By Christopher M. Leporini, REALTOR® Magazine
If you’ve spent the last two years watching the market tank and still haven’t started building your own real estate portfolio, don’t wait another minute, urges Andrew McLean and Gary W. Eldred, Ph.D., authors of the just-released fourth edition of Investing in Real Estate (John Wiley, $19.95). Although many investors are already putting their money into property, the book makes a strong, statistical case for real estate over stocks even when Wall Street is on an upswing. Low dividend yields from stocks just can’t compete with the cash flow from income property, especially if you apply some leverage and benefit from appreciation, say the authors. The book’s opening chapter is heavy on financial calculations to back up their case, but if you’ve read the papers, you know that most people are already convinced.
Topics covered in the remaining 300 pages are fairly standard to any real estate investing text, but the authors take a much more sophisticated approach than most, which makes the book valuable to real estate practitioners who already have some of the basics down.
The chapter on financing is a perfect example. Instead of rhapsodizing about no-money-down investing, McLean and Eldred discuss both the pros and cons of high leverage, again with effective calculations showing the impact of various scenarios on return on investment. If you do want high leverage, the book advocates buying multi-unit properties and gaining the higher loan-to-value ratios available under owner-occupied mortgages. There’s also a comprehensive list of loan programs and options from private lenders, FHA, HUD, Fannie Mae, and a host of other sources. The chapter explores quite a few financing options, from using the equity in your own home to invest, working with sellers to negotiate a wraparound mortgage, and land contracts.
Another critical chapter that every investor should read is “Maximize Cash Flows and Returns.” Examples show how to calculate before-tax cash flows (BTCFs) and how to use this figure to determine ROI. Next, the authors work through various ways that massaging your financing can enhance return. Again, the book’s strength is its extensive calculations that show exactly what the dollar impact of each change in downpayment, purchase price, and other elements is on your return.
The authors’ also use concrete examples and calculations to debunk the “always buy in the best neighborhood you can afford” maxim. Although this may be good advice for homeowners, investors have more potential for upside in lower-cost, undervalued neighborhoods with good accessibility to jobs and transportation, civic pride, reasonable taxes, and favorable demographics.
Another chapter focuses on the way to grow cash flow through property improvement. The approach is both fiscally conservative and practical. Clean and paint first, the book advises, then look for ways to increase usable space (and rents) or to enhance the appeal of the home with larger window–preferably with a view–and more lighting.
Once you have a great investment property, the book continues your lessons in building income with a chapter on pragmatic property management. For example, say the authors, too many small property owners neglect effective position and marketing when they try to lease their properties. In a great little case study, the book describes how a small investor identified the underserved off-campus housing market in his college town, surveyed students about what they wanted most in a rental, and adapted his property to this market. Again, the idea of tailoring promotions isn’t really new to real estate professionals, but understanding how to apply it in the investment arena is still valuable.
Although the many equations and financial formulas may seem a little intimidating, the book provides a solid, sophisticated foundation for make a financial success of real estate investing.
By Katie Hinderer, REALTOR® Magazine
Relating to customers is a large part of your job, but it’s easy to forget how it feels to be a first-time homebuyer. Mark B. Weiss’s The Everything Homebuying Book, (Adams Media Corp. $14.95) is not only a great reference for first-time homeowners, but it can help you understand their perspective better as well. This-easy-to- read book covers every aspect of the home buying experience, from evaluating properties to obtaining financing.
Weiss includes several worksheets to make the process easier for buyers; first-timers can make copies and fill them in along the way. For instance, the book includes worksheets on picking a lender, evaluating locations, and determining which features they want (and don’t want) in a house. You can take initiative and distribute worksheets such as the “Dream Home Worksheet,” which helps readers to pinpoint their desired features, to buyers. Additionally, you can study these sheets to refamilarize yourself with topics of interest to them.
If customers aren’t sure what type of residence they want, the book provides several chapters to remedy this uncertainty. “Chapter 6: Which House Is Right for You?” covers the initial questions and considerations a first timer should mull over when contemplating a move. It covers topics such as gated communities and whether a buyers would prefer a home in the city, suburbs, or country from all angles. (When showing properties, however, be careful not to make any statements violating Fair Housing rules). Once a client has narrowed down their choices, or at least figured out what they don’t want, they can turn to chapters covering various housing options. “Chapter 7: The Resale House,” “ Chapter 8: Condos and Co-ops,” and “Chapter 9: Special Home Choices” discuss each option’s positives and negatives, to help buyers make an informed decision.
The book also covers several topics that a first-time homebuyer could easily overlook. It reminds them to examine transportation methods from home to work before a move to budget potential commuting expenses. In addition, it offers reminders for buyers to look into local services such as sewers, police protection, and library facilities. These little details, which can go a long way towards determining clients’ future happiness, could be easily overlooked by even a second or third time home buyer. The book helps remind you of their importance.
Other chapters are more logistical. The more tedious and confusing parts of the home buying process are covered in such chapters as “Chapter 3: Choosing the Right Mortgage,” and “Chapter 12: Negotiating the Best Contract.” For a first time home buyer these elements of the process can be both overwhelming and puzzling, however, these chapters make the process more manageable. The chapters can also assist you in explaining buyers’ financing options in understandable terms.
As with other “Everything” series entries, the book contains boxes within the chapters that pull out important information, and divide it into four topics: “E Facts,” “E Essentials,” “E Alerts,” and “E Questions.” The boxes isolate the most useful information and serve as a way to assist readers pressed for time and in need of the facts–fast. In addition to these handy factoids, the book is packed with informative tables on an assortment of topics, such as the percentage of people purchasing homes in specific regions and the percentage of people in different salary brackets that own a summer house.
Putting yourself in buyers shoes can help you make the sale. The Everything Homebuying Book can help ensure that the next time a first-time homebuyer steps into your office you’ll have a little bit better understanding of what they’re going through and the concerns they might have.