Book Review: What Every Real Estate Investor Needs to Know About Cash Flow.... by Frank Gallinelli

Initial thoughts about this book is that it is thorough and detailed. Those two words may not even do this book justice. If you're looking for a book that has step-by-step calculations about how to analyze real estate, look no further! This book is for you! I believe the content in this book is beneficial to those who are just starting out because it is so detailed. Having said that, it is a little dense for newbie investors. Even seasoned investors would be able to go back into this book for reminders about how to properly analyze different types of property effectively.

The book is broken into 2 parts. The first part talks about how to analyze any real estate deal and the second is "37 calculations every real estate investor needs to know." The two sections overlap occasionally because he explains how a calculation is used in a practical sense in part 1 and then go over that calculation again in part 2. I enjoy in the first part the case studies especially. He uses real world examples and shows all the calculations using realistic numbers/ scenarios.

Here are my five key takeaways from What every real estate investor needs to know about cash flow and 36 other key financial measures by Frank Gallinelli.

1) Do your due diligence before purchasing a property.

-Frank goes into significant detail about everything that an investor could (and probably should) look into before making any moves on a property. This includes the current rent of the property, market rents, comparable properties in the area, utility bills (who pays them? is there common area that only the landlord pays for?), snow removal, and capital expenditures to name a few.

2) Realize that time value of money plays an important factor when buying a property

-Is a dollar today worth the same in a year? 5 years? 10 years? Contrary to what my younger self thought, it is not. Because money's worth deteriorates over time, this needs to be taken into account when buying a property. In my personal investing, I plan on buying and holding assets for most of my lifetime. If I didn't take time value of money (TVM) into account, I could actually be losing money over the life of that investment, despite gaining money in the short term.

3) Calculating what an income producing property is worth is essential

-How would an investor know what to offer on a property if they don't know how much it is worth? The two go hand-in-hand. In order to make a wise investment, the buyer needs to know ahead of time what the property is worth, despite the asking price. Let's take for example a duplex priced at $140,000, cap rate at 8% and net operating income of $1200/ month total. Using one of the calculations mentioned in the book, we can take the yearly net income and divide by the cap rate to get the property's worth. (1200*12) / .08 = $180,000. As you can see, the property is priced below it's worth, so it is definitely something to look into more!

4) Knowing the expected return on investment

-This is similar to the previous point. Knowing the return on the investment helps to determine whether that property is worth your time. It also helps you to compare the return on one investment to another. For instance, is a property that only has a return of 4% worth it when someone can invest in index funds that might produce 5, 6, or a higher percent? It depends on the investor.

5) The 36 financial measures

-The 36 additional measures in the book are helpful in calculating the last two points along with other important factors that go into the analysis. These factors include NPV, IRR, MIRR, and cash flow amongst others.

Overall, I think this book is an excellent reference for real estate analysis and general investing terms. I give it a 7.5/10 for thoroughness and all the information it includes.