Monthly Archives: April 2020

Best Real Estate Investing Books for Beginners

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Are you looking to get into the world of real estate investing? This is a great opportunity for people to make extra money by letting your property do all the work: if you know the tricks of what makes a good investment. There are classes available for those who want tutorials from the best, but if you want to get a jump start, the best real estate investing books can give you everything you need to know.

So what are the books that real estate gurus like Jason Hartman use to guide their investment? As more people look to real estate as an easy way to make a passive income that lets them retire early, we’re seeing a boom in books that are suitable for beginners while also providing content for veteran investors. In this article, we’ll look at the best real estate investing books for beginners, and how they can help you get a fast start in the real estate market.

Our Top Real Estate Investing Books for Beginners:

The Millionaire Real Estate Investor

Is there a better place to start than with an aspirational book that will show you where you can go if you hit it big? Written by Gary Keller, this book is a collection of wisdom, experience, and helpful tips from one hundred of the most successful real estate investors in the world, all of whom are now millionaires. Geared towards beginners and full of ideal tips for making your first investments, it’s also a great motivational book that will get you excited about jumping into the real estate pool. 

The Book on Rental Property Investing

If you’re looking for a practical book that focuses on long-term investment for rental income, this guide from Brandon Turner is an ideal start full of easy-to-use strategies. Turner is a successful real estate investor and vice president of one of the top real estate websites available, and his focus in this book is on generating cash flow and avoiding the most common mistakes of rookie investors.

The step-by-step approach is ideal for keeping on top of things all the time. You never know when you need help to make a tricky investment decision.

The House Hacking Strategy

Some of the biggest challenges of real estate investing are the overhead costs of rent or mortgage along with the expenses of flipping a house and getting it up to sale shape. With this exciting book by Craig Curelop, it becomes possible to “hack the system” and save thousands of dollars on monthly costs by getting someone else to pay some or all of your rent or mortgage.

With this strategy, you turn your house or apartment into an asset that constantly generates money for you that you can flip into other investments with little to no work.

The Book on Flipping Houses

One of the most profitable strategies for real estate investing is house-flipping, but this requires a lot of knowledge on this risky, fast-paced practice. J. Scott’s book on the practice focuses on all areas of the discipline – finding the right properties to flip, rehabbing them for sale without eating too much into your sales, and finding the right buyers who will give you the maximum gain on your investment.

Like the others in the “The Book” series, this is a practical and comprehensive book ideal for giving new investors an exhaustive course in this area of real estate investment.

Retire Early With Real Estate

The best real estate investing books always keep their eye on the main goal of every investor – replacing that tiring nine-to-five job with a life of reaping money from investments. This book by Chad Carson, a wildly successful real estate investor who retired at age thirty-seven on his investments, focuses on the core investment techniques that will let you become financially independent.

It urges you to think big and start by creating your own five-step plan to retiring early on real estate income, and it’s full of practical advice ideal for anyone starting out in the investment world.

Rich Dad, Poor Dad

Equal parts investment guide and autobiography from investment guru Robert T. Kiyosaki, this classic book is a comprehensive guide on how to build and grow your wealth. Kiyosaki makes the case for tangible assets like real estate over intangible ones, and it’s full of strong advice on general personal finance help.

But if you’re looking for specific real estate advice, this book is helpful for its in-depth guide on how to generate passive income and ensure you’re working smarter, not harder, as you build your portfolio.

Buy, Rehab, Rent, Refinance, Repeat

Another essential guide for house-flippers, this book by David M. Greene has developed a comprehensive approach to turning around houses in the fastest timeframe, ensuring maximum profit. The biggest challenge facing real estate investors is ensuring healthy cash flow, and this book sidesteps that by focusing on how to get a speedy return on your investment.

It tackles each of the five steps to effective house-flipping, focusing on practical strategies like identifying the best properties to flip, negotiating effectively, and increasing your property value for little cost.

Every Landlord’s Tax Deduction Guide

No one likes paying their taxes, but if you’re going to make a career of real estate investing, it’s essential to know the ins and outs of tax policy. For those who are planning to handle their own taxes, Stephen Fishman’s book is an essential guide to the tricky layers of real estate tax policy if you want to avoid paying costly fines to the government.

It also focuses on the specific tax benefits landlords can take advantage of to boost their bottom line and what expenses can be deducted from tax filings.

The Perfect Way to Kick Off a Real Estate Investing Career

With the best real estate investing books, you’re now fully equipped to make your first investment. Used alongside digital tools like those available from Real Estate Tools, these books can help you get on the path to financial independence.

investor calculating cap rate

How to Calculate Cap Rate for Rental Properties

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As you start looking into rental property investments, one of the first terms you’ll hear is cap rate for rental properties. What is it, how is it calculated, and is it actually a good metric for determining the value of your property?

What is Cap Rate?

The cap rate (or capitalization rate) is the net operating income divided by the market value of the property.

cap rate formula chart

How to Calculate Cap Rate

To calculate the cap rate of a property, you will first need to find the Net Operating Income or NOI. The NOI is the income from rent minus expenses. If you’re looking at a potential property, you can get the income and expense reports from the current owner or you can estimate expenses. You can also contact the county accessor to find the property taxes for a specific property.

Once you have your net operating income, you divide the NOI by the price of the property to determine the cap rate. The more detailed your calculations, the more accurate your cap rate will be. For most properties, an accurate operating cost summary includes property management fees, HOA fees, taxes, insurance, and estimates for maintenance or repairs.

How to Value Real Estate Using Cap Rate

To determine the market value of a property using the cap rate, you will need the cap rate and the net operating income.

To find the market value of a property using the cap rate, determine the NOI and divide it by the cap rate to calculate the market value.

A simple example would be if your target cap rate is 10% and you estimate that the NOI is $10,000 per year. Divide $10,000 by .1 and you get a market value of $100,000.

What the Cap Rate Is Good For?

The cap rate is just one among many metrics and it has many limitations. It’s important not to focus solely on the cap rate when making an investment decision, for reasons that will be explained below.

Cap rates can give you a quick way to compare similar properties, but it’s important to remember that what counts as a good cap rate in one local market might not be a good rate in another local market. It can be useful when you’re comparing similar properties in a single local market. The cap rate can also come in handy in flagging unusual expenses. As you’re digging in to operating expenses to calculate the cap rate, you may notice an unusual cost that could be addressed. For example, an inefficient HVAC system could be raising operating costs dramatically.

Finally, a quick cap rate calculation can also help you understand trends in a local market. If you’re able to get data on cap rates for a specific area for five to ten years back, you can generate a profile that shows you at a glance what profitability is like and whether the trend is up, down, or flat. You must dig deeper before making any decisions, but knowing the trend might be helpful to start.

What Is a Good Cap Rate for Rental Properties?

Some experts use 10% as a standard minimum acceptable cap rate. A lot depends on the area where you’re planning to invest. In a profitable real estate market with steady, growing rental demand, an 8% cap rate might be much better than an 11% cap rate in a market that’s been stagnating for a while.

It’s important never to use the cap rate for rental properties as your only metric for making an investment decision, and especially when considering residential real estate. A better metric to consider is the overall return on investment. After that, the cash-on-cash return can also give some useful data, but, like the cap rate, it doesn’t give enough information to be the sole determiner for any investment decision.

Is Cap Rate a Good Metric for Rental Properties?

Cap rate doesn’t account for appreciation or leverage, which are two crucial metrics you can’t leave out and truly understand the value of a property for investment.

Popularity in Commercial Real Estate

The cap rate is a popular in the commercial real estate market but it is not as useful for single-family rentals. Firstly, commercial real estate doesn’t appreciate as well as residential because it’s based on income, and that income is tied to the consumer price index. Secondly, commercial real estate doesn’t have good leverage compared to residential. Lastly, financing isn’t as good with commercial investments as with residential.

Other Measures

The overall return on investment is the key metric to look at for residential real estate investment. If you want a metric close to the cap rate, use cash-on-cash return instead.

Cap rate and cash-on-cash return don’t account for inflation-induced debt destruction, the hidden wealth creator in real estate investments. They also don’t include the overall lifetime value of your property portfolio and the huge advantage you get from the 1031 tax-deferred exchange, which allows you to reinvest capital without paying tax at the time of sale. That’s in contrast to other forms of investment where you have to pay a significant tax before you can reinvest the money.

There are a few minor areas where the cap rate can be helpful, but overall it’s a flawed metric because it doesn’t consider appreciation and leverage.