Continuing Ed.: Is an Investment Class Right for You?

From time to time I teach a series of continuing education classes for Connecticut brokers and agents.  The courses are entitled “Understanding Real Estate Investments” — there is a Level 1 (introductory) and Level 2 (intermediate), each for 3 credit hours as electives. I’ll be doing so again from late March to mid-May, 2010.

Something I often hear is, “Oh, I’m a residential agent so I guess that’s not for me.” Of course I have just the opposite in mind. The residential agent or broker is the ideal candidate for these classes. 

To explain why, I’d like to share a few observations I make to my students before I get into the meat and potatoes of my classes’ subject matter: What are these courses about? Why do I teach them?  And, why should you even care?

What are the courses about?

In the first class, I talk about how an investment property differs from a single-family personal residence. In particular, I discuss how the approach to value is different. I review some of the specialized vocabulary of investing and I talk about how you go about projecting your cash flow. I focus a good deal on a topic that almost everyone should understand better than they do: the time value of money.

In my intermediate class I cover financing and underwriting for investment property. I also discuss how to use various rate of return metrics like present value and IRR to judge how well you’re doing (or not) and I spend some time actually analyzing a property to show how you might identify the good, the questionable, and the real deal-killers.

Why do I teach this?

I’ve been in the real estate software business for nearly 30 years and have dealt with a lot of investors and developers in that time.  Most, as you might expect, have been quite knowledgeable, including many that I would describe either as seasoned veterans or remarkably astute beginners.

But then there are the other folks. They are the ones who have charged ahead boldly, sometimes armed with millions of dollars of other people’s money (i.e., money from partners, not just banks) and entirely unencumbered by much understanding of the financial dynamics of the deal they’re trying to put together. It has been my encounters with such would-be investors that launched me on my mission to attempt to promote financial literacy, in particular among real estate investors. I began that mission innocently enough by writing some articles, then a few books; then on to teaching real estate finance at Columbia and now to continuing ed in Connecticut.

Why do you care? 

Back to my original thesis: You are a residential agent or broker and I’m urging you to learn just a little about cash flows and cap rates and rates of return.  Why? I think there are at least two good reasons: one professional, the other personal.

In a previous life (think early Carter administration), I was both a residential and commercial sales manager. I lived right on the DMZ that separates those two specialties. In general, specialization is a good thing  —  I don’t recommend visiting your dentist for by-pass surgery — but in real estate brokerage it can lead to a kind of entrenched sales-prevention mindset.

Most if not all investors live in houses or condos of some sort, so sooner or later almost every investor will do business with a residential agent. If you are that agent and you understand the financial basics of investing, you can accomplish several worthwhile objectives.

 * You can burnish your personal credibility as a real estate professional; you understand not just your residential client/propspect’s lifestyle goals but also his or her business goals.  That becomes clear when you discuss both residential and investment  real estate intelligently.

 * If that person ypu encounter is also a propect for a commercial listing or sale, you can refer the prospect to the appropriate commercial specialist without your having to drop off the radar.  You are knowledgable enough to deserve at least a seat at the table, and you can keep on eye open to be sure your referral is being handled well.

Finally, on the personal level, why shouldn’t you participate in real estate investing?  Property is your business. You already know a great deal about neighborhoods, local employment trends, sources of financing from your residential activity.  Add to that an understanding of how to parse the data from potential rental property investments and you’ve written the resume of a successful investor.

To get the details about my upcoming classes — dates and times, locations —  and to enroll, go to our website at http://www.realdata.com/ce

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