to the confusion of investing
and why people don't get it. You want to make as much money as you can and show
as much of a loss as possible. And after you've owned real estate for the first
year, generally speaking, your expense heavy out the gate then you start making
this positive money. Your account is building building and building. But you
should if you do it right still be showing a loss, a loss, a loss. Which means
at the end of the year when taxes come out from you and my partner, we're going
to actually be able to decrease our taxable income and actually save money.
By the way, if you pay more than a penny, you might be paying too much. If you pay
too much in taxes, you need to own more real estate because you're not writing
off the interest the depreciation and all the different expenses that come
with legitimately owning business and real estate. So, I obviously get really
geeked out excited when I see this. his right here my friends is a healthy year
one portfolio. We've got $20,000 sitting in the bank account
managing this knowing that we were going to end the year with around a $2,300
loss. We're gonna show a $15,000 loss. But once we
get a full year behind us and we get our full second year, then the numbers get
really positive and juicy. By the way, some things that don't get taken into
account. Principal reduction. 5% of your ROI on a single-family home literally
comes from the money that the bank is putting towards the principle that if we
were to add in here, we're well positive. But on top of that, there are some other
things that are not factored in here. The other thing not being taken into
account is the way that the property has growing
and it's also its appreciation. So, there's all these benefits but most of
the benefits actually don't reflect well on a CPAs accounting profit and
loss statement. And I wanted to make this video for you today because I wanted to
just start by creating this awareness that says, "According to accounting, your
real estate looks really bad on paper." That is by design. That's one of the big
reasons why we're actually doing this. Because we know that we're reducing the
principal, I get that. There's positive cash flow and it can still show us a
loss. I get to depreciate the asset which shows way bigger losses. So by the time
we get to year 2, we're starting to harvest make fantastic money but we're
still showing a loss. The exciting thing however happens in
year 5. Let me tell you what that actually means. So, most of these deals
that we're doing, they have an ROI which stands for return on investment. On
average, between 25 plus percent. Now, just so you understand what a 25% ROI means.
if I make 25% this year and 25% the next year, that's 50%
If I do that for 2 more years, that's 100%. If I go for five years
and sell this property, I basically have created in 5 years, conservatively a
100% ROI. Now, what does this mean? This means that whatever money I put in,
doubled. For example. So, if you take $100,000, you multiply it
by five years at 25%. You're going to double your money. Now, some of you you're
doing the math you like, "Well Kris, technically, you've more than doubled it."
But you have some closing costs and some things like that. That's why I'm being
concerned and just saying, "Hey, round down. We doubled the money." Right? So check it
out. In 5 years, you're like, "Well, I doubled my money." I couldn't have done
that in a 401k. I couldn't have done that in an IRA. I couldn't have done that
anywhere else. And yet, I can't retire on 200 grand. That's not that exciting. But
then you say well $200,000 times 5 more years at 25%,
what is what happens this again? You're smart, you know the answer. Turns into
$400,000. 400,000 into $800,000. $800,000 turns into
1.6 million.
1.6 million turns into 3.2 million.
3.2 million. 3.2
million turns into 6.4 million. Then 12.8
million. Listen. I know that you want to retire sooner than later and you don't
need a lot to be able to actually retire. But you need to understand that this is
gonna keep growing. So, when we get to like this idea of year one, I wanted to
make this video primarily for my partners. And by the way, for those of you
that want to know, I actually find so many amazing deals with my nationwide
network of 200 experts that we are actually taking on new partners from
time to time. There's an interview process. If you want to learn more about
it, I actually shot a video series right over here that's going to pop up. So click
on that and if you watch it, you'll get fully educated on how I can partner with
you, have my team do all the work and actually split the money. At the end of
the day, year one it's like, "Well, Kris. How is this good news? We lost money." It's
like... That's only what it looks like on paper. This is all part of an intricate
plan. Year one when you have a partial year, the number is going to be negative.
And you're going to get a great write-off. The next year, it's positive. It's still
going to show us a negative. The next year it's positive, it's going to show us a
negative. It's positive, it's going to show us a negative. And then all the sudden,
you can sell off your portfolio and be like, "Whoa! My original money I put in has
doubled. Let's go buy twice as much real estate and do it again." And then
quadruple the real estate and then on and on and on. Now, obviously this is a
patient strategy, right? It's not make money overnight but it is leave a legacy
for the next generation and achieving financial freedom at some point along
the way. And there's a number of things that you can do to actually accelerate
the process. One of those things is I've got my maverick program where I show
people how to buy real estate without money and without credit. So, you're never
bound by what you got. I will say though if you got money sitting in 401ks and
IRAs and annuity and home equity, that money is not paying you, it's not doing
anything for you. It's growing so slow that if I were to show you these numbers,
look at the reality of this. If you were to take an average 401k or IRA,
they're actually after fees producing 4%. How long will it take for you to double
your money at 4%? We divide it by 72 because that's the rule of 72 it's the
way it works out. And that basically comes out to doubling your money in
18 years. What do you want to work a 35-year period of time you can double
your money twice. In this strategy, you could double your
money 7-8 times. So, that's why I was able to retire at such a young age
and then become financially free. And obviously I'm working my butt off half
the time because now I'm just loving my life doing this --educating and training
people and helping them figure out how to get where they want. But the other
part of my time is literally just playing and having fun and enjoying the
fruits of my labor. So, my friends, I want to make this video free and let you know.
You're investing. It does not look sexy when you actually pull up the
document. Hopefully you can read it a little better now in understanding, "Wait
a second. The depreciation is driving it into a strong negative number." That's one
of the biggest culprits right there. Which we do on purpose so that even when
we're profitable we're still showing a loss. Which means that at some point, you
can hit a critical mass of not paying taxes at all perhaps ever again. So, there
are some pretty cool implications with everything that we're talking about here.
You're too, if when we look at this it's going to be more robust more full and
it's gonna have the full year of real estate impact. And then it gets growing
until we can double the portfolio. So, my friends, that's real estate 101. Reading
that first month's report that first year seeing exactly what it looks like.
If you want to learn more about partnering, click over here. Watch this
series. I set it all up for people that want to learn how to do real estate in
the most intelligent way possible. Click the button. See you.