Renegade

I'm looking for a book that will get down to business and really show you how to evaluate residential, multi-family units, and commercial real estate, not the fluff or the absolute basics.

I want something that will show you all the steps on how to make this investment from step 1 till the end of the transacation.

Any suggestions?

Currently two books I might buy are

http://www.amazon.com/gp/product/007...=ATVPDKIKX0DER
http://www.amazon.com/gp/product/159...=ATVPDKIKX0DER

MR1

I have book #1 and find the information to be valid. Book #2 looks interesting.

All I can say is start slow and stay conservative with your income projections. You do make your money when you buy the property. I have not purchased any properties to flip, only for income.

There are currently some excellent deals available on small residential income properties for the smart investor with money in my area and I suspect in lots of other places. This is not a get rich quick business imho and there are lots of potential pitfalls. G/L and for doing your homework first.

Just because things are selling for half of what they may have been a few years ago does not make them good investments. I would think maximum cashflow is your prime objective.

Renegade

[QUOTE=MR1;12067590]I have book #1 and find the information to be valid. Book #2 looks interesting.

All I can say is start slow and stay conservative with your income projections. You do make your money when you buy the property. I have not purchased any properties to flip, only for income.

There are currently some excellent deals available on small residential income properties for the smart investor with money in my area and I suspect in lots of other places. This is not a get rich quick business imho and there are lots of potential pitfalls. G/L and for doing your homework first.

Just because things are selling for half of what they may have been a few years ago does not make them good investments. I would think maximum cashflow is your prime objective.[/QUOTE

"Just because things are selling for half of what they may have been a few years ago does not make them good investments. I would think maximum cashflow is your prime objective."

Correct, I do want maximum cashflow, and I won't jump into it until I find the right deal. However the first part of your sentence, I tend to disagree with a little. I think this is the best time to buy, you ALWAYS buy fear. Watch, 5-10 years from now, people will be saying, damn, why didnt I load the boat...just saying.

ThermonMermon

i work for a large re banking shop in NYC and im finishing my masters in MBA R/E. so ill try and give you the best advice possible...

i read the kyosaki book - to be honest, its very gimmicky. its almost worthy of informercial marketing. plus kyosakis strategy is strictly based on NOIs, w/o reversion proceeds. which, in the real world, its virtually a rarity. youd really have to goose your growth forecasts and assumptions to have a double digit IRR in the absence of reversion.

the best starter book i would recommend would be: The Real Estate Investor's Pocket Calculator by Thomsett. The best coursework financial books ive read are:
Real Estate Finance and Investments by Linneman. Theres also a more thorough textbook of the same title by Brueggeman & Fisher.

if you have interest in underwriting/valuation, i would recommend taking a course in excel and argus.

FYI, my team represents the nations largest REO/NPL sales exchange in excess of $2B in the past year. if anyone wants prof advice or access to the exchange, please PM. we have originated hotels, MFs, broken condo conversions, shopping centers, single fam, etc. both regionally concentrated and nationally dispersed. we provide valuations, due dili material, and pricing guidance for all income producing assets. thx

Renegade

I've always found course book school textbooks to be a waste and not very practical. I googled the term, but couldn't find much about "reversion proceeds". Can you please explain what this means and how it effects an investment? Typically when private investors are looking to provide equity into the deal, what would be considered a good IRR percentage? like 16% and up? I will take a course in excel/argus in the spring, thanks!

Also this is the course description, I think it matches what you're talking about.

Description:
This course introduces the theoretical concepts and analytical techniques used to make a decision to finance the purchase or development of a commercial real estate project. There is heavy reliance on Excel applications and the use of th e Argus database that is a standard resource in the commercial real estate market. Students are also encouraged to use their semester projects to apply for one of the numerous case competitions.

ThermonMermon

this is mostly directed towards commercial....

reversion proceeds is just a way of saying resale. your resale value is forecasted upon purchase of the property and is included with your cash flows, so it affects your IRR. the reversion price is determined by the terminal cap rate in year of resale. so there is an inherent risk when assuming what your terminal cap rate will be when its time to sell note: the terminal cap is always higher than the going-in cap rate - meaning that you always project the bldg value to depreciate over your holding period (unless you have large amounts of capital expenditures)...long story short, there is great risk in determining your terminal cap rate (resale value). so kyosaki markets his strategy as risk free, b/c his valuations are strictly based on cash flows, and not reversion proceeds. but like i said, youll never see underwriting that follows the same guidelines.

irr rates
wall st banks, in the hayday, wouldnt touch assets <15% IRR. as for private individual investors, they look for cash-on-cash as a metric, not IRR. R/E returns are typically indexed to treasuries. so expect investors today to look for a 500 BP spread on a 10-yr treasury as a typical cash on cash return - i.e. ~9% cash on cash return. although a majority of these equity partners in comm r/e have been european, and have all walked away from their deals over the past month. so many investors arent looking in general. hopefully, this wont last long.

check out the pocket investors book i mentioned.

5o9

Great dicussion

In the com re boom, there was no thought to reversion. It was just they will lend me $X non-recourse so why wouldn't I buy it?

Well, we still see some 5% cap rates, and I don't know how they refi in 5-10 years. I'm looking at rent declines, not growth. Some metros will get hit with a tidal wave of demographics.

My world is dominated by construction management, finance and econ. Unfortunately, geography does not want to play with us, and they seem to be about words and voodoo with a liberal predisposition, rather than science. Remember, the NAR supported GWB all the way to the end, representing most of his pathetic positive approval rating.

Not for the OP, but the MIT Geltner textbook has been well liked by people I have given it to, helps round them out. Hope they update it soon

ThermonMermon

true, reversion was meaningless in terms of loan origination during the age of easy financing...but that still doesnt mean that reversion was not included during underwriting. as a matter of fact, terminal cap rates were driven into the ground when property values looked to be on the up and up. (for non R/E onlookers, cap rates and pricing have an inverse relationship). so, the lowered term caps further contributed to unrealistic, inflated returns expectations for investors - resulting in more money that essentially vanished from the overall real estate market.

listen, reversion is one of the leading pains for comm r/e. lets say it is 2005, and you have acquired a property for $20M with a 5 yr hold, and 5-10% NOI growth. the NOI shortfall is one loss. but lets say that your expected returns also factor in a resale value of $26M in 2010. now, its 2010. lets see how far short you are of that $26M figure - 1. the property declined ~25% from $20M to $15M. 2. during the second half of your holding you saw the economy decline and neglected to do millions of planned capital expenditure. your building has now depreciated another 15%. so the $15M market value is really ~13M! in the end, your estimated resale value of $26M for 2010 is truly half of that. your ~25% IRR to investors would become negative even if your NOI had remained stable! lesson learned - reversion and terminal cap rates are LARGE contributing factor.

where are you seeing 5% cap rates? maybe in iconic bldgs, or unique one-off bldgs that dont follow submarket trends.

5o9

5% apartments, even class B. Only safe place here, but NOT at 5%. A friend says he can do it, but has to be low leverage "patient money".

Walgreens inched up over 6% last I knew. There must be some spectacular Walgreens at 5% somewhere.

ThermonMermon

ah, ok. walgreens makes sense. walgreens/CVS, etc. have historically been a trend for 1031 exchanges. ppl who dont want to take a huge tax hit when selling a bldg would do a 1031x with a few walgreens/CVS to get their cash out.