Product Description

Formulas that make the difference between making profits and losing equity

The only way to win the real estate investing game is by mastering the numbers. This revised and updated edition of the popular reference shows how to target the best investments in the present market. It answers all your real estate questions, and provides new discussions of capital accumulation and internal rate of return. This book’s basic formulas will help you measure critical aspects of real estate investments, including

• Discounted Cash Flow
• Net Present Value
• Capitalization Rate
• Cash-on-Cash Return
• Net Operating Income
• Internal Rate of Return
• Profitability Index
• Return on Equity

Product Details

• Amazon Sales Rank: #4593 in Books
• Published on: 2008-09-08
• Original language: English
• Number of items: 1
• Binding: Paperback
• 312 pages

Features

• ISBN13: 9780071603270
• Condition: NEW
• Notes: Brand New from Publisher. No Remainder Mark.
• Click here to view our Condition Guide and Shipping Prices

From the Author
Can a book filled with numbers possibly be exciting? If you’re truly interested in real estate investing then you must first realize that investing in income properties is all about the numbers. It’s about discounted cash flow and rates of return and net operating income and cap rates. If you understand how these and other key concepts work, then you’re on your way to success – and that’s exciting.

I also believe you'll find the presentation of this material entertaining. I sought to write this in a way that would make it accessible to beginners and professionals alike.

I present more than three dozen key concepts and calculations. The book is peppered with "Rules of Thumb" that you can use as benchmarks when you evaluate potential investment properties. I also provide numerous examples and sample problems that you can use to check your understanding. As you progress you’ll learn how to read a property’s vital signs and how to put financial concepts to work for successful investing in real estate.

As important as these financial measures are, some can be tedious to perform manually. For those I show you how to use simple spreadsheet models to accomplish those tasks. I also provide you with a link to a special website we created where readers of the book can download many of these models as well as other valuable tools.

I hope that you'll find many good ideas here and that you'll use what you learn to help you make solid investment choices.

From the Inside Flap
An arsenal of powerful calculations that can the difference between winning and losing the real estate investment game

Real estate investing is a numbers game, and the only way to win is by understanding the numbers. "What is a property really worth? How do I determine a building’s value based on current rents? How much will I make if I hold onto a building for five, ten, fifteen years?" Real estate investment pro Frank Gallinelli arms you with 37 basic formulas for calculating these and other critical aspects of real estate investments, including:

• Discounted Cash Flow • Net Present Value • Capitalization Rate • Cash-on-Cash Return • Debt Coverage Ratio • Gross Operating Income • Net Operating Income • Internal Rate of Return • Profitability Index • Return on Equity • Long-Term Gain • Depreciation • And Many More

You don’t have to be a rocket scientist to use the formulas in this book. For each formula, Gallinelli clearly explains why it’s important, how to calculate it, and provides examples and sample problems to help you master it. On a companion website, he supplies useful forms and spreadsheet templates that simplify many of the calculations.

With this handy reference, you’ll quickly master the financial formulas you need to be a winner in the real estate investment game.

From the Back Cover

An arsenal of powerful calculations that can make the difference between winning and losing the real estate investment game

Real estate investing is a numbers game, and the only way to win it is by mastering the numbers. In this indispensable guide, real estate investment pro Frank Gallinelli shows you how.

What is a property really worth? How do I determine a building's value based on current rents? How much will I make if I hold onto a building for five, ten, fifteen years? Gallinelli arms you with the 36 basic formulas for calculating these and other critical aspects of potential real estate investments, including:

• Discounted Cash Flow
• Net Present Value
• Capitalization Rate
• Cash-on-Cash Return
• Debt Coverage Ratio
• Gross Operating Income
• Vacancy and Credit Loss
• Net Operating Income
• Internal Rate of Return
• Profitability Index
• Return on Equity
• Long-Term Gain
• Depreciation
• Mortgage Constants
• And Many More

You don't have to be a rocket scientist to use the formulas in this book. For each formula, Gallinelli clearly explains its significance for real estate investors, walks you through it, and provides examples and sample problems to help you master it. On a companion website (www.realdata.com) he supplies useful forms and spreadsheet templates that you can use to simplify many of the calculations.

With this handy reference, you'll quickly master the calculations you need to be a winner in the real estate investment game.

Customer Reviews

The Definitive Guide
I recently decided to look into investing in residential real estate, but I didn't know enough about the financial risks and rewards to determine whether this would make sense for me. So I decided to give myself a quick education by reading the best books I could find on the subject. I had to wade through a lot of get-rich-quick-without-any-money books to find the good ones, but I wound up with ten books that looked like they had good, solid information for would-be investors.

After working my way through all ten books, I can tell you without reservation that Gallinelli's book is head and shoulders above the rest. There was something to be learned from each them, of course, but the others tended to get a bit fuzzy about the financial details, often substituting simplistic rules of thumb for real analysis or doing a hand wave just about the time I needed hard information. Worse, there was a disturbing lack of consistency among the books where they did provide financial details, and there was no obvious way to sort out which book had the right take on a particular calculation or financial ratio. And it seems to me that, important as general principles may be, if the financials don't work then nothing else matters very much.

Fortunately, Gallinelli took me right down into the nitty gritty stuff and showed me, step by step, just how the whole business works. He was also the only author to even consider the possibility that I, as a modern-day investor, might have the ability to run these calculations in a spreadsheet, and he provides clear instructions for entering the required formulas in Excel. Not that you have to be an Excel user to benefit from this book; the financial analyses he describes are absolutely essential to knowing what you're getting into, and you need to run them whether you do it on a calculator, use packaged financial analysis software, or build your own spreadshet. But for those who do know how to use Excel, it's a tremendous benefit to have the step-by-step instructions right there.

After reading this book, I now understand how to figure out the total return on a residential property from all it's sources, including operating income, depreciation writeoffs, equity accrual, appreciation, and capital gains benefits, and I know how to calculate the effect of leverage on each of these sources. Better still, based on the formulas Gallinelli provides, I can quickly see how these sources play off against each other to predict my total return on investment in any particular scenario. More than any other book I read, this one prepared me to analyze a candidate property and evaluate its potential return, allowing me to determine whether it's a good investment and, if so, under what price and financing conditions. Based on what I've learned, I'm now shopping for apartment buildings to make my first acquisition.

Of the ten books I purchased, nine now sit on my shelf within easy reach. But this one sits right next to me and will always be close at hand. If you are thinking about investing in real estate, buy this book and read it before you do anything else. It's that good.

Required Reading for Real Estate Investors
Before you invest $1 into income-producing real estate, be sure to pick up a copy of Frank Gallinelli's excellent book, What Every Real Estate Investor Needs to Know About Cash Flow...And 36 Other Key Financial Measures: Guidelines, Formulas, and Rules of Thumb for Making Money in Real Estate. While the title may sound somewhat forbidding, the book is so well-written and accessible that even novice investors who wouldn't know a cap rate from a rate of return can quickly and easily master key concepts such as present value, gross scheduled income and discounted cash flow. Better yet, Gallinelli offers free spreadsheets that you can download from his site that do the numbers-crunching for you. I like to think that I'm a pretty savvy investor, but, thanks to Frank and his amazing formulas, I narrowly avoided overpaying for a five-story office building in the Chelsea section of Manhattan. While there's no guarantee that the seller will accept my lower offer, I feel confident that, if I do get the deal, I will be paying a fair price now that Frank has taught me how to do the math.

So you think you know real estate math?
I recently asked a potential joint venture partner to send me some profit projections. What I got was an eye opener. My prospective partner was clueless about rates of return, generally accepted accounting terminology, and real estate calculations in general. Her seven year projection spoke of: "Money Partner ROI" (180%), "Average Yearly ROI" (25.8%) and "Average Yearly Compounded ROI" (15.9%). How the first two were computed (or what they meant) were impossible to ascertain. Apparently they were returns without compounding. The third was an unsuccessful attempt to compute the Internal Rate of Return (the correct calculation was 17.3%). IRR, the industry standard and the means professional investors use to compare alternative investments, was unknown to this mathematically-challenged young lady. If, like my prospective partner, you feel your grip on the mathematics of real estate investing is a little shaky, then this is the book for you.
The first half of the book is an unusually clear and up-to-date discussion of the gathering and use of data needed to make investment decisions--plus a running commentary, sometimes humorous, on real estate investing in general. This section alone is worth the price of the book.
But wait, there's more! The second half lays out most of the mathematical tools needed to invest in real estate. Each short chapter covers one topic with definitions and examples offered in clear, jargon-free prose. Topics include: Internal Rates of Return, Net Operating Income, Gross Rent Multiplier, Net Present Value, discounted cash flow, calculating taxable income and much more.
Plus, there's a nice bonus. The book directs you to their free website where calculators for many of the more complicated transactions are available. I recently used the website's IRR calculator to compute the return of seven years worth of annual cash flows plus the sales proceeds from reversion. Elapsed time: under one minute.
Oh yeah, I recently purchased a second copy of the book for my mathematically-challenged woman friend. Hey, she understands real estate--she just can't do the math!