Title: "What Every Real Estate Investor Needs to Know About Cash Flow … And 36 Other Key Financial Measures"
Author: Frank Gallinelli
Publisher: McGraw-Hill (revised and expanded, 2009); 312 pages; $22.95 list ($15.61 on Amazon.com)
When I was in college, my statistics professor opened up the first day of the course with: "This is an equal sign. Whatever is on one side of the sign is the same as whatever is on the other side of the sign." Kinda basic, but she was a campus favorite in an otherwise dreaded subject, because her start-at-the-very-beginning approach truly left no student behind.
Similarly, Frank Gallinelli, in the 2009 edition of his almost-classic book, "What Every Real Estate Investor Needs to Know About Cash Flow … And 36 Other Key Financial Measures," starts out with the very most basic premise underlying real estate investing — the concept of cash flow — and builds slowly and logically from there. A serious investor at any level will not be left behind.
The introduction and first four chapters bear reading straight through, as they touch on all the critical intersections between the essentials of a worthwhile investment and the calculations necessary to determining whether those essentials exist in any given prospective investment.
From there on, the book is essentially a toolkit of various financial measures, complete with sample calculations, with each brief chapter devoted to a particular measure.
The book is highly usable, containing a good number of decision-making insights and rules of thumb, many of which seem to be derived from Gallinelli’s own experiences as an investor — some specific examples of which he offers as evidence of the need to run these numbers. Additionally, readers are given a Web address at which they can obtain free Excel spreadsheets and/or access to online calculators into which they can plug their own projects’ numbers to run the analyses detailed in the book. …CONTINUED
As a real estate broker who has advised many wannabe first-time investors, I was surprised that this edition did not include a discussion of the math involved in house flipping, even if only to state the author’s case why investors should stay away from it (if, indeed, that is the author’s position on the matter).
Flipping has been so glamorized in the media, and so often fails for lack of due diligence and proper number-running, that it would have been nice to see Gallinelli weigh in on the strategy, or even provide some of his reality-checking formulas and handy rules of thumb for would-be rehabbers.
Also, I found few situational problem-solving suggestions in the book. For example, in his discussion of loan-to-value ratio, Gallinelli presumes that if the property doesn’t appraise at the purchase price, the buyer will need to put cash into the deal to make up the difference. Many seasoned investors would, rather than putting more cash in, renegotiate the purchase price down to the appraised value, which Gallinelli doesn’t even suggest as an option. The failure to discuss workarounds is forgivable only because this is a financial measures guidebook, not a strategy book, but still surprising given that there is so much other experience-driven strategy and decision-making guidance provided elsewhere in the book.
Despite these issues, this book really must be on the shelf of every real estate investor. Throughout, Gallinelli’s no-nonsense approach befits the topic — e.g. "If you need a warm and fuzzy feeling, get a puppy" — and, appropriately deflates the heady, false ebullience created by the infomercial investing gurus and get-rich-quick schemes of the last decade or so.
As a result of this emphasis on the numbers over all else, some beginning investors’ eyes might glaze over. However, it might just be that if you find the subject matter of this book excessively intimidating, dry or boring, your understanding of real estate investing might be immature. To put it more frankly, if you don’t want to do this math, investing might not be for you. Or, in Gallinelli’s words, "the profits and gains that are lost by the envelope scratchers accrue to those who take the time to do the math."
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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