Investing in Real Estate

Very useful book. Cover most topics in the real estate market. Highly recommended.

Some of the shine has worn off real estate investing lately with the credit crisis and mortgage blowouts, but still, people have to live somewhere, and , unfortunately, (or fortunately), some persons losses are other persons gains.

I think the next year or two are going to be excellent times for investing in real estate, and more specifically, detached single homes purchased for rental income. McLean and Eldred have created a fine book that guides you through the pitfalls of real estate investing with some very solid advice. It could use better information on getting statistics. While it does have some links, it needs more, because some of the information is buried deep in some websites.

The first chapter is an argument on how real estate is a better investment than stocks. The authors use averages of the stock market to determine what kind of dividend you can get on stocks. While that may sound fair, the reality is a good stock picker doesn't purchase average stocks. They purchase great stocks that are currently down. For instance, not too long ago you could have purchased Bank of America for just over $20.00, with a dividend yield of over 8 percent. Paychex was available at 3.5%. While the average yield may be 2 percent, many individual stocks are yielding between 3 and 6 percent. Then you wait for a dip in the price and pick them up between 4 and 7 percent, often giving an average portfolio of 5.5 percent. Yes, this is still lower that what you would make on a rental, but:

Then their greatest failure to understand the best method for picking stocks: you choose the stocks that have consistently increased dividends every year, year in and year out. There are many stocks that do this. They often have yearly increases well over 8 percent, many in the last fifteen years have increased over 15 percent on average. The authors expect you to be able to raise your rents 4% every year.

Given a choice between raising your cash flow 4%, or 8, 10 or 15 percent, which would you take? A single percent difference can mean hundreds of thousands of dollars lost, or gained in twenty years. A difference of five percent or more can mean millions lost or gained.

But all that aside, with the current state of the market, a lot of people are going to make a lot of money off other peoples pain. Thats unfortunate, but that is the way it is. As Baron Rothschild, an 18th century British nobleman said, "Buy when there is blood in the streets".
The possible down side is a possible glut of rental housing in some areas, notably Arizona, which already has a good supply of rental housing and currently has a high number of vacant foreclosed houses.

Monthly rents are likely to lesson (a boon for renters) as supply increases further, causing less cash flows, perhaps negative cash flows. But Arizona has a growing population, both young people and retired are moving there. The population will eventually catch up and rents will again begin to increase.

The authors reject the stock market, personally, I think a combination of investing in stocks and in real estate will give you a more balanced and safer portfolio. I think this book will definitely help you with your investment goals.

If you are just beginning in RE investing you must get this book. It goes over all of the different types of RE investing. This book is a must have for Real Estate investors.

Having read the third edition of this same book, which was very good, I found this to be a more detailed and thorough revision. The way in which the information is portrayed guides the reader through the steps of investing and how to not only succeed, but to protect themselves from the failures that many novice and seasoned real estate investors fall victims to. If you want to know about investing in Real Estate, this is the book for you.

Having read a number of different real estate investing books, I am happy to report that this one is definitely above average. The author does make an effort to cover many facets (though perhaps too many?) of real estate investing. If you are looking for an introduction to real estate investing in general, this is a good place to start. If, on the other hand, you are looking for something new or different, you may want to look elsewhere. This book does a good job of hitting the basics, but it's broad coverage means that at times it is lacking in detail.