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Mastering Real Estate Investment: Examples, Metrics And Case Studies Paperback – September 12, 2008
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From the Back Cover
By the author of the bestselling guide, What Every Real Estate Investor Needs to Know about Cash Flow... and 36 Other Key Financial Measures (McGraw-Hill, 2004)
When you invest in real estate, you have too much at stake to make decisions blindly. You need to develop a command of the essential formulas and concepts that underlie income-property investing:
Capitalization Rate - Net Operating Income - Present Value Debt Coverage Ratio - Internal Rate of Return - Gain on Sale and much more
Here Gallinelli revisits the 37 key metrics from his "Cash Flow" book and guides you through examples that will lead you to mastery of those concepts. He then takes you beyond those formulas to the next level, with detailed case studies of four different properties:
Single-Family Rental - Renovation Project Apartment Building - Strip Shopping Center
You'll analyze these investment properties with him. In the process you'll learn to look behind the numbers, to think like a successful investor and to recognize both the opportunities and the perils you might encounter when you invest in real estate.
Frank Gallinelli is the founder and President of RealData, Inc., since 1982 one of the real estate industry's leading software firms. He has written numerous articles on real estate investing, and teaches income-property analysis in Columbia University's Master of Science in Real Estate Development program.
About the Author
Frank Gallinelli is the founder and President of RealData, Inc., one of the real estate industry's leading software firms since 1982. He has written several books and numerous articles on real estate investing, and teaches real estate investment analysis in Columbia University's Master of Science in Real Estate Development program.
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The book is organized simply around two (2) interacting parts. Part One of the book contains all of the metrics, each presented separately, and each introduced metric builds logically upon those that preceded it. All of the examples in Part One are simple and straight-forward (the reader could use them to build more complicated examples), and each of the thirty-seven (37) chapters ends with at least three (3) worked problems and solutions. Subsequently, all that is learned in Part One is then put to rigorous work in Part Two, where the reader can see how all the metrics and the various statements come together.
Part One builds up to enabling the reader to set up an annual property operating data (APOD) sheet, and income and cash flow statements for each property under consideration for investment. The only thing that I found missing here was a work-up of detailed, initial and projected balance sheets for each property (so that one can keep track of one's all-important equity stake).
Part Two of the book presents the case studies, of which there are four: the single family residential rental property, the small commercial multi-family (read apartment) building, the conversion (featuring a Victorian-style home with `historical' value being turned into a mixed-use commercial property featuring office suites and separate living units), and the small strip mall featuring four (4) distinct tenants. Each represents some of the more typical investment scenarios that a small investor in real estate would come across. Unfortunately, Gallinelli doesn't cover certain specialized niches of real estate that are typically of unceasing and great interest to the small investor, such as office properties, (whether large or small, metro or suburban), medical office/practice properties, mobile home (read `trailer') parks, parking lots, warehouses and self-storage facilities. Here, after setting up the initial conditions governing each property purchase, projections over a five-year holding period are made and an APOD sheet, income and cash flow statements are generated. Each case study features various permutations of the projections, with things like the mortgage interest rate, size of down payment, and final sales price among others being altered to see how they affect cash flow and return on equity.
Although Gallinelli drops little insights here and there about real estate investment, the book is all about presenting the key calculations to determine if an investment property is a diamond (very likely in the rough) or a dud, and demonstrating how these calcs are applied. He pretty much modeled the `best case' scenarios- and fudged the rate of return metrics a bit (for which he can be forgiven). Cautious readers will note that he does engage in a couple of sleights of hand, particularly in the case studies, and it is up to the careful reader to glean from these (which, by the way, were overly optimistic, if-all-goes-well type situations) that 1) the typical rates of return on equity are low (one sleight of hand involves the use of cash flow to compute ROE- never mind that part of your cash flow is depreciation- a return OF capital and not return ON capital), 2) a large, upfront cash investment is required of the small investor (OK, he quickly and grudgingly came clean here) and 3) most important, all of those rosy projections one often makes abut real estate investment may not stand up to close scrutiny in the real world (Gallinelli gets five stars just for this, and he did a good job demonstrating it).
Overall, Gallinelli successfully managed to put together a very basic, straight-forward and comprehensive treatment of real estate investment aimed particularly at the investor of modest means. A reader could even use this book as a basis or template for modeling potential real estate investments. As such, the reader gets a lot for her money here. Serious small investors looking to invest in real estate in an intelligent and business-like manner would do well to purchase and thoroughly read this book.
The case studies show how complicated an analysis can be and how critical they are for the success of your project. The case studies work through house rental (my area), apartment complex and commerical. In today's market, there are so many opportunities for good investments, Frank will help you pick the better ones.
descriptive examples for reader and made it fun to solve . I Highly recommend this book to all RE investors out there !!
Overall, this book is okay, but stand-alone the cash flow book is superior.
Unlike other 'get rich quick' books, Frank isn't out to convince the world that everyone should acquire real estate 'with no money down'. Instead, Frank advocates a quantitative approach towards deciding to make an investment in real estate.
Frank goes well beyond the theory (e.g., why single family homes aren't priced based on the revenue they generate) of investing in real estate. Very significantly, Frank provides numerous quantitative tools to help the investor understand and use in deciding whether a particular investment makes sense.
In fact, the book is devided into two main parts: the first part (37 chapters) consist of a series of formulas and examples such as simple interest, capitalization rate, amoritzation, etc. This part is more of a reference section.
The second part of the book applies the first part in a series of case studies, which are very easy to follow and interesting. You can see yourself wanting to 'run your own numbers' using his formats and tables to see if you are indeed acquiring profitable properties.
All in all, well worth reading and having handy as a reference book when looking to acquire real estate properties.