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The ABC's of Real Estate Investing: The Secrets of Finding Hidden Profits Most Investors Miss

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This title enables readers to learn how the cash flow generated from property investment appreciates in value and ensures financial freedom, as well as the freedom to be your own boss.

193 pages, Paperback

First published September 1, 2004

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Ken McElroy

17 books55 followers

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Profile Image for Devin.
154 reviews12 followers
December 18, 2017
"What makes this book different [is] it is written from the most important aspect of real estate investment, which is property management"- Robert Kiyosaki

Partners are valuable because they allow you to own smaller positions in a number of properties rather than a big position in just one (p.3)
"All things are difficult before they are easy" (p.4)

When you buy a house or condo and rent it out, appreciation of the property rests solely on the appreciation of the surrounding neighborhood. When you buy a commercial property, like apartment buildings, appreciation is based on the cash flow of the property itself.When cash flow increases so does the value of the property. Manage that property right and you'll increase the value. (p.5)

If you want money out of a property, you don't need to sell. You refinance the property and pull out what equity you can. There is no taxable event, and you are not forced to put the money into another investment (p.7)

If everyone you talk with is having difficulty seeing your vision for a property it can either be one of two things: a revolutionary idea that will prove everyone wrong. Or a bad idea that everyone recognizes as a bad idea, except you. In 99% of the cases, the latter proves to be true. If you have to hard-sell your vision for a property to everyone you share it with, it is likely your project when completed will be hard to sell, too.(p.8-9)

Your true power and confidence won't come from your past experience. Instead, it will come from the solid deal you assemble that is a win-win for everyone involved. (p.12)

The listing price is meaningless. There is no point negotiating based on this number, and actually doing so is a recipe for disaster. That's because in most cases, the listing price is the seller's opinion of what the property is worth. It is not founded on the actual operations of the property (p.13)

"The only way you'll know a lot about real estate is to begin in real estate" (p.14)

You have to set goals. Goals will be the foundation of the roadmap for your success. They will tell you when you have arrived, so you can pat yourself on the back. Everyone needs that reinforcement. (p.15)
A goal is something you plan to achieve. It should be measurable with a time limit, dollar amount or rank comparison. Goals that are vague are hard to attain and stick to. (p.18) Goals must also be realistic and attainable. (p.19)
Always make your contribution bigger than your reward
Always make your performance greater than your applause
Always make your gratitude greater than your success (p.20)

There's nothing wrong with a goal that evolves over time unless you are changing your goal every time you hit a roadblock. That's called avoidance. (p.21)
It helps to make yourself accountable to someone (p.22)
Communicate your goal clearly on paper and then to everyone you know. (p.23)

Plan and set milestones in your success map so you know when you've achieved important steps along the way (p.24)
Behavioral Change TO-Do List
Taking the same route to work every day- taking a different route gives you new scenery and helps you learn about the market and the properties within it.
-Hour-Long Lunches- cutting your eating time down gives you more time to analyze deals, make phone calls, meet with people, and visit properties
-Watching TV-eliminating TV, or at least reducing your viewing time, frees up countless hours to work on your business. (p.24-25)

*Financial Freedom To-Do List
1. Add up your personal expenses
2. Determine what you can reduce, eliminate, or do without
3. Figure out how many properties you need to buy to cover the total

Business TO-Do List
Find your team
Evaluate the market
Find a great property
Assign a valuation to the property
Establish a property plan
Develop a budget
Manage the property

In order to achieve your goal, you must remain focused. Don't divert your eyes, get shiny object syndrome, and move in a direction from your goal. (p.27).
As you learn more about your own market, you will find yourself continually refining your goal and your search. That's perfectly fine. Gradual focusing is necessary (p.59).

Chapter 3-It takes a Team
Without experts on your team, deals take longer to find, evaluate, and close, so there's the value of your time and the loss of valuable opportunities (p.30) Think of your network as your lifeline. Not only will they help you with the deals you're working on now, they are usually the ones who will bring you your second, third, and fourth property opportunities--particularly if you have voiced your goal to them clearly (p.31)

Before I sign a deal, I have a contractor perform a detailed inspection and file a report of all critical and noncritical repairs (p.36)

Chapter 5-Swampland for Sale

The market is more important than the property (p.48) Ideally, supply should be low and demand should be high. Supply is defined as the number of rental properties available in a market or sub-market. Demand is defined as the number of people looking to rent.

Outward signs of demand: If there are a lot of move-in specials advertised, demand is low. If rental properties are offering no incentives at all, demand is high.
If supply is greater than demand, you may want to stay away or at least keep looking for a better market. Your job of finding residents, generating ash flow, and increasing the profitability of the property will be more difficult. (p.50)

There are three true indicators of supply and demand:
1)Employment- If a market or sub-market has lots of jobs, people will come to fill those jobs; jobs drive residency. Property that is near to employment is in greater demand. As you evaluate your market or sub-market for employment, look at how stable the employment base is. Are the companies reputable? Are their products or services in ever growing demand? Is the mix of companies diversified? You want local employment to be strong (p.52)
2) Population-
Places that have clearly defined personas are population draws almost as powerful as employment (p.54). Universities are always population drivers because just by the nature of what they do, they bring a steady stream of students, faculty, and supporting businesses to an area. (p.55)
3) Location
Locations have to be evaluated not based on geography alone, but based on how they measure up in relation to supply and demand. Great Locations have drive-by visibility. The more cars that pass by your property and see your "For Rent" sign, the better your chances of success. Great Locations possess rare quality and are in demand; they are low in supply and high in demand (p.58-59)

Chapter 6-Finding your Diamond in the Rough

Set target property parameters to save time for you and your broker. It makes you more focused and helps make the work more manageable (p.62-63)

Read every article you can in the target market. Look at the news, sports, neighborhood happenings, what's being built, etc. because they tell you something about the market and its desirability (p.66).
You cannot change the neighborhood, so make sure the property is in a place that you're prepared to manage.
The "rent roll" (listing of the units and how much they rent for) and occupancy rate are the two indicators of how a property is operating. (p.73)

Chapter 7- Is it Really a Diamond?
"In good deals the numbers work. In bad deals, they don't" (p.82)

Investing Principles:
1. The Seller's asking price is irrelevant.
2. You determine the property value, which becomes your offer
3. With multiple units, the property value is based on the current cash flow of the property

Property Valuations for multiple Units (p.82-83)
1. Verify Property Income
2. Verify expenses
3. Determine net operating income
4. Find the capitalization rate and valuation
5. Calculate the loan payment and your profit or cash on cash

Verify Property Income
There are three types of income to consider with any property: Actual income, actual potential income, and future potential income.
Actual Income- The total income the property generated in the prior 12 months
Actual Potential Income- The total income the property could have generated in the prior 12 months had all units been 100% occupied and had the owner taken advantage of all other income opportunities
Future Potential Income- The total income of the property could generate as today's market rents, 100% occupancy, and taking full advantage of all other income opportunities (p.85)

Many owners try to sell based on future potential income of the property, but you should only buy at the actual income.
Try to avoid retail prices at all costs

2) Verify Expenses
Net Operating Income (NIO)- Income minus expenses
Consider hiring a property management representative with an hourly consulting fee to walk through the multi-unit property building to learn what it will take to run the property and get insight on how to minimize expenses (p.91-92)

Rule of thumb: as properties age, repair and maintenance costs go up (p.93)
3) Determine NOI

4) Cap Rate= NOI divided by Purchase Price
The purchase price here is actually the purchase price trends for a comparable building in your market.

5)Calculate the Loan Payment and your profit cash on cash

Chapter 8- The Big Commitment

When I know 70% of everything there is to know about a property, that's when I make a decision (p.103)

Consider using a letter of intent first to save money on attorney fees.The Letter of Intent contains your offer along with the basic deal points like down payment amount, due diligence time frame, escrow amount, and financing contingencies; it's like a proposal to the seller. (p.106). Typically, your real estate broker can draft and review a letter of intent for you. Note: the letter of intent is not binding. It just delineates your intent to the purchase of the property.(p.107)

Attorney drafts up the "Purchase and Sales Agreement" after the terms of the letter of intent are agreed on. When you get ready to sign this, you will have to put down a refundable earnest deposit until the completion of the due diligence process and you've secured your financing.
See questions that he recommends you should be in Purchase and Sales Agreement (p.107-108)

Don't sign a deal that doesn't have a loan and due diligence contingency (p.109). Make sure the purchase and sales agreement gives you access to all the files and papers relating to the property.

Chapter 9: Due Diligence-
Be thorough, meticulous, careful, thoughtful, attentive, and everything else. Perform a thorough walk-through of every unit. This is the time when you make detailed assessments of actual costs for property improvements, ongoing maintenance, and operations(p.111). The goal of due diligence is to find out 100% of everything there is to know bout the property and generate an operating plan and budget from that information (p.111-112)

Make sure the property is in compliance with government standards. Look for: Fire code violations (invite the local dire department to complete an inspection), permit problems(having any remodels), environmental concerns such as asbestos, mold, lead paint, or radon, and existing ownership issues like zoning violations or encroachment onto another property. (p.115)
Also Look for:
-Roof problems, including signs of leaks and overall disrepair or wear.
The condition of heating, ventilation, and cooling systems and equipment service and maintenance records. What's the repair history and the age of each piece of equipment?
-Electrical wiring that is not in compliance with current codes
-Plumbing that is aged, corroded, or leaking and the type of plumbing (Copper, PVC, Galvanized, etc)
-condition of the exterior paint and trim
-Condition of the driveways and parking lot
-Large trees that need trimming

Put an estimated cost to each item in the list. Total the cost and bring the info back to the seller. In some cases, they can fix a few things before close. (p.116-117)

Verify all utilities. Call the utility companies and get the last twelve months' operating history on each account. Ask about increases for the next year. (p.118)

Chapter 10- Making Sense of it all
Get a contractor to do a site inspection and estimate the cost of repairs; what it would take to get the place in shape. (p.122)

You increase the value of your investment by reducing expenses and raising income. (p.123) Income opportunities can include: Laundry income, parking income, water and sewer income, late fees, non-sufficient fund fees, cable income, internet revenue,and telephone income. (p.130)

There are two kinds of property taxes, which are on the real estate property, and personal property taxes,which are taxes on the contents of the property like refrigerator, stoves, dishwashers, and other appliances. You can get these from the tax assessor's office. (p.133)

Individually metered is the best scenario with utilities because it means the resident pays their own bills. This means lower expenses to you. In master-metered buildings there is no incentive for he tenants to keep utility costs down (p.134)

Chapter 11- You own it...Now what?

Managing the property is about maximizing your cash flow (p.140)
The key to a good property management and a good property manager has to do with systems. Systems to handle advertising and marketing, leasing, employee-related issues, hiring of outside vendors and bidding for services, reporting, emergencies, maintenance request, rent collection, account, and whatever else. (p.141)

If you're managing yourself, look for a handyman or maintenance person who has enough time and who will be available to you anytime you call (p.142).
Don't feel obligated to rent to criminals and give them a "fresh start". Run a background check on every applicant. (p.143)

At the end of each month, an analysis of the income and expenses should be done and compared to the budget. Do it monthly and you'll stay on top of your business (p.146)

Consider a 24 hour policy on all non-emergency maintenance items and immediate response on emergencies. An emergency would be a fire, flood, or blood.(p.148-149)
Poor Property management is one very large contributor to a property's under performance and reduced valuation.

Criteria and suggestions for hiring a property management company (p.148-150)

Taking care of your residents means responding to their calls quickly. It means fixing what needs to be fixed, It means a courteous, professional staff that is always happy to help. It means doing everything you would expect yourself if you were a resident (p.154).

Maintain a reserve fund for your property for when the unexpected happens.
Property management is a 365-day-a-year, 24 hour a day job. You owe it to your residents to be available and responsive. You also owe it to yourself if you are serious about your investment appreciating and generating cash flow. (P.155)

Chapter 12- To sell or not to sell
When you are planning to sell your property, you want your rental rates to be at the market rate in the area. (P.158)
There are two kinds of expenses: fixed and variable.
Fixed Expenses: property taxes, utilities, and insurance.
Variable Expenses: management costs, payroll, administrative, advertising, repairs, and maintenance items. Focus on the variable expenses when selling because you have more impact on that. The goal is to minimize them as much as possible. (p.161)

If you don't have a plan for your capital gain, you should not sell the property.; you need a plan for what to do with your money. (p.163)
Profile Image for Nola Tillman.
634 reviews44 followers
March 11, 2012
This book was an easy read, yet full of some excellent facts on working in real estate investing. And it had my favorite thing - formulas to analyze just how good (or bad) an investment is, from a cashflowing perspective. McElroy reviewed how to analyze properties and their P&L statements, and how to put together a team (actually...that first). He did seem stuck on larger properties, and left me hanging with a few questions about smaller investments, but nothing overly required. One of the best and most informative books on real estate investment I've read yet.
Profile Image for Francesca Brown.
8 reviews1 follower
August 2, 2011
This book makes investing seem possible for the average Jane or Jo. I currently am interning at a real estate investment company and many of the themes presented in the book are exactly how my bosses view the investment world. I look like a genius because I understand the basics and I build upon my knowledge with the internship! I'm soooo lucky. Moving along...The ABC's... is a great introductory piece. I took thorough notes and plan to put this knowledge to work soon!
1 review
October 22, 2020
Concise and brief learning material found in the writer successful story in multifamily apartment properties investment. He touched on the basics of real estate investment, how to conduct reasonable due diligence, a walk though the buy and selling processes. I would recommend this book before starting multifamily apartment complex real estate investment
Profile Image for David.
1,630 reviews99 followers
April 28, 2020
If you are interested in buying properties as investments but have no experience and are not even sure where to begin, The ABCs of Real Estate Investing: The Secrets of Finding Hidden Profits Most Investors Miss by Ken McElroy may be a great place to start. Even if you've already taken the plunge and possibly bought a property or two, this book can really improve your skills and possibly help you turn a money pit into a cash cow. Everything from how to find good deals to how to analyze them and what you can do to make sure you don't overpay. It makes financial analysis of a deal to make sure it will produce positive cashflow for you straightforward and easy to understand even for newbies. The author even includes information about how to do your own property management, which is a good idea for someone just getting started because you will learn first hand how to deal with tenants, maintenance, and how to set up your real estate business. This is part of the Rich Dad Advisors series of books and it will definitely give you a leg up on your competition.
Profile Image for Suz.
32 reviews8 followers
September 20, 2007
It takes courage to do what this book advises and it really doesn't give you enough instruction to build up that confidence. But still interesting.
Profile Image for Hussam Al Husseini.
59 reviews25 followers
December 15, 2019

Myth 1 You Have to be already wealthy to invest in real estate
Partners “help you spread your risk by allowing you to own smaller positions in a number of properties rather than a big position in just one.”

Myth 2 You need to start small – big deals are too risky
Some of the reasons why large properties are not riskier:
1 “Mortgages on smaller properties like single-family homes are almost always guaranteed through the buyer’s own personal earning potential and wealth… Larger investment property loans are secured by the asset itself.”
2 Appreciation of small properties depends on the appreciation of the surrounding neighborhood while appreciation in commercial properties is based on the cash flow of the property itself.
3 Your exposure related to occupancy is reduced the more residents you have.

Myth 3 You can “flip” your way to success or get rich quick with no money down
Flipping is dangerous and no money down means that the property is 100 percent financed, which means more expenses with little or nothing left for you to improve the cash flow. In this way you depend on appreciation as well to make money. “Appreciation is only in your control when you have improved cash flow.”

“Buying and holding income-generating assets like rental properties is how you build wealth.”

Myth 4 Some people just have the Midas Touch
Myth 5 You need a great deal of confidence
Myth 6 You want to do it but do not really have the time
Myth 7 You have to know somebody to get going in this business
Myth 8 You have to be a seasoned negotiator and business person
The listing price is meaningless because it is the seller’s opinion of what the property is worth. So negotiating based on it is time wasting. Evaluate the property based on operational performance and not on the sale price.

Myth 9 You have to know a lot about real estate
Myth 10 You cannot be afraid of failing
Myth 11 You have to know the tricks of the trade

A goal is something you plan to achieve, should be measurable (in time, earnings), and should be attainable and realistic. Make yourself accountable to somebody. Have a partner who will encourage you.

What you do after setting your goal is important:
1 Communicate your goal clearly. Tell people about your goal.
2 Plan and set milestones.
3 Persevere and drive thorough all obstacles
Keep you focus and discipline. Do not let opportunities divert you from your goal.

The following qualities are required in partnership:
1 Healthy debate: You should have room for debate before decisions are made
2 Open-mindedness: You should not have to spend valuable time continually convincing your partner of your goals
3 Commitment: You should be committed to each other and your goals
4 Similar values: You and your partner should share the same values
5 Accountability: You and your partner should push each other to achieve objectives and have mutual accountability

You do not need all of your team members at all times. Your team members are:
1 Attorney
2 Accountant
3 Real estate broker
4 Property manager
5 Lender or mortgage broker
6 Investors
7 Contractor/Rehab specialist
8 Appraiser
9 Architect
10 Insurance agent
11 Property tax consultant
12 Income tax consultant
13 Estate planner
14 Environmental company/industrial hygienist
15 Surveyor
16 Structural engineer

Level One Research. You can do it inside your house. Look at every real estate website and gather information about the economy and employment in the area.
Level Two Research. It is time for face-to-face meetings. Ask for recommendations in these meetings.
Level Three Research. Ask every team referral.
Remember that all the information you will gather in your research is free!

An important lesson from the poor people who have purchased swampland is that “the market is more important than the property.” You should evaluate your market and submarket. Do not rely on instincts when you buy a property. Do your homework and find facts!

Supply and demand is a critical tool to understand the market and submarket in a particular area. Supply is “the number of rental properties available in a market or submarket.” Demand is “the number of people looking to rent.” Ask brokers and property managers to find out these information. Demand has many indicators like:
1 Occupancy rate. High occupancy means great demand and vice versa.
2 Prevalence of move-in incentives and specials. If there are a lot of move-in specials advertised, demand is high.

You should consider future supply as well. Check all new rental property that is in various stages of development, from planning to permitting to construction.

Ideally, supply should be lower than demand. There are three drivers of supply and demand:
1 Employment. Look at the employment and presence of companies as well as employment stability; how stable the employment base is.

2 Population. Even a great deal is meaningless if nobody is around to lease it. Employment and town persona are population draws. But watch out for:
1 Resilience. Make sure that the growth of a market or submarket is not too heavily reliant on one thing.
2 Economic Diversity.
3 Pioneering. “Being too far out on the fore front of things can be expensive and dangerous. [The author] tries not to create the wave, simply catch a wave [he] see[s] beginning to build and ride it in.”
4 Affordability. “Look for markets where the cost of home ownership far exceeds the cost of renting.”

3 Location. “Locations have to be evaluated not based on geography alone, but based on how they measure up in relation to supply and demand.” Look for:
1 Great locations have drive-by visibility. The more cars that pass by your property and see your “For Rent” sign, the better your chances of success.
2 Great locations possess a rare quality.
3 Great locations are in demand.

To become an expert, you need to:
1 Use your research about the property and the market.
2 Read everything.
3 Look around. Always look at the neighborhood.
4 Listen more than you talk. But be aware of rumors and verify what you hear.
5 Join a business networking group or trade association.

So after these steps, what do you do when there is no property for sale? Should you change the market? No. Contact owners even if there is no “For Sale” sign!

Ask the owner the rent roll, current occupancy and operating expenses. They are very important.

In good deals the numbers work. In bad deals, they do not.

You need to know the following three things:
1 The seller’s asking price is irrelevant
2 You determine the property value, which becomes your offer
3 With multiple units, the property value is based on the current cash flow of the property

The Five-Step Property Valuation
1 Verify property income
Check a pro forma document and rent roll.

There are three types of income to consider with any property:
1 Actual income: The total income the property generated in the prior twelve months
2 Actual potential income: The total income the property could have generated in the prior twelve months had all units been 1—percent occupied and had the owner taken advantage of all other income opportunities
3 Future potential income: The total income the property could generate at today’s market rents, 100 percent occupancy, and taking full advantage of all other income opportunities
Buy based on actual income!
Do not forget vacancies and turnover from residents moving in and out.

2 Verify expenses. Repairs and maintenance, utilizes, real estate taxes, insurance, replacement reserve.

3 Determine net operating income (Income – Expenses)
4 Find the capitalization rate and valuation
Capitalization rate = Net Operating Income / Purchase Price
Property Value and Offer Price = Net Operating Income / Capitalization Rate

5 Calculate the loan payment and your profit or cash on cash

Now you come up with the initial cash flow and arrive at an offer price. This evaluation process does not require a physical inspection. Actually, it happens before it. Physical inspection is important in EVERY case.

You can make a decision when you know 70 percent of everything there is to know about a property. After the numbers work for you, you need to tie up the property, “and during that time, you negotiate the terms of the sale and, equally as important, review the property and its operations in its finest detail.”

You need whether a letter of intent or a standard purchase and sale agreement.
Letter of Intent. “[It] contains your offer along with the basic deal points like down payment amount, due diligence time frame, escrow amount, and financing contingencies.” During the letter of intent stage the property is not off the market.

Purchase and Sale Agreement. It is after the letter of intent. “This is where you communicate all the specifics of the sale, in other words you list exactly what each party is going to do to complete the deal.” Do not forget the statement: “All units must be rent-ready at close of escrow.”

During the due diligence phase:
You need to conscientiously review every document pertaining to property operations.
You need to perform thorough walk-throughs of every apartment unit.
You need to pay careful attention to every detail.
You need to be thoughtful about how you can improve the property and cut expenses.
You need to be attentive to the tasks and deliver them on time.
You need to be meticulous in your evaluation and reporting.
It is the time when you make detailed assessments of actual costs for property improvements, ongoing maintenance, and operations.

The Due Diligence Checklist
1 The File Audit
2 The Interior Inspection
3 Government Agency Reviews
4 Service Agreement Review
5 Exterior Inspection

You also need to check the books and records, obtaining information for your operating budget by categorizing the income and expenses. Review the following:
1 Twenty-four months of income and expense statements
2 All service agreements
3 Current rent roll
4 Utility bills
5 Payroll information

You need a property management plan and an operating budget. “The management plan will define the key strategies you will use to either cut expenses, increase income, or both. The operating budget links numbers to those strategies and helps you quantify your bang for the buck.”

The Operating Budget:
1 Calculate actual potential income and other income such as: Laundry income, parking income, water and sewer income, late fees, nonsufficient funds fees, cable income, internet revenue and telephone income.

2 Calculate expenses such as:
1 Payroll
2 Administrative. Fees paid for professional services (an attorney and accountant).
3 Marketing and advertising
4 Management costs
5 Repair and maintenance costs
6 Property taxes
7 Insurance
8 Utilities
9 Capital repairs

CHAPTER 11 You Own it… Now What?
Property manager should do the following:
1 Solving problems daily
2 Handling staffing issues
3 Leasing the property
4 Increasing the cash flow
5 Legal and contracts
6 Maintenance
7 Rent collection
8 Paying the bills
9 Managing the budget
10 Evictions
11 Customer service

If you want to hire a property management company, ask them about the following:
1 Property management fees
2 Time in business
3 Accounting software and capabilities
4 References
5 Policies and procedures
6 Professional affiliations and associations
7 Training programs
8 Real estate licenses
9 Legal and background checks
10 Vendor negotiations
11 Employees

When to fire your property manager:
1 When the property does not perform well as anticipated
2 When the property does not improve its operations year to year
3 When the property really outperforms expectations because management is easy and a management company is not needed

Mistakes you should avoid:
1 Renting to the wrong person
2 Not taking care of your current residents
3 Not budgeting for the unexpected

CHAPTER 12 To Sell or Not to Sell
When you want to sell your property, you need to:
1 Maximize your future potential income. Make your rental rates at the market rate in the area, even at the expense of occupancy. Unlike when you are buying, when you sell “you want to demonstrate the highest future potential income for the property, not the highest actual income.”

2 Running your expenses lean

Profile Image for Corey Schneider.
68 reviews
April 11, 2021
Solid overview of real estate investing basics - more focused on commercial properties/apartment complexes, but solid fundamentals.

1. The Myths and The Magic
a. Myths:
i. You have to already be wealthy to invest in real estate
ii. You need to start small – big deals are too risky
iii. You can “flip” your way to success and get rich w/ no $$$ down
iv. Some people just have Midas touch
v. You need great deal of confidence
vi. You don’t have the time
vii. You have to know peeps to get started (internet solves that)
viii. You have to be seasoned negotiatior/businessperson
ix. You have to know a lot about real estate
x. You can’t be afraid of failing (instead, use failure as motivation)
xi. You have to know tricks of the trade
1. There are no risks, just secrets to success:
a. Set goals
b. Persevere
c. Understand the process
2. You gotta have a goal
a. Must seat goals that are measurable
b. 7 laws of lifetime growth:
i. Make Future better than past
ii. Contribution > reward
iii. Learning > experience
iv. Performance > applause
v. Gratitude > success
vi. Enjoyment > effort
vii. Confidence > comfort
c. Goal can evolve over time
d. Partner = accountability
e. Communicate goal clearly
f. Plan/set milestones
3. It takes a team
a. Partnership qualities:
i. Healthy debate
ii. Open-mindedness
iii. Commitment
iv. Similar values
v. Accountability
b. Key Team members:
i. Attorney
ii. Accountant
iii. Broker
iv. Prop mgr
v. Offer team:
1. Attorney
2. Lender/mortgage broker
3. Investors
4. Contractor/rehab specialist
vi. Others:
1. Appraiser
2. Architect
3. Insurance agent
4. Prop tax consultant
5. Income tax consultant
6. Estate planner
7. Environmental company (asbestos, etc)
8. Surveyor
9. Structural engineer
4. Research can be fun?
a. Level 1 Research = basis on metro area (unemployment, city plans, major industries)
b. Level 2 = meeting face to face
c. Level 3 = interviewing referrals, signing up for newsletters, etc
5. Swampland for sale
a. Market is more important than property
b. Don’t rely on gut feeling until 10+ yrs in business
c. Supply and demand drivers
i. Employment = top priority b/c population follows employment
1. Ensure diversity (different major employers)
ii. Population – find a place with a persona/culture
1. If home cost > rent cost, is a great place to rent. Rent > home cost = bad rental demand
iii. Location – bonus points for high drive by traffic (but avoid major major streets for residential prop)
6. Finding Diamond in the Rough
a. Have a team before identifying property
b. Have specific frameworks (return, location, cash flow, etc) and have broker search for you
c. Read/listen to everything about your mkt
d. If nothing in your mkt is for sale, you have to contact seller before it’s for sale (see p.87 for sample cold call script)
7. Is it really a diamond – the most important chapter
a. Key principles about getting a good deal:
i. Seller’s asking price = irrelevant
ii. You determine prop value, which leads to your offer
iii. W/ multiple units, cash flow determines prop value
iv. Prop eval steps:
1. Verify prop income
a. Actual income – Total income in past yr
b. Actual potential income – Total income in past yr if prop = 100% occupied and owner used all income opportunities
c. Future potential income – same as actual proj income but forward looking (adjust to bring current rents to mkt rate)
d. How you verify income:
i. Unit mix/rent sched – Lists type/#/size/income per unit and in total
2. Verify expenses (repairs, maintenance, util, tax, insurance, cap reserve)
3. Determine NOI
4. Find cap rate and valuation
a. Cap rate = NOI/purchase price (does not consider mortgage/leverage)
b. Purchase price = NOI/cap rate
i. Cap rate comes from pro forma/mkt comp
5. Calculate loan payment and cash on cash profit
a. COC return = profit/down payment
8. The Big Commitment
a. Once you have 70% of info about property, decide
b. Letter of intent = offer + basic timing/contingency info
i. Samples available at mccompanies.com
c. Purchase and sale agreement = commitment + more deal specifics (see p. 127 for terms)
9. Due Diligence
a. See p. 134 for checklist for 2+ unit prop due diligence
b. Get 2+ yrs of income/expenses
c. Get details/timelines for all utility/employee/advertising contracts, evaluate if they’re worth keeping
10. Making Sense of it all
a. Consider what if $ scenarios ahead of time
i. See p. 146-147 for examples
ii. Book includes heavy analysis for commercial prop analysis and income/expense reporting and verification
b. Sample budgets at mccompanies.com
11. You Own it…now what?
a. Ensure good prop mgmt. Must have systems to:
i. Solve daily problems
ii. Handle staffing issues/maintenance peeps
iii. Lease property
iv. Increase cash flow
v. Know laws/contracts
vi. Collect rent
vii. Managing budget – if you’re over/under, do variance analysis to determine why
viii. Eviction
b. Things to ask prop mgrs. (p. 176):
i. Fees (should be 8-12%)
ii. Time in business (should be >3 yrs)
iii. Accounting software
iv. References/list all properties
v. Policies/procedures manual
vi. Professional affiliation/associations
1. + professional certification
vii. Training – do they invest in employees
viii. Copies of real estate licenses
ix. Legal/background check firm name
x. Vendor negotiations/discounts
c. When to fire prop mgr:
i. Property is doing worse than expected
ii. Operations don’t improve overtime
iii. Property exceeds expectations so much that you don’t need prop mgr
12. To sell or not to sell
a. How to sell high:
i. Maximize future potential income
1. Better to have high rents/some vacancy b/c value = NOI/cap rate so if NOI is assumption of full vacancy, value will be higher
ii. More units rented @ high rate = high prop value
b. Lower expenses (to raise NOI)
c. Seek qualified buyers
d. Ensure you have an exit plan
i. EX: 1031 has deadline, so you need mkt/area/properties in mind to reinvest

Profile Image for Khanh Cao.
34 reviews
August 26, 2018
This book is absolutely amazing!

Would recommend to people who are struggling with knowing the real value of their property, the managing process, or just simple want to sell/buy a property but has not known where to start.

The book also has very cool examples (and interesting), a critical insight on dealing with the papers, team members and stuffs, etc.. Just read it and you will see how cool it is. Totally worth the money ;)
90 reviews
March 22, 2021
I like the ideas and believe that they are important but the information is only related to multi-unit and large scale projects. Some bending would be needed to apply the concepts to single family homes.
7 reviews
November 18, 2018
Great book, lots of actionable advice and inspiration. Although it's called the ABCs I feel like it's not the best first book to read since it simply goes headfirst into large multi-family investments, which is not necessarily how everyone wants to start. Since this was the 12th real estate investing book I've read, I was able to take out the unique points I hadn't heard elsewhere yet and appreciate what makes sense for my investing goals. Will definitely read Ken's other books!
28 reviews
January 7, 2020
A very easy read, and very informative. One comment I read on here was that it takes courage to do, and I couldn't agree more. If you find yourself in that group, I recommend you build yourself up to the point where you are confident in yourself and in your abilities first. We all have to go through this stage. Knowledge is not power until it is applied, and through application we get experience, and experience is what gives us confidence. I recommend this book to anyone interested in real estate investing. I will be referencing back to this book as my rental investments grow. You will not find all the answers to all your questions/concerns, nor a step-by-step how-to formula in this book. This is the authors experience and should be taken as such. It is ultimately up to you to dissect and see what information is relevant to your particular situation. I am most definitely adding this book to my library of learning. Cheers. Thanks for reading.
Profile Image for May Udy.
2 reviews2 followers
August 28, 2018
Good book on how the real estate industry works. If you are trying to buy and invest in apartment complexes this is a great how to book. It goes step by step through how to make a purchase, and how to do your due diligence, so you can be confident in your investment. But if you are a looking to invest in smaller properties, like single family homes or duplexes, the advice in this book is more complicated than I would imagine you need. I probably don't need an accountant and a tax consultant for buying a duplex.

Best part of the book is learning how to do the due dillegence and its step by step approach to real estate purchases, management, and sales
Profile Image for Omar Omran.
40 reviews1 follower
September 19, 2015
I finished it in one day. I was looking for a lot of answer but got less than half of them answered. i wish he talked about funding and how to fund properties on low down payments.
i liked how to make the valuation of the property. However, the author talks as a property company not as an individual investor which made difference for me. for example he often says , i asked my team to help me get the number. But i am not a company and i do not have a team.
Also, it applies more to the American market as i can see.
All in all, it is worth surfing.
Profile Image for Tao Lee.
107 reviews29 followers
December 29, 2020
I haven't read a book this good in a while.

% step property evaluation:
verify property income
verify expenses
determine net operating income.
find the capitalization rate and valuation
calculate the loan payment and your profit or cash on cash

earnest money is refundable
a contingency clause defines a condition or action that must be met for a real estate contract to become binding.

social media is a strong marketing strategy you may not even need to pay for marketing.
Identify utility, insurance, ac, parking, plumbing, and lighting.
Profile Image for Bryan Atkinson.
60 reviews4 followers
November 26, 2018
McElroy has an arrogant writing style and self-centered content, which makes this book hard to read. He presents his investing strategy as the only right strategy. I wonder what he would say to the millionaires who made their money by using other real estate investment strategies. I was tempted to not finish the book because of this and its generalness, but the latter chapters include more specific and applicable advise that I found valuable.
Profile Image for Megan.
78 reviews
April 28, 2009
this was a great book about details of real estate investing. I learned alot about how to make investments more strategic and less risky. There were alot of useful formulas and calculations on how to know if the investment is worth it or not and such. Great book if you are interested in learning more about the subject.
6 reviews
July 5, 2011
Fairly decent guide to multi-family commercial properties. Will keep on my shelf and revisit when I start in that market.
28 reviews
May 15, 2022
1. Don't let your parent's perception of the world be yours
Nothing in my upbringin would have prepared me for what I'm doing now... I believe it's up to each of us to let go of the memories and scars of unsupportive fathers, ultra-critical mothers, ridiculing friends, and teachers who labelled us from the first day of school.

2. Seven Laws of Lifetime Growth
a. Always make your future better than your past.
b. Always make your contribution bigger than your reward.
c. Always make your learning greater than your experience.
d. Always make your performance greater than your applause.
e. Always make your gratitude greater than your success.
f. Always make your enjoyment greater than your effort.
g. Always make your confident greater than your comfort.

3. You gotta have a goal (SMART), A goal not written down is a wish.
S - specific
M - measurable
A - agreed upon in writing
R - realistic
T - time activated

4. Test your research ability
a. online
b. through face-to-face meetings
c. through in-depth follow-up phone calls

5. Three principles as foundation
a. verify property income
b. verify expenses
c. determine net operating income
d. find capitalization rate and valuation
e. calculate loan payment and profit or cash on cash (ROI)

6. Find out Property Value
Capitalization Rate = Net Operating Income / Purchase Price
Property Value and Offer Price = NOI / Capitalization Rate
Take kuning house for example, NOI (net income - expense) = 1600 x 12month - 10%repair = RM17280.
*Johor bahru rental unit typically capitalization rate is 6% (0.06)
*so, NOI/ Capitalization rate = RM17280 / 0.06 = RM288,000 (currently priced at 500k)
Offer should no more than 288,000, but now the offer is 500k, so JB houses are overly priced.

In short, good to have a glimpse into how real estate business works. For the future books on real estate, look out for ways to identify property value, as the formula used here for USA might not be applicable in developing country like Malaysia with higher housing price.

Profile Image for Yu On.
27 reviews9 followers
August 25, 2021
I'm currently in college and wanted to learn more about property investing, so I picked this book as my first book to learn about real estate investing. Overall this book is easy to read, digest and is suitable for people that new to this field like me and wanted to learn more about real estate investing. (the book focused more on commercial properties, 100/more units). For me it's a great book to start, now I want to read more about real estate. Any recommendations for me?

Some of the things I learned in this book:

-Who're the key members to hire when u want to start real estate investments. For example, attorney, accountant, Real estate broker, property manager, estate planner, appraiser, property tax consultant, and so on.

-Steps for researching the good property. For example, research about the employment rate, population, convenience of transportation, and A+ neighbors.

- How to know the property is a real diamond or not. For example, verify property income, expenses, net operating income, cash on cash. What docs do you need from the sellers.

- How to manage ur property once u bought it. For example, creating operating budgets, hiring a property management company (if you want).

- When u want to sell your property what u should do before and after you a "For Sell" sign.
32 reviews1 follower
July 7, 2019
Well written introduction in the basics of real estate investing, it's comprehensive enough to give you an understanding of the fundamentals of how to run a real estate business yet brief enough to be non-intimidating.

And to comment on that point I think that is one of McElroy's intentions in writing the book it seems fair to say that numerous people within real estate investing see it as exactly that. It is a passive activity, whereby you buy a property, get a property manager and let the cash roll in and the assest appreciate and boom! Ten years have passed and you're a millionaire.

McElroy firmly disputes this.

This book removes the rose-tinted glasses for the beginner and focuses on that fact that like every good investment/business you need to:

1) Do your homework before buying the asset! (Due Dilligence)
2) Your new business requires all the love and attention that any other business you're trying to run requires.

There are numerous things that I will personally take from this read but one of the most basic is; The value of your asset is determined by how well it operates.

In other words, ensuring your portfolio is being run as efficiently as possible is not only healthy for your cash flow, it also ensures that it will continue to appreciate.
154 reviews7 followers
February 12, 2020
I have only read one real-estate book other than this one, which means that my knowledge about real estate isn’t even near adequate. But despite of that, this book still didn’t provide me with more proper information in real estate that could enhance my insight of the field.
The “ABCs” in the title suggests that it’s meant for beginners, and will go on in everything a beginner must know, but the truth is, I feel that many important aspects of real-estate investing have been skipped. Also, the book addresses multiple-units properties, and didn’t mention whatsoever single-unit properties.The information was simply not informative, it was in fact very narrow and close, nothing of much importance. It’s not enough for someone to grasp the true nature of real estate and how the industry works, the fact it didn’t address natural appreciation proves my point.
I believe that everything discussed in the book is mentioned in the earlier book, but with even less conclusive detail. Also, entire subjects were mentioned in the prior book, that were absent in this one. (I speak of the prior book to explain that I only read one book, alas my knowledge is limited, but despite of that, the book didn’t serve what was expected.)
1 review
July 14, 2021
The ABC's of Real Estate Investing is a book about real estate investing written by Sam Chandola. The book covers topics such as what to do before you invest, how to find the right opportunity, and how much investment capital you will need for each deal. It also talks about due diligence process and other expenses that are involved in this type of investing. The author has been doing this for over 30 years so he knows what he is talking about! This book could be very valuable if you're considering getting into the game yourself or just want to learn more about it from someone who has done it successfully himself. I recommended the book to all my colleagues and real estate agents at https://betterestimate.com This book is a great introduction to the world of real estate investing. It provides you with all the basics for getting started and how to get your feet wet in this exciting, yet challenging industry. This book will help you understand what it takes to become successful in this field so that you can make better decisions on behalf of yourself and your family's future.
17 reviews
September 1, 2020
This book was a really good book to read to learn about real estate investing. It talked about the importance of property management, why you should rely on cashflow and not appreciation to be successful in real estate, and how to get partners for a deal. Another thing that was emphasised was the importance of finding a good deal. As a bad deal would end up failing which would make it harder to find partners in the future. Overall this book is a really good guide on getting started with real estate. It did a number of things well. The major thing that the book did was provide a comprehensive amount of detail for multi-family investments. It was very specific on what to do, and what not to do when investing in multi-family real estate. The only thing that was not perfect in the book was how it did not really give much advice on single family real estate, but other than that it was great.
Profile Image for Jackson Udy.
4 reviews1 follower
August 28, 2018
Good book on how the real estate industry works. If you are trying to buy and invest in apartment complexes this is a great how to book. It goes step by step through how to make a purchase, and how to do your due diligence, so you can be confident in your investment. But if you are a looking to invest in smaller properties, like single family homes or duplexes, the advice in this book is more complicated than I would imagine you need. I probably don't need an accountant and a tax consultant for buying a duplex.

Best part of the book is learning how to do the due dillegence and its step by step approach to real estate purchases, management, and sales
15 reviews1 follower
February 11, 2020
This was my first Rich Dad book and I really enjoyed listening to it. Ken is a great storyteller and was able to convey the message in a very interesting way. I learned a lot from this book, so much that I am ready to delve into the real estate market. I know I will still make mistakes, but this book has gotten me started and given me some foundation. Now it's time to apply the knowledge.
I actually listened to the audible book, and the narrator did a great job delivering Ken's message, as if I was actually conversing with Ken.
Profile Image for Faisal Ebrahim.
12 reviews
November 13, 2020
This book so far showed me that there is no secret serum for an amazing real estate investor. The key to being a successful investor is studying how to forecast future expenses and incomes. With the advises in that book I have learned a lot about property management and the things a property manager is responsible of. Also, I have learned how to calculate the income of the property, the offer price to buy a property and many other calculations. The book is simple to read and carries some important informations for beginners.
23 reviews
July 19, 2022
This book directly inspired me. Indeed, it is possible to rise well in real estate and get a decent income if you delve into all the intricacies of this business. I got acquainted with realtor fees in florida and I think to start my own business. The whole process of buying or selling a home becomes more efficient if you have an agent by your side. You don't even have to pay a commission when buying a home. These fees are already factored into the price of the home. I hope everything works out for me.
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