I’ve been a busy bee learning about a new “side hustle” called real estate investing. I think calling it a side hustle is a bit of an understatement since it’s an endeavor that requires a decent amount of cash and/or risk, depending on how you approach it.
So in this post I’ll share the latest books I’ve read, the one I’m currently reading, and my impressions (and some nuggets I picked up) on them.
I’ve included links to the books I’m reviewing in this post. If you click on them and buy them, you’ll learn something new, and I’ll get a few cents. Thanks for stopping by!
Real Estate Investing for Dummies
This was my very first book related to real estate investing, and I think it does a pretty solid job of covering all of the basics.
It’s a dictionary of terms in many ways. All of the confusing terms you’ve heard are listed and defined in logical sections, and the authors do a great job of sharing actual stories (in some cases, their own experiences) to illustrate the relevance of specific concepts.
One of the main investment types we are researching is the Buy and Hold (and Rent) strategy. The idea of having a few thousand bucks in passive, monthly cash flow is extremely attractive.
If you’re a regular reader here, you’ll know that we are 100% debt free, have a solid net worth, and want to quit my job as a VP and retire early. Well, we believe that investing in real estate is going to be a key factor in making that happen.
Well, turns out there are several other great benefits of REI we weren’t considering, as I found in this book. I won’t spoil the fun, but here are some of the awesome tax characteristics of REI I learned from this book:
Ever heard someone say “I get to use that as a tax write-off” or something along those lines? All they’re saying is that they are reporting a certain expense as a deduction (from taxable income) on their tax return.
If you own an investment property, you get to record your property’s depreciation as an expense each year as a tax deduction. Residential real estate is depreciated over a 27.5 year period.
Another huge benefit is the 1031 exchange. This tax rule says that you can sell your property and invest the proceeds into another “like-kind” property and defer paying any capital gains tax. Can you see the potential benefits here?
Say you have a property for 15 years with some solid equity…you can sell that property and buy a larger one to increase cash flow but keep your profits tax-free! Pretty awesome deal.
The book isn’t edgy (think Rich Dad Poor Dad), but it’s definitely informative. It covers all of the types of properties you’d come across (more than I cared to learn bout). There are explanations of the standard (and creative) financing options out there such as your conventional 15 and 30-year fixed mortgages, 5-year ARMs, seller financing, and hard money lenders.
Seller financing is this method where the seller agrees to take payments instead of a lump sum. Apparently, sellers who have a large amount of equity or who don’t need cash that badly are interested in the long-term guarantee of income (plus interest).
Hard money lenders are individual investors who charge a higher interest rate (9%-12%) but will sometimes fund up to 75% of the after-repair-value of a property. This allows you to get some additional cash for repairs on a property that needs a decent amount of rehab work.
Traditional lenders will not typically lend money for repairs, often only lending 75%-85% of the fair-market-value as appraised.
There is a boat load of information in this book, but I’ll stop with one final piece of information I really appreciated reading. There was a neat table that depicted how rental income is a long-term game. The table showed how your expenses as a landlord should stay relatively flat over time; things like your mortgage, property taxes, insurance.
However, rents will increase which means that your cash flow per property should increase AND your equity increases as time passes, making rentals a really great long-term investment!
Again, overall impression on this book is that it’s a great first book for a newbie. I knew little to nothing about real estate investing prior to reading it, and I’ve easily increased my knowledge by 1000%. And you know how serious I am about numbers !!
Interested in Real Estate? Grab a Copy.
If you’re interested in learning more about real estate basics, click here to get a copy of Real Estate Investing for Dummies. You can probably find the book used unless you’re looking for the audio version.
HOLD: How to Find, Buy, and Rent Houses for Wealth
Ok – this book was 34% more enjoyable for two reasons: 1) I listened to it on audio book (click here to get the audio), and 2) it gets a bit more hands-on with tons of examples and case studies.
Another thing I liked was that this book is more focused on our target investment strategy: Buy-and-Hold. If you’re more interested in flipping properties, investing in tax liens, or maybe becoming a lender yourself, this book isn’t for you.
HOLD introduced me to these key money-making, real estate tenets:
- You get great tax advantages (as mentioned above)
- Someone else is paying down your debt which means increased equity
- The property should appreciate in value (depends on market)
- You get positive cash flow if you’ve done your homework
You’ll here these tenets repeated many times when discussing the value of REI. If you total up the gains in equity from renters paying down your loan, appreciation gains, tax breaks, and the rent cash flow, you can achieve cash on cash returns of 15-25%!
Click here to get the book and find out more info on how this works.
Rule of 72.
This rule states that your investment will double in X years based on your annual returns. So, say you have a property that’s generating an 18% return based on $20,000 cash you have invested in a property. The Rule of 72 says that you’ll double that money to about $40K in four years.
The rule has to be slightly adjusted when using interest rates higher than about 10%, but it’s not much. So the Rule of 72 can be used off the cuff and still be pretty accurate. Here’s a table that shows the adjustments:
Cash flow is king.
Never buy a property that doesn’t cash flow. The whole purpose is getting a return on your cash investment, especially as a new investor.
Make your money going in.
You do not want to pay full price for a property. You are looking for sellers who are OK with giving away equity for whatever reason. Maybe the property needs rehab, or the owner is in danger of foreclosure, or maybe the bank owns the property and wants to get rid of it. The main reason for this is that you can’t absolutely count on appreciation rates or knowing exactly what kind of cash you’ll need for repairs. So going into the deal with a great discount sets you up for a lot higher success, and hey, if you get the appreciation and have low repair costs, even more profit!
Everything from finding and analyzing deals, figuring purchase price and repair costs, to building a team of professionals, and finding good property managers/renters, determining rent rates, understanding finance options, it’s all there.
Shout Out !
Jennifer over at http://reimillionaire.com since she recommended this book to me. She’s a young entrepreneur who started investing in real estate 10 years ago and has over $1 million net worth as a result. Thanks, Jennifer!
The Book on Investing in Real Estate With No (and Low) Money Down
This is the current book I’m going through, again on Audible, which you can check out here.
So far I’m really enjoying the conversational tone of this book. I’ve grown accustomed to increasing the listening speed to 1.5x or 2.0x unless they start talking detailed numbers on deal analysis. It’s kind of funny to slow it back down to 1.0x where the narrator sounds stoned out of his mind.
This book is written by Brandon Turner from BiggerPockets.com, one of my favorite real estate investing sites. It’s supposed to help you understand how to get into real estate by using very little of your own cash.
This is a new area for me because, while I believe you should stay away from all personal debt due to the way it inhibits your cash flow… I am actually FOR taking on debt for business purposes in order to increase your cash flow with a money-generating asset such as real estate or a small business like a franchise or retail shop.
If You Are in Debt?
If you have personal debt, and you’re working through that stage of your life, then you shouldn’t plan to begin REI until you are done with eliminating your personal debt.
I don’t think that if you have personal debt, that you are in a good position to be looking at these types of investments, especially ones that require taking on more debt. Of course, it’s all a personal choice, and you must do what you believe is best. This is just my opinion.
Always Be Learning
I think it’s still a great idea to begin learning all about real estate now. It’ll keep you learning and growing, and you’ll be more ready (than I was) when you do finally hit your debt goal.
I spent about 3 years screwing around after I paid off my debt, and I really wish I had started this learning process 6 years ago so that I could have taken advantage of the massive cash flow I freed up from becoming debt free. So, if you think that REI is something you’d like to get into, start the learning process now!
Once I’m done with this book, I’ll put up a review and share my thoughts. Maybe I’ll do a give-away for some of these books. If you are interested in that, please let me know in the comments.
What books are you reading?