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on May 24, 2011
I'm a university business teacher and have an MBA, and I've taught a number of introductory courses in business finance, including processes for sizing up general corporate investments. I'm also familiar with methods for valuing stocks and bonds. I'm also a bit new to the United States so the implications of U.S. tax laws aren't entirely second-nature for me. Before reading this book, I had also purchased a couple small, single family investment properties that have worked out satisfactorily so far, but wanted to refine my approach using terms and methods that are native to the real estate investment industry. As an educator, I not only expect authors to provide information, but also, to help you practice your skills. Therefore, I tend to judge a book by how well it guides me in truly learning and understanding its concepts.

Overall, this book stood up well against my goals and expectations. The author's methods seemed consistent with general business practices in the various courses I've taught, but have been modified to fit the nuances of the real estate investment industry. I picked up a few things as well, mostly surrounding the impact of accounting rules on taxable income and financial ratios that are specific to real estate investments. I also liked how the author wasn't short on examples of the math in action. Within each chapter there is usually one or two example calculations, and then, at the end of the book, he repeats each calculation or ratio giving it a bit more explanation. He also gives you a problem to solve, with a solution provided at the end of the chapter to check your knowledge. In this end-section of the book, he also provides a bit more detail for each ratio than you find in the body of his work.

I also liked how he appears to have provided some realistic figures in his examples, inadvertently producing some benchmark values for certain key ratios. For example, expected rates of return of 10-12 percent for real estate, debt coverage ratios of 1.2 to 1.3 for most banks, and vacancy allowance rates of 3% to 6% came through consistently. He covers himself by encouraging you to do research to verify these numbers in your specific locality, but they gave me a ballpark figure to which I could compare my own research and make some preliminary judgments.

And, to test my knowledge, I ran the numbers for a real estate investment I was considering using his methods. I did this in a spreadsheet I created from scratch. Then I ran those same numbers through Turbo Tax and compared it to the figures the author would have recommended to forecast the tax liability of the investments. I got the same numbers as the author would have, although I did have to research current rules on real estate investments from the IRS website because some of his tax rules were out of date (because the book was published years ago; I was using the 2003 version and its 2011 now). But the book got me started in figuring out where to look.

However, I felt there were a few ways the book could have been improved. First, I felt he might have talked about the modified internal rate of return (MIRR) for the investment. This measure takes into account the rate at which proceeds from the property are reinvested, which his Internal Rate of Return measure doesn't account for. The MIRR is therefore more accurate, in my view, producing a lower rate of return that needs to be recognized if you want to hit your investment goals. Second, I thought he could have given a comprehensive example which uses all of the important ratios he describes in the book. He does a good job of describing each ratio in isolation; however, I think it would best to see the important ratios all in one place, their tradeoffs, and an overall interpretation of the investment in terms of net income, cash flow, return, value, debt coverage etcetera. I would have also liked to have seen him analyze two potential properties, and explain which one is the better investment based on the numbers given a fictitious investor's characteristics such as preference for cashflow versus capital appreciation, etcetera.

I also thought he ducked out of some of the finer points of sizing up a real estate investment, telling you in a few spots to see your accountant about certain issues, such as rules on gains, disposal, depreciation, passive loss rules, etcetera. The reason I bought the book was to help me make these decisions without a high-priced accountant. So, I felt the need to buy a second book after reading this one - one on current real-estate taxation rules. But he did point me in the right direction, and perhaps this expecation was beyond the scope he intended for this book.

Also to fully internalize the ratios, I would have liked to have seen a summary of all the ratios in table format, showing their formula, when you use the ratio, and its general meaning. And last of all, I feel his book is skewed a bit toward multi-unit investments rather than single-family residential properties I'm interested in. For example, he recommends a vacancy allowance of 3-6%. However, for a a single-family dwelling, if you budget only one month's vacancy, you get 1/12 or 8.3%. So, if you blindly use his vacancy allowance, you'll overestimate your gross operating income (gross rental receipts).

However, for the price you pay for a used book on Amazon, I got more than my money's worth, and I won't be selling this one any time soon. Although I've given a few criticisms here, I think this is quite and excellent book, and I recommend it quite highly. I therefore gave it five stars.
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VINE VOICEon January 29, 2011
The book I read this week was What Every Real Estate Investor Needs to Know About Cash Flow by Frank Gallinelli. I feel I have gone back in time... sitting in the University library stewing over an accounting book. If I were reading an accounting book for this blog, I wouldn't even know what to tell you without risk of having you pass out due to boredom half-way through my first sentence. This will not be a long post because I will not be going in to detail on how to calculate a present value or future value formula. I will not be computing simple or compound interest and I certainly won't be laying out a amortization table. If that's something you are interested in learning you can buy an old accounting book on amazon for pennies (literally).

There is no doubt that the formulas and knowledge in this book have a purpose. Even though computer programs can compute the majority of these formulas it is nice to know what is really happening and what it means. For instance, you don't need to know how to do your own taxes and create a maximum refund, but you should know the skeleton of what your tax pro is going to be doing for you and what formulas are used. For real estate, pretty much every computation that you'll ever have to do can be done in Microsoft Excel. The more familiar you are with setting up an excel formula, the easier it will be to complete your pro forma.

The author has a website that has almost every formula you'll ever need. It makes a great reference when you are making your own formulas. Here is where you can find them [...]

The biggest eye-opener for me from this book were the 4 different means of making money from a real estate investment. I never thought of two of the ideas as means for making money, but they really are. I always combined appreciation and, what he calls, loan amortization in one over-arching field called equity, but it makes sense to separate the two because they can't be calculated with a single formula and can value independently of each other. The obvious ways to create money are through cash flow and appreciation. The two less looked at are loan amortization and tax shelter.

Cash Flow: This is a obvious function of real estate. The fruits of your labors.... the money left over from your rent payments after mortgage, taxes, maintenance, property management etc. This is the key to any investment property.

Appreciation: More often than not, real estate will increase in value over time. The difference in the building price between now and 5 years from now is the appreciation on that property. It can be due to several factors including: inflation, developing area, better school systems, crime rates and more.

Loan Amortization: With your investment property, the tenants will be paying off your mortgage payment and you interest payments associated with your mortgage. That means that they are helping you buy the property. So, if you originally have equity equal to your down-payment, in 5 years your equity will be much more than that because your tenants have been adding to that.

Tax Shelter: This is a means of making money through net profits. You don't directly receive any money when using an investment property as a tax shelter, but you will be paying less taxes than you normally would so you indirectly have more money in your pocket. With current regulation you have several methods of cutting back taxes with real estate. A couple include depreciation and interest. Depreciation is a funny one because even though your property is appreciating in value, you can write off the wear and tear over a certain amount of time. And you can write of the interest paid on the mortgage, which is actually being paid by your tenants.

This book will stay on my book shelf as a good reference because it has plenty of formulas that might be nice to consult someday (if there is a blackout and I can't use a computer). The first chapter when the author explains evaluating properties is very helpful and a lot of the commentary about the other calculations are helpful because you can get into the mind of the seller and ensure you aren't getting "taken." I think this book could be helpful for any soon-to-be investment property investor. If you have any questions on the book don't hesitate to ask. I would be more than happy to help anyone that wants it.
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on November 1, 2011
I have been appraising commercial real estate for 20 years. I buy real estate books all the time to see if I can pick up new ideas or see some insightful advice. This book is like many others in the same segment that re-state the formulas investors use to analyze property. It won't tell someone where to look for a deal or how to negotiate the best price possible though. it won't give you a good look at the impact of finance or taxes for someone looking to buy and flip a home versus buy, renovate and rent or just buy and hold. This book is a decent look at the language of real estate investing. It IS useful in the respect that any attempt to buy, finance or invest will require a person to at least have a familiarity with these terms and formulas.
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on February 13, 2013
I am the COO of a small boutique real estate asset management company with ~100M in assets under management. We also do some mentoring and training to help grow our business into additional Metropolitan areas. I personally have read this book multiple times and we buy copies of this book for all of our serious partners to ensure that they "know the language" of the industry....I've bought over 70 copies because it is such a necessary primer.

Unlike residential real estate, commercial real estate is - like it or not - very much about numbers. And it has it's own unique language. Commercial brokers, managers, lenders, etc. will speak in this language. If you do not as well, you will quickly be dismissed and ignored.

This book is a must read for anyone expecting to make any headway in commercial real estate. More than that, it's a "must consume" as you truly need to know these terms, the inter-relationship of these terms, and how they apply specifically to whatever deal you are speak to with a very profound level of fluency.

I can honestly say this is the only book I've ever read in real estate that gives you all the "Commercial Real Estate Language" without any hype to up-sell you to something else and without endless stories of how you can get rich quick.

Commercial real estate can be very lucrative, but it is a "get rich slow" system. It also requires that you start by educating yourself before jumping in.

I would compare it to asking you to go and sell widgets in Japan without knowing any Japanese. How exactly would you pull that off without being ignored, laughed at, or losing a lot of your (or worse your investor's money).

This book is "Commercial Real Estate Language 101". My compliments to Frank Gallinelli for filling this need.
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on September 12, 2012
I am a commercial real estate attorney.

I am a commercial real estate investor.

I have read many, many real estate books over the last 20 years.

This is the BEST book I have ever seen on "real world" commercial real estate investing. Honestly--- this is what you need to know.

There are lots of books out there that claim to tell you the secret to making millions in real estate. Most of them claim you can do it in your spare time with "no money down". Trust me-- they are all full of bull. If it seems to good to be true-- it usually is. If you think you can get rich investing in real estate in your spare time, with no money down-- you are fooling yourself.

If it was that easy--- everyone would do it. Many people try to invest in real estate and many fail. This book will give you the tools and the knowledge to be one of the small percentage who succeed and even thrive.

It is not easy. This will take time. But you can do this, and understand this, and become a pro.

If you are already a pro-- this book will hone your skills and refresh your memory on what is important.

I would be shocked if this book didn't have a worthwhile lesson for every reader, no matter what their background or experience level.

However-- If you are a beginner, you may need to read this book more than once to have all of the nuggets of wisdom that are in here sink in. But if you do--- you will able to compete with the best of them.....

I have read this book 4 times. It is that good. That informative. And THAT entertaining.

Do you know how many people try to be a landlord and hate it? Most of them.

Why is that?

Because they jumped into a complicated investment without giving it the proper analysis, thought or time.

Now-- this is not brain surgery--- but ANY investment--- (stocks, bonds, real estate etc...) to be successful, requires thoughtful analysis on the front end. This book explains how to properly analyze a real estate investment. This is what all the pros do. This is what the successful guys do. This is what the guys who fail do not know how to do.

And the book is easy to read-- even entertaining. I enjoyed it very much.

Now I am a guy that has been involved with multi-million dollar real estate transactions for 20 years-- and I learned a few things from this book. I do not claim to know it all. (Anyone who says they know it all proves that they do not as soon as they mutter those words!) It also refreshed and reminded me of --and solidified alot of lessons that I learned along the way. And that is worthwhile as well.

But let me be clear--- this is not just a book for the experts-- it is a book that will teach a beginner, advance a professional and remind and refresh Donald Trump of what's really important !!

There is a lot of math involved, but, ....you do not need to be a math wiz..

If you can add, subtract multiply and divide-- you are most of the way there. There are lots of scary formulas.... but, as the author tells you--- that is what calculators and microsoft excel are for. He even gives you access to a website that does most of the calculations for you painlessly.

But beware.....the calculations can be done by machine--- but you still have to understand how to interpret the answers. And you still need to understand what information to "plug" in---, where to find it and why its important. You know the old saying..."Garbage in---Garbage out".

This book expalains all of that-- with wit and wisdom and in a way that makes it fun and understandable.

By the way-- the author has other books out on the subject as well. All of them are good. All of them are worth the read--but this one in particular, to me anyway, is the gem.

Read it. Better yet-- read it twice or three times ( or four times)

This book has the ability to make you a better real estate investor, make you better understand real estate lenders and what they are looking for, and.... I hate to be like the cliche... but this book could, with time and effort on your part.... it could actually make you rich.
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on December 31, 2011
DCR, IRR, NOI, CAP rate ... the whole alphabet soup of real estate (and many can be applied to non-real estate business) financial ratios are all in this book. Every chapter starts off with the overall concept of the meaning of the ratio covered in that particular chapter, usually within one to two pages and then follows up with a few examples with concise and to the point explanations.
I almost bought some commercial properties with a business line of credit for downpayment and even made my own spreadsheet to do my due diligence. Try as I may, the numbers were putting me upside down and the interest rate on my proposed downpayment was really nagging at me and 'not working.' Mr. Gallinelli explains to us why that is so. He gets my two-thumbs up for saving my hide from financial ruin. Thank you, Frank, for explaining ALL the ratios and concepts in an easy-to-understand, straight forward manner. Every investor needs to know these ratios before going into an investment.
Mr. Gallinelli's other books are also highly recommended.
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on June 6, 2015
This is an absolutely fantastic book. If you like crunching numbers---as every commercial investor probably should---this book is for you. It is chock full of formulae, explanations and examples. Based on this book, I created an Excel spreadsheet that performs many of these calculations, but the author also includes links to online calculators and spreadsheets. Would give this 10 stars if I could.
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on February 25, 2015
It's a quick read, well written, full of analogies, and actually kind of funny. There were some other reviews on here which
criticized the book for not discussing MIRR (modified internal rate of return), perhaps they had an older version because my copy DID cover MIRR. I did a focus on Accounting at UC Santa Cruz, and somehow came away without knowing how to calculate IRR. The book says, and I would
agree - that a lot of people "Talk about the IRR", but a smaller percentage of these people actually "Understand the IRR", what it means – ... what its limitations are, and how to mitigate those limitations. I for one am pleased to now be in that smaller percentage!

In addition to elegant simplicity, the book is full of practical information. If you're going to buy a building, would you not want to be able to value it? Well after you read the book, you'll be able to value a building with several different methods -- and also know when would be the best time to use specific methods. All the fundamentals - time value of money, discount rates, cap rates, the "four ways" to make to "make money" in RE, how loan amortization works. How to interpret financial statements. Things like a Property Income statement – author points out that it isn't always the number's you see, but rather the one's you DON'T SEE. The accounting textbooks I read in college would tell you how to construct a financial statement - but they definitely wouldn't tell you how to read between the lines. An example is you are preparing to buy a building and reading over last year's income statement - you notice the common area Electric expense/unit being very high - all else equal, this could represent an opportunity to upgrade the mechanical systems and quickly add value. How about if there is no common area electric? The author points out that could mean there is no House Meter. And if there is no House Meter, will you be now be required install one when you purchase the building (tag - you're it!) - if so, you ought to discount the price. Also - what are the methods a Seller's will commonly use to deceiver buyers into paying too much for a property..... How can you recognize these practices, and defend against them? This is pragmatic information which I was not used to reading in academic texts. Lastly, the chapters are super short/efficient - and there are these "Test you Understanding" at the end of each chapter which are useful to quickly verify you understand the info, as well as encode the learning more deeply into your brain.

There was a quote somewhere in the beginning which captures the essence of why one ought to read this book -– "in any game, when someone wins, someone else usually loses. In real estate investing, the profits and gains that are lost by the 'back of the envelope scratchers' accrue to those who take the time to do the math. The choice is yours"
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on August 12, 2009
I used to work for a commercial real estate brokerage firm. When I first started, I could not believe how clueless some of the brokers and owners of income-producing properties were about cash flow. Most of the mom and pop owners of real estate do not even understand what a cap rate is. If you are serious about real estate, you must read this book and memorize everything in it. The book is written in simple English that anyone can understand. Paying $16 for a book that can save you thousands of dollars in mistakes seems like a deal to me.

- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market
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on February 28, 2014
And that is MATH!

Like it or not, it's all about math. and being a university professor, the author has little remorse for your inability to comprehend the outline, review examples, practice the math, and reapply it at nearly every following financial measure.

In any rich dad / cashflow club, I would much rather practice exercises in this book and others Frank has authored.

He has also been a guest on the Bigger Pockets podcast very early on, quite possibly the second episode.

The content is solid, almost nothing is vague. And certainly no formulas you might eventually find in "The Real Book of Real Estate" like "Wealth is E-X-O-T-I-C"

FYI: I like Kiyosaki, but I like things that are straight to the point, and work. This book is full of tangible, mathematical information that can be quantified and applied to every real estate deal from front cover to back cover.
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