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What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures, Updated Edition, 2nd Edition

Book Description

The Classic Guide to Real Estate Investing—Updated for a Re-energized Industry!

Real estate is once again a great investment, and this bestselling guide provides everything you need to know to get in now and make your fortune.

What Every Real Estate Investor Needs to Know About Cash Flow removes the guesswork from investing in real estate by teaching you how to crunch numbers like a pro, so you can confidently judge a property’s value and ensure it provides long-term returns.

Real estate expert, Frank Gallinelli has added new, detailed investment case studies, while maintaining the essentials that have made his book a staple among serious investors. Learn how to measure critical aspects of real estate investments, including:

  • Discounted Cash Flow
  • Net Present Value
  • Capitalization Rate
  • Cash-on-Cash Return
  • Net Operating Income
  • Internal Rate of Return
  • Profitability Index
  • Return on Equity

Whether you’re just beginning in real estate investing or you’re a seasoned professional, What Every Real Estate Investor Needs to Know About Cash Flow has what you need to make sure you take the smartest approach for your next investment using proven calculations.

Table of Contents

  1. Cover
  2. Title Page
  3. Copyright Page
  4. Dedication
  5. Contents
  6. Preface
  7. Introduction
  8. Part I How to Analyze a Potential Real Estate Deal
    1. 1 Do Your Homework: How to Gather the Data Needed to Make an Investment Decision
      1. Property-Related Data
        1. Ask to See the Leases
        2. Look at the Property Tax Bill
        3. Spot-Check Utility Bills
        4. Ask to See the Appropriate Sections of the Seller’s Tax Return
        5. Recite the Representations About the Leases and the Schedule of Rent Income in the Offer to Purchase
      2. Market-Related Data
        1. Investigate Comparable Sales
        2. Look for Lease Rates and Operating Expense Data
        3. Find Out About Local Capitalization Rates
    2. 2 Financial Detective Work Before You Buy: Finding the Truth Behind What the Seller Is Telling You
      1. Basic Definitions
      2. Analyzing Similar Properties
      3. Comparing Expense Ratios
      4. The Annual Property Operating Data Form
    3. 3 How the “Time Value of Money” Should Influence Your Real Estate Investing Decisions
      1. Real Estate Applications
      2. Using Excel to Make Real Estate Calculations
      3. What Every Investor Needs to Know About Cash Flow: Calculating the Present Value
      4. Evaluating Leases
      5. Mortgage Calculations
    4. 4 How to Estimate What an Income Property Is Really Worth
      1. Cash Flow and Taxable Income
      2. Taxable Income or Loss
      3. Cash Flow Before Taxes
      4. Cash Flow After Taxes
        1. A Case Study
      5. Resale—How to Forecast the Appreciation Potential for a Property
    5. 5 Measuring the Return on a Real Estate Investment
      1. Payback Period, Cash-on-Cash Return, Gross Rent Multiplier, Debt Coverage Ratio
      2. Capitalization Rate
      3. Derived Capitalization Rate
      4. Discounted Cash Flow
      5. Internal Rate of Return
      6. Financial Management Rate of Return and Modified Internal Rate of Return
        1. The Problems with IRR
        2. Financial Management Rate of Return
        3. Modified Internal Rate of Return
        4. Capital Accumulation Comparison
    6. 6 Case Studies: Apartment, Mixed-Use, and Triple-Net Lease
      1. Apartment Building Investment
      2. Mixed-Use Property
        1. Retail Tenants
        2. Residential Tenants
        3. Triple-Net Lease
  9. Part II Thirty-Seven Calculations Every Real Estate Investor Needs to Know
    1. 7 Calculation 1: Simple Interest
    2. 8 Calculation 2: Compound Interest
    3. 9 Calculation 3: Rule of 72s
    4. 10 Calculation 4: Present Value of a Future Cash Flow
    5. 11 Calculation 5: Gross Rent Multiplier
    6. 12 Calculation 6: Gross Scheduled Income (Potential Gross Income)
    7. 13 Calculation 7: Vacancy and Credit Loss
    8. 14 Calculation 8: Gross Operating Income (Effective Gross Income)
    9. 15 Calculation 9: Net Operating Income
    10. 16 Calculation 10: Capitalization Rate
    11. 17 Calculation 11: Net Income Multiplier
    12. 18 Calculation 12: Taxable Income
    13. 19 Calculation 13: Cash Flow
    14. 20 Calculation 14: Cash-on-Cash Return
    15. 21 Calculation 15: Sale Proceeds
    16. 22 Calculation 16: Discounted Cash Flow
    17. 23 Calculation 17: Net Present Value
    18. 24 Calculation 18: Profitability Index
    19. 25 Calculation 19: Internal Rate of Return
    20. 26 Calculation 20: Price, Income, and Expenses per Unit
    21. 27 Calculation 21: Price, Income, and Expenses per Square Foot
    22. 28 Calculation 22: Operating Expense Ratio
    23. 29 Calculation 23: Debt Coverage Ratio
    24. 30 Calculation 24: Break-Even Ratio
    25. 31 Calculation 25: Return on Equity
    26. 32 Calculation 26: Loan-to-Value Ratio
    27. 33 Calculation 27: Points
    28. 34 Calculation 28: Mortgage Payment/Mortgage Constant
    29. 35 Calculation 29: Principal Balance/Balloon Payment
    30. 36 Calculation 30: Principal and Interest per Period
    31. 37 Calculation 31: Maximum Loan Amount
    32. 38 Calculation 32: Assessed Value, Property Taxes, and Value Indicated by Assessment
    33. 39 Calculation 33: Adjusted Basis
    34. 40 Calculation 34: Depreciation
    35. 41 Calculation 35: Gain on Sale
    36. 42 Calculation 36: Land Measurements
    37. 43 Calculation 37: Building Measurements—Gross Building Area, Usable Square Footage, Rentable Square Footage, Loss Ratio, Net Rentable Area
  10. Appendix
  11. Index