Customer Reviews

How to Make Money in Commercial Real Estate for the Small Investor

5 star:		(9)
4 star:		(2)
3 star:		(3)
2 star:		(0)
1 star:		(1)

 

 

While Mr. Masters does make several good points, most of the information in this book could apply to any real estate investment: whether it be residential or commercial even though the title of this book clearly makes it appear that this book will focus on commercial properties, which it does not.

Mr. Masters starts the book by making a quick comparison between real estate and other investments, such as holding your money in cash, saving accounts, securities, collectibles, and precious metals. He gives the advantages and disadvantages of each: namely, liquidity versus returns. Now, we get into the meat of the subject matter. First, Mr. Masters argues that an investor should own their own primary residence and have 12 months of expenses in the bank before venturing to invest in commercial real estate: conversative, but good enough advice. He gives comparisons between different commercial properties you can invest into, with garden apartment complexes and anchored shopping centers getting his nod as the best investment choices for a real estate novice. He argues that novice investors should form investment clubs to invest in real estate together; however, he gives very little advice as how to hold title and what form of ownership the group should take. I understand that people must consult with tax and legal professionals to see what best matches their situation, but it would have been nice to have Mr. Masters elaborate on this since its a key argument of his book.

To find property, Mr. Masters tells the aspiring investor to work with a knowlegable broker and not purchase a property with a cash-on-cash return or a cap-rate under 8-10%. While I agree its very important to buy properties with positive cash-flow, this is one of my biggest issues with this book: while in theory it'd be great to skip every property that offers lower returns, in today's market its virtually impossible in most top markets to find properties with those types of returns. If you follow the advice of the author, it will now be impossible to purcahse most investment opportunities as he does not leave room for exceptions in his rule. He also ignores other calculations and never shows how to construct an APOD, which really dates this book. There is no mention of an IRR or projected cash-flows. He also never says to independently confirm the income and expense figures given by the seller even though 9 times out 10 the cap-rate the seller gives on a property is calculated off of proforma numbers that are not aligned with market realities. I can sum up his financing section in a single sentence: find a good mortgage broker to find you a good rate on a fixed, 15-30 year mortgage. And to manage your property? Use a professional management company and watch them for a year to see how they do it, then you can consider doing it on your own. He gives very little helpful advice on what to look for in a management company, mortgage broker, or real estate broker as well.

Tax information is included relegated to an appendix, yet it doesn't even touch on a 1031 tax-deferred exchange and tax implications of real estate investments are hardly touched upon, and when they are, they're no longer applicable as tax laws have changed. I don't remember reading anything about what will effect the basis of your property, how to calculate cash-flow after taxes, or even more than a few quick words about depreciation!

For someone who has purchased their own home or has even a little bit of real estate knowledge, this book has little pratical use -- the only difference between this book and better, cheaper books that I've read is the author's limited information on investment clubs. He even gives poor advice on finding information online: he tells the reader to go online and type in a few keywords on a search engine, not realizing that the reader will find plenty of advertisers and unscrupulous companies in the results.

For anyone who's interested in investing in real estate, I recommend the first thing they learn is how to evaluate properties so they know what to look for in an investment opportunity. To that extent, I highly recommend Frank Gallinelli's "What Every Real Estate Investor Needs to Know About Cash Flow and 36 Other Key Financial Measures", a far-superior, more-practical, and less expensive book.

When I decided I wanted to learn more about commercial real estate investment, I bought a pile of books that claimed to be relevant and started working my way through them. This one was the ONLY one that I feel was really worth the read. It starts out by ascertaining whether the reader is truly ready to buy commercial real estate, taking a very prudent view of personal finances. It lays out everything worthwhile that any of the books on this subject lay out, and does so in a very readable manner. At the same time, it does not talk down to the reader or try to "dumb down" any of the material. I would suggest starting with only this book, and then buying other books (or talking to experts) in a more focussed manner, based upon what you find here. Incidentally, I haven't bought any commercial real estate yet, but I still intend to and I am trying to follow the advice of this book in preparing to do so.

This is a good book with lots of good information. The book is great for persons without any knowledge of commercial real estate and is a good reference book for persons with experience in commercial real estate.

It is worth noting, however, that the much of the author's experience with investment real estate seemed to be during the 1970's decade. During that period of time there was hyper inflation in the real estate market. Often values and prices paid for real estate did not make much sense.

Some of the examples in the book refer to properties indicated to be worth several million dollars - and not exactly what you would call a small investment property.

However, the financial scenarios in this book are based on reasonably sound financial and economic theory. And the reasoning for the mathematical financial calculations seem to be fairly sound.

The book is a good buy for the price.<...

From the front cover to the last page, I found this to be one of the most informative books on investing in commercial real estate for the small investor that I have ever read. I would recomend that anyone considering investing in commercial real estate read this book. It contains information not readily known to the general public. Mr. Masters obviously knows the in's and out's of investing in commercial real estate, and he has graciously shared that information in this well written and delightful book.

This book and "The Complete Idiots Guide to Real Estate" are my two all time favorite real estate books. This is about true real estate investing. If you are sick of the no-money down,flipping, foreclosure, single family bottom end type books then this is for you.

This is in short simple term - an excellent book for whoever wants to go into the business of Commercial Real Estate Investments.

It is the type of book that you need to read, read and read again - just in case you missed something. It is actually a book that you need to STUDY and APPLY the knowledge to experience the real power inside the book. You need to keep this book on your desk as a reference after you studied it.

A straight forward book with methods on how to make money in Commercial Real Estate. Where to find the bargains, how to analyse the numbers, how to make the offers, negotiate the deal. get the financing and closing the deal - also manageing your commercial property - all loaded into the excellent hardcover book.

Location, Location, Location. This book is recommended, recommended, recommended!!!

This book was very simple to read, but jam packed with information. I not only enhanced my knowledge of real estate investing, but also got a refresher in economics. Masters discusses many tools and tips on the best way to get started and shares his experiences both good and bad. While he answered many questions that I had, he opened the doors to other questions I never thought of. I thought I was ready, but now I realize I still have some work to do.

For a former accounting professor, Masters gets the numbers all wrong in this book. Using the logic in this book, Masters gets up to a 43% long-term annual return on real estate investments. In CH5 where Masters describes the source of real estate profits, the author includes paydown of a mortgage loans principal as one of the sources. In fact principle payments increase the amount invested in the property and reduces the return rather than increases it. This is just where the errors begin.

Masters targets this book at neophyte small investers. My advice is that neophytes who don't have a sound understanding of finance should stay far away from this book. For anyone else it's buyer beware.

its a good book but very basic. i was looking for something more detailed and was a disappointed, but if you know nothing about real estate, it'll give u a good understanding.

On the whole, the book is not so much bad as not as good as it could be. For those new to commercial real estate investment, it contains a lot of useful information. The novice will learn about the different types of commercial real estate plays, the ins and outs of commercial real estate transactions, and how to go about valuing potential commercial real estate investments. The novice will even be told which types of commercial real estate investment are best to pursue, and how best to pursue them. Most important, the novice will be exposed to several key concepts, such as carrying cost and self-liquidating mortgages that if well understood, will keep her out of trouble when making any real estate purchase. However, for those with some background in personal finance and real estate investing (be it residential, commercial or industrial), there are what appear to be obvious errors in the text. Below are just a few, with some of my insights over the years added to provide a little context.

The presentation basis is flawed. Any investment must be judged either by its return on equity or its return on invested capital. Masters presents very high investment returns- often in excess of thirty and forty percent, to the reader. These must be discounted because the presentation basis is the down payment, and not the accumulated equity, or better yet, the total invested capital, which includes debt and equity (usually ignoring transaction costs). A more reasonable rate of return using these measures would be far less- about five to ten percent on a long-run average equity basis and about one to three percent on an invested capital basis. It is unreasonable to do any better than this using the techniques outlined in the book. Only then can a fair apples-to-apples comparison with other securities, such as stocks, be made with any confidence.

The investment terminology is often mis-used, or worse, mis-leading. He often refers to net income when he actually is referring to operating income, and he often mixes up balance sheet and cash flow statement terminology, which left me very confused in places. A significant improvement to the book would be to develop a complete balance sheet, cash flow statement and income statement for each property under consideration. That way, key performance measures, such as return on initial investment, return on equity and return on invested capital can be readily calculated with ease using the appropriate statement.

The general development of the book is good, with the author emphasizing the importance of a good savings and investment plan as well as getting established in a chosen line of work that will allow one to accumulate income with which to (possibly) purchase a home and more importantly, save and invest- ultimately with an eye to participation in commercial real estate investment. However, he neglected to discuss sound and active management of PERSONAL credit and debt. Credit management is critical to real estate investing because without good credit, the investor can not obtain financing on reasonable terms. Other than the independently wealthy, most all small investors in real estate will have to rely on debt to finance their real estate deals. Again, obtaining debt financing at all, let alone on reasonable terms, depends heavily on your personal credit standing. The author implicitly assumes that one has a good credit standing and has access to debt financing on reasonable terms, and this key oversight severely weakens the book. In passing, it should go without saying that the less debt one has, the more one can save and use towards building a capital base with which to launch a real estate investing career.

The author neglects to perform a full cost analysis of each property under consideration. He also neglects to make a careful distinction between paper profit, cash flow and liquidity. Most real estate investors fail because they do not consider the total cost of the property; nor do they know the key difference between paper profit, cash flow and liquidity. On paper, the investor may register a profit, or net income, but from day to day they may be cash flow positive or negative, depending upon the circumstances. Liquidity is tied more closely to cash flow than net income, and liquidity is greatly affected by the type of investment (in this case, real estate) and the amount of leverage employed (here we mean the amount of debt financing). Although the author does concede that real estate is a fairly ill-liquid investment, thereby elliptically pointing out a key inherent risk in the activity, he never discusses the relationship between debt-financing, liquidity and profit and how they can contribute to a real estate investment going horribly wrong.

A straightforward example demonstrates the latter: A home purchase accrues certain tax breaks and in most markets some capital appreciation- however much (which is by no means guaranteed), that can be deducted from the mortgage. Note that the mortgage is part of the carrying cost of the home (a topic in need of further development in the text). On paper, you may actually rack up a small profit, or rather- a savings (usually as measured against paying rent); however, that is not the same as the month to month outlay, or cash flow, which is always larger than any after-tax benefit (which, of course, diminishes over time). Your liquidity is your ability to raise cash- from all sources, to meet monthly cash flow (not necessarily the ability to sell the asset, in this case, the home, for cash). Failure to secure adequate liquidity to meet the cash flow will mean that a foreclosure is somewhere in your immediate future.

With a little extra effort, this text could be a fine addition to one's real estate library, but for now, I would advise potential readers to pick up a library copy.