Don’t Just Sell It, Own It

By Christopher M. Leporini, REALTOR® Magazine

Investing in real estate helps brokers and salespeople generate additional income and build a more secure future for themselves and their families. Two books offer different, yet complementary, approaches to real estate investment. In Real Wealth by Investing in Real Estate (Prentice Hall Press, 2001, $22.00) personable real estate speaker Ralph Roberts (with Joe Hafner) takes readers on a introductory tour of property investing. Analyzing Investment Properties, 2nd edition, (South-Western Pub, 2001, $17.95) by Andrew Tompos, provides an advanced, financially-oriented approach to investing.

It’s possible to make a good living as a salesperson, Roberts says, but diversifying into real estate investment can open the doors to even greater real estate riches. The trick, of course, is to learn the fundamentals and invest wisely. As Roberts points out, one sour deal can negate several profitable ventures.

Of course, as a real estate professional you already have a head start; your own job experience give you a good sense of market conditions, appraisal terminology, and mortgage rates. The book brings you up to speed on aspects of investing that you might not be familiar with, such as finding independent investors to provide some of the money you need to invest and picking up sweetheart deals through auctions and bank foreclosures.

Some of the book’s most valuable advice comes in Section 3: “Landlording.” These chapters delve into the psychology of what it takes to be a landlord, as well as practical tips on how to screen for tenants and manage your properties. Additionally, it supplies sample lease application forms, leases agreements, and past-due notices. Some of this information might seem basic to real estate professionals. For instance, a segment on advertising requirements for the Fair Housing Act won’t provide much new information. You should know from your own training that advertising a location as a “family neighborhood” or “populated by Christians” is a No-No.

On the other hand, real estate professionals might not have taken into account all the responsibilities that go with being a landlord. For instance, the book encourages readers to ask themselves whether they’re prepared to answer a call from a disgruntled tenant with a busted water heater at 3 a.m. What about battling with renters who are habitably late with their payments? Being a successful landlord requires an even temperament, plus the ability to take a hard-line with tenants when needed, says Roberts. Landlords must learn to be patient; rental properties are the tortoise of real estate, promising slow, steady returns but seldom quick riches.

Real Wealth by Investing in Real Estate provides a good introduction to the basics, but if you want to plunge deeper into the number-crunching, financial side of investing, Analyzing Investment Properties, by Andrew W. Tompos, can be a useful supplement to Roberts’s book. Tompos zeroes in many on the basic financial formulas—from the amortized cost of borrowing, through capitalization rates as a measure of property value, to calculating the internal rate of return on investment. His book employs a text-book style, using tables and word problems to develop readers’ understanding. Readers who want to improve their knowledge of financial formulas and investment analysis will benefit from working the book’s sample problems. (The book contains an answer key for each problem.)

The formula reviews culminate in Chapter 6, “Making Decisions.” Here Tompos used the same four-unit apartment and the same expense assumptions to develop eight different offer scenarios. Each scenario is designed to show how a different financing structure, equity investment, and amount of debt will affect the net return. It’s amazing to watch the before-tax cash flow in these examples fluctuate from a positive $1,909 to a negative $1,937, all because of changes in the interest rate or the amount of the downpayment. This sort of in-depth knowledge would also be valuable if you ever work with clients who want your help to purchase investment properties.

Investing in real estate is a natural progression for salespeople and brokers who already have a working knowledge of properties and a love of real estate. Real Wealth by Investing in Real Estate walks readers through the basic investing concepts they’ll need to know to get started. Analyzing Investment Properties gives readers the tools to carry out more advanced study. It takes more than luck to make the right choices; these books can help you develop the knowledge you’ll need to turn a profitable investment sideline into a secure future.

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This post was contributed exclusively for REALTOR® Magazine.

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