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What Every Real Estate Investor Needs to Know about Cash Flow... And 36 Other Key Financial Measures 1st Edition

4.4 out of 5 stars 66 customer reviews
ISBN-13: 978-0071422574
ISBN-10: 0071422579
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Editorial Reviews

From the Author

Can a book filled with numbers possibly be exciting? If you’re truly interested in real estate investing then you must first realize that investing in income properties is all about the numbers. It’s about discounted cash flow and rates of return and net operating income and cap rates. If you understand how these and other key concepts work, then you’re on your way to success – and that’s exciting.

I also believe you'll find the presentation of this material entertaining. I sought to write this in a way that would make it accessible to beginners and professionals alike.

I present more than three dozen key concepts and calculations. The book is peppered with "Rules of Thumb" that you can use as benchmarks when you evaluate potential investment properties. I also provide numerous examples and sample problems that you can use to check your understanding. As you progress you’ll learn how to read a property’s vital signs and how to put financial concepts to work for successful investing in real estate.

As important as these financial measures are, some can be tedious to perform manually. For those I show you how to use simple spreadsheet models to accomplish those tasks. I also provide you with a link to a special website we created where readers of the book can download many of these models as well as other valuable tools.

I hope that you'll find many good ideas here and that you'll use what you learn to help you make solid investment choices.

From the Inside Flap

An arsenal of powerful calculations that can the difference between winning and losing the real estate investment game

Real estate investing is a numbers game, and the only way to win is by understanding the numbers. "What is a property really worth? How do I determine a building’s value based on current rents? How much will I make if I hold onto a building for five, ten, fifteen years?" Real estate investment pro Frank Gallinelli arms you with 37 basic formulas for calculating these and other critical aspects of real estate investments, including:

• Discounted Cash Flow • Net Present Value • Capitalization Rate • Cash-on-Cash Return • Debt Coverage Ratio • Gross Operating Income • Net Operating Income • Internal Rate of Return • Profitability Index • Return on Equity • Long-Term Gain • Depreciation • And Many More

You don’t have to be a rocket scientist to use the formulas in this book. For each formula, Gallinelli clearly explains why it’s important, how to calculate it, and provides examples and sample problems to help you master it. On a companion website, he supplies useful forms and spreadsheet templates that simplify many of the calculations.

With this handy reference, you’ll quickly master the financial formulas you need to be a winner in the real estate investment game.


Product Details

  • Paperback: 261 pages
  • Publisher: McGraw-Hill; 1st edition (November 25, 2003)
  • Language: English
  • ISBN-10: 0071422579
  • ISBN-13: 978-0071422574
  • Product Dimensions: 6 x 0.6 x 8.9 inches
  • Shipping Weight: 13.4 ounces
  • Average Customer Review: 4.4 out of 5 stars  See all reviews (66 customer reviews)
  • Amazon Best Sellers Rank: #323,787 in Books (See Top 100 in Books)

More About the Author

First, the professional side: I am the author of "What Every Real Estate Investor Needs to Know About Cash Flow...," now in its third edition. It is actually about a lot more than just cash flow. It provides readers with a basic grasp of how income property investments really work and serves as a handbook for understanding essential financial measures related to real estate investing. I have a second book, "Insider Secrets to Financing Your Real Estate Investments," which was released in December 2004. In 2008 I released "Mastering Real Estate Investment," a sequel of sorts to the "Cash Flow" book.

Readers of my books have often asked if I planned to give any classes on this material, so at last, in October of 2015, I released an online video course, "Introduction to Real Estate Investment Analysis."

My company's website, realdata.com, has a strong educational component and I write a series of articles about real estate investment and development for that site. Speaking of education, I also serve as Adjunct Assistant Professor in Columbia University's Master of Science in Real Estate Development program, teaching real estate finance.

I founded RealData in 1981 to provide usable, affordable software for investors and developers who weren't necessarily proficient with computers. Most of our products perform pro-forma analyses that range from basic to quite sophisticated. Besides information about this software, my company's site offers a variety of resources that you should find useful if you're interested in real estate investing or development.

On the personal side: I started off life in Hoboken, NJ, home of the other Frank -- the one who could sing. We moved to Connecticut when I was about 6 and that's where I've lived ever since. I graduated from Yale in 1968 and then taught English and math for several years in New Haven. That might explain why I've written books with a lot of formulas and no split infinitives. I received a graduate degree in education, then left the classroom to go into real estate, became an investor and the rest, to coin a cliche, is history. My wife Jean and I have a son who teaches and lives in China with his wife and darling baby daughter. He also entertains us with a monthly newspaper column about his life there. We have a daughter, also married, who lives nearby and who has blessed us with a beautiful grandson.

My CV notwithstanding, I always wanted to be a writer, although the great American novel was really what I had in mind. Nonetheless, I'm very grateful for the opportunity to be launched into print. And maybe that novel is still lurking somewhere.

Customer Reviews

Top Customer Reviews

Format: Paperback
I recently decided to look into investing in residential real estate, but I didn't know enough about the financial risks and rewards to determine whether this would make sense for me. So I decided to give myself a quick education by reading the best books I could find on the subject. I had to wade through a lot of get-rich-quick-without-any-money books to find the good ones, but I wound up with ten books that looked like they had good, solid information for would-be investors.
After working my way through all ten books, I can tell you without reservation that Gallinelli's book is head and shoulders above the rest. There was something to be learned from each them, of course, but the others tended to get a bit fuzzy about the financial details, often substituting simplistic rules of thumb for real analysis or doing a hand wave just about the time I needed hard information. Worse, there was a disturbing lack of consistency among the books where they did provide financial details, and there was no obvious way to sort out which book had the right take on a particular calculation or financial ratio. And it seems to me that, important as general principles may be, if the financials don't work then nothing else matters very much.
Fortunately, Gallinelli took me right down into the nitty gritty stuff and showed me, step by step, just how the whole business works. He was also the only author to even consider the possibility that I, as a modern-day investor, might have the ability to run these calculations in a spreadsheet, and he provides clear instructions for entering the required formulas in Excel.
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Format: Paperback
Before you invest $1 into income-producing real estate, be sure to pick up a copy of Frank Gallinelli's excellent book, What Every Real Estate Investor Needs to Know About Cash Flow...And 36 Other Key Financial Measures: Guidelines, Formulas, and Rules of Thumb for Making Money in Real Estate. While the title may sound somewhat forbidding, the book is so well-written and accessible that even novice investors who wouldn't know a cap rate from a rate of return can quickly and easily master key concepts such as present value, gross scheduled income and discounted cash flow. Better yet, Gallinelli offers free spreadsheets that you can download from his site that do the numbers-crunching for you. I like to think that I'm a pretty savvy investor, but, thanks to Frank and his amazing formulas, I narrowly avoided overpaying for a five-story office building in the Chelsea section of Manhattan. While there's no guarantee that the seller will accept my lower offer, I feel confident that, if I do get the deal, I will be paying a fair price now that Frank has taught me how to do the math.
Comment 148 of 153 people found this helpful. Was this review helpful to you? Yes No Sending feedback...
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Format: Paperback
I recently asked a potential joint venture partner to send me some profit projections. What I got was an eye opener. My prospective partner was clueless about rates of return, generally accepted accounting terminology, and real estate calculations in general. Her seven year projection spoke of: "Money Partner ROI" (180%), "Average Yearly ROI" (25.8%) and "Average Yearly Compounded ROI" (15.9%). How the first two were computed (or what they meant) were impossible to ascertain. Apparently they were returns without compounding. The third was an unsuccessful attempt to compute the Internal Rate of Return (the correct calculation was 17.3%). IRR, the industry standard and the means professional investors use to compare alternative investments, was unknown to this mathematically-challenged young lady. If, like my prospective partner, you feel your grip on the mathematics of real estate investing is a little shaky, then this is the book for you.
The first half of the book is an unusually clear and up-to-date discussion of the gathering and use of data needed to make investment decisions--plus a running commentary, sometimes humorous, on real estate investing in general. This section alone is worth the price of the book.
But wait, there's more! The second half lays out most of the mathematical tools needed to invest in real estate. Each short chapter covers one topic with definitions and examples offered in clear, jargon-free prose. Topics include: Internal Rates of Return, Net Operating Income, Gross Rent Multiplier, Net Present Value, discounted cash flow, calculating taxable income and much more.
Plus, there's a nice bonus. The book directs you to their free website where calculators for many of the more complicated transactions are available.
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3 Comments 73 of 78 people found this helpful. Was this review helpful to you? Yes No Sending feedback...
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Format: Paperback
One of the most annoying things I find about real estate investment books is that most of them can be condensed to about 30 pages. The other 170 pages usually try to sell you on the idea of getting into real estate in the first place, and offer plenty of examples that don't have anything to do with anything.

This is 252 pages of pure information. There are examples, of course, but they relate directly to the concepts he's working with and illustrate them clearly.

It's heavy on math, but that's why I bought it. I'm a math person and have been jonesing for something like this book for a long time. It's not difficult - all the calculations are high-school algebra at their most complex- but if you're not a math person, as stated, he gives out free spreadsheets that do them for you.

Also as stated, if you have a finance degree this book isn't for you. If you're like me, and want to know what to do with the numbers, then this book is a must.
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