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Evaluating an Income Property and the Birth of RealData — Second Episode in My New Podcast Series

Welcome back to my new podcast series. In my first interview I answered some questions about how I got started as an investor, and I hope my experience provided some ideas for you if you’re just looking to get started yourself. 

Now I want to take you on the next few steps in my journey and talk about how I came to learn about analyzing income-property investments.

In this interview I tell you about my first commercial investment, which is where I really found my way in leveraging technology, and which led to the birth of RealData software.

Below is a snippet of the video version of this podcast. You can watch the entire video on youtube, or visit our complete youtube video library (lots of good stuff there for investors). You can also listen to the audio version of my podcasts on Spotify, Apple, or on most anyplace you usually get your podcasts.

 

 
Copyright 2023,  Frank Gallinelli and RealData® Inc. All Rights Reserved

The information presented in this article represents the opinions of the author and does not necessarily reflect the opinions of RealData® Inc. The material contained in articles that appear on realdata.com is not intended to provide legal, tax or other professional advice or to substitute for proper professional advice and/or due diligence. We urge you to consult an attorney, CPA or other appropriate professional before taking any action in regard to matters discussed in any article or posting. The posting of any article and of any link back to the author and/or the author’s company does not constitute an endorsement or recommendation of the author’s products or services.


Getting Started in Real Estate Investing — First Episode in My New Podcast Series

You probably all know me as a “numbers guy” who focuses on metrics and analysis of potential real estate investments.

But I hear lot of people who sound frustrated or discouraged by a very basic question: Just how do I get started?

So I’m going to step back from my spreadsheets for a bit and try to address that question — and I’ll do it in this first of a series of podcasts where I’ll talk about the not-so-exotic way I began. Spoiler alert: I’ll discuss something I did back then that I didn’t know had a name, something called BRRRR.

The video below is a snippet from the first podcast. You can listen to the whole thing on Spotify, Apple, or on most anyplace you usually get your podcasts.

 

UPDATE: Episode 2 is available now!

 
Copyright 2023,  Frank Gallinelli and RealData® Inc. All Rights Reserved

The information presented in this article represents the opinions of the author and does not necessarily reflect the opinions of RealData® Inc. The material contained in articles that appear on realdata.com is not intended to provide legal, tax or other professional advice or to substitute for proper professional advice and/or due diligence. We urge you to consult an attorney, CPA or other appropriate professional before taking any action in regard to matters discussed in any article or posting. The posting of any article and of any link back to the author and/or the author’s company does not constitute an endorsement or recommendation of the author’s products or services.


What Every Real Estate Investor Needs to Know About Cash Flow — thanks for the recent reviews

Many thanks to one of my favorite podcasters, Keith Weinhold, for his youtube review of my book, “What Every Real Estate Investor Needs to Know About Cash Flow.”

Also a “thank you” to Flagship Bank for including my book in their list of  “…the best commercial real estate investing books you can buy…”

—Frank Gallinelli

President, RealData, Inc.


“The Top 10 Real Estate Finance Books Every Investor Should Read.”

investment book

I was honored to find that one of my books was featured at the top of a recent article on Motley Fool: “The Top 10 Real Estate Finance Books Every Investor Should Read.” The book, “What Every Real Estate Investor Needs to Know About Cash Flow,” was originally published in 2004, is now in its third edition, and is alive and still doing well —  a surprise certainly to me, and probably to the publisher as well.

 

I often get asked what accounts for the book’s long-term appeal, and I think there may be two reasons: First, I avoided “topical” or trendy content, preferring to stick with core concepts and math-based metrics don’t change with time. And second because I really dislike the get-rich quick hype that seems to characterize so many real estate books, and so I shunned that, too.

I don’t think they’ll ever make a movie out of it, but I’m satisfied if it has helped some readers make informed and unemotional investment decisions.

You can find the article here.


New Online Course—Introduction to Real Estate Investment Analysis

REIA Course Logo croppedReaders of my books—especially What Every Real Estate Real Estate Investor Needs to Know About Cash Flow…—have been asking if I would ever be teaching a course. The answer, finally, is “yes.” I’ve just released a comprehensive online course with more than 40 video lessons (including case studies) plus quizzes, practice problems, and other resources.

Real estate investing is all about the numbers, and in this course I teach you about the metrics, concepts and techniques used by successful investors—how to make smart and profitable investment decisions, and how to be alert to dicey deals. In my case studies, I show you not only how to run the numbers, but also how to look beyond the raw data for clues about potential opportunities and pitfalls.

You can scope out the course and the complete syllabus at learn.realdata.com

Wishing you successful investing,

Frank Gallinelli


“10 Commandments for Real Estate Investors” ebook is now free

Real estate investing is an excellent way to build wealth, but it can also be a snare for those who lack preparation, planning, and realistic expectations. In this brief series of essays called 10 Commandments for Real Estate Investors, I try to guide you through some investment principles you can live by. From cautionary tales about the process of due diligence and the hazards of self-styled “experts,” to discussion of identifying your investment objectives, I urge you to focus on best practices.

You can get this ebook free currently at Amazon for the Kindle e-reader and at iTunes for Apple-based platforms.

If you don’t have a Kindle, you can download one of Amazon’s free reading apps for your PC, phone or tablet.

Wishing you great success with your investing,

Frank Gallinelli


Frank Gallinelli to Speak at BiggerPockets Real Estate Investing Summit and Expo, March 23-24, 2012

BiggerPockets — an 85,000-member community of real estate investors — is having its first Real Estate Investing Summit in Denver, March 2012, and has invited Frank Gallinelli as a featured speaker. Frank is the founder of RealData Software and the author of What Every Real Estate Investor Needs to Know About Cash Flow… and Mastering Real Estate Investment. He will speak on, “Real Estate Investment Analysis, Methods and Mindset — What to Know, What to Do.”

According to BP founder Josh Dorkin, “BiggerPockets is planning on having dozens of expert investors, commentators and educators speak to an audience that is expected to include hundreds of attendees from around the country. Through lectures, roundtables, and other session formats, the event will cover topics including rehabbing, landlording, investing in notes & mortgages, real estate financing & capital raising, commercial investing, and much more.”

You can sign up to attend by following this link. Hope to see you there.


For Real Estate Investors: A Lesson in Clarity

Recently, I was conducting the last class in my course on real estate investment analysis that I teach in Columbia’s MSRED program.  I had assigned my 55 students a series of case studies (much like those in my book, Mastering Real Estate Investment) and told them to build financial pro forms and discuss the reasoning behind their analyses. After reading and commenting on all those analyses, I felt there was one overarching theme on which I wanted to focus my final remarks to the troops: The theme was “clarity.”

Trying to reduce a course to a single word might seem unrealistic (because it is), but I really had more than one angle on the notion of clarity in mind. Even combined, those notions would not replace the real content of a course in investment analysis, but they might express some essential principles that are sine qua non — “without which, nothing” — for investors.

Be Clear About Your Objectives

Before you fire up your spreadsheet program or sharpen your pencil, you need to be very clear about your objective (or objectives) in analyzing the property. For example:

  • Are you a potential buyer, trying to establish a reasonable offer on a particular property?
  • Are you seller or broker trying to justify your asking price?
  • Are you a buyer or broker, trying to demonstrate to a seller that his or her price and terms would not be acceptable to a reasonable and prudent investor?
  • Are you seeking financing, or refinancing and need to demonstrate to a lender that this loan will meet their underwriting expectations?
  • Are you assembling a partnership and trying to show potential equity investors that this deal will make economic sense to them?

You are not trying to create alternate realities, but you might be harboring more than one objective in a given situation. For example, for your private use you might want to look at a range of possible offers by creating best-case, worst-case and in-between scenarios; but in making a presentation to the seller, you would surely not begin by volunteering what you believe to be the highest price at which the investment might have a chance of success.

In making a presentation to a lender, your focus must be to ensure that your presentation includes items like debt coverage ratio, allowance for possible vacancy, and projected cash flows — items that will have an immediate impact on an underwriting decision. For equity partners, you want to be sure that you can demonstrate not only that the property itself makes sense, but that the particular investor, considering allocations and preferred return, can expect an acceptable rate of return on cash invested.

You are typically trying either to make a personal decision about a property or to “sell” your point of view to a third party. Being clear in your own mind about the purpose of your pro forma allows you to focus on how you analyze the property and what information is of greatest importance to your intended audience.

Be Clear About Your Use of Terminology

Real estate, like most businesses and professions, has its own language – terms that carry very specific meaning. The misuse of real estate investment terminology can have several possible consequences, all of them bad.

  • You can substantially skew the results of an analysis by not being clear in your understanding of important terms. Some of the more egregious examples I have seen include:
    • Not understanding the real-estate-specific definitions of terms like “operating expense” and “Net Operating Income.”  I have often seen investors try to include mortgage payments, capital improvements, or reserves for replacement as operating expenses. This mistake can drastically affect your estimate of a property’s worth.
    •  Not understanding an important term like “capitalization rate.” I have seen investors try to estimate value by applying a cap rate to the property’s cash flow instead of its Net Operating Income. Big mistake.
  • You can bring a dialog or negotiation to a grinding halt by being unclear and offhand in your use of what should be unambiguous terms.  Yes, “price” is a legitimate English word. But if you use it as part of an analysis or presentation, you will leave your reader stumped.  Do you mean the seller’s asking price, the buyer’s offered price, the actual closed selling price?  You can tell me that a building has 20,000 square feet, but do you mean usable square feet or rentable square feet?  It makes a difference.
  • You can establish your identity as a rank amateur. Nothing will earn you a sandwich board with the word “newbie” on it quicker than misusing terms or lapsing into incomprehensibly vague language. Credibility matters — just ask your lender or your equity partners.  Be clear. Be precise.

Be Clear When You Build Your Pro Forma or Presentation

If you insist on being a do-it-yourselfer, and you plan to give your pro forma or presentation to a third party, keep in mind that nothing will unsell your argument faster than a jumbled pile of numbers.  Your information should flow and be segmented in a logical order (e.g., don’t show someone the income after the expenses, or the debt service after the cash flows). The reader should be able to apprehend the key metrics with a quick scan of the page, then go back and fill in the details. If your report turns  into a scavenger hunt for vital information, then you will fail to deliver your message. No loan, no partner, no deal.

Your success as a real estate investor requires serious number crunching, but it doesn’t stop there. You must be able to convey your analysis of a property in terms that are unambiguous, accurate, and relevant to your audience. Clarity is what you need.

–Frank Gallinelli

Get some clarity, as well as accurate calculations and industry-standard reports. Use RealData’s Real Estate Investment Analysis, a market leader for almost 30 years, to run your numbers and create your presentations.


Real estate finance and investment education

A number of colleges and universities have been using my books as well as my company’s Real Estate Investment Analysis software for instructional purposes in their classes on real estate finance and investment (as have I at Columbia).

The “Express Edition” of the software dovetails nicely with my books, but some instructors recently asked for inclusion of a few of the features from its big brother, the Pro Edition. Happy to accommodate.

And so… we released a new version of REIA Express which does just that.

If you teach real estate finance or investment, note that we have an academic version of the software available for classroom use. Your students can use that to work through many of the problems and case studies in the books.

If you would like to find out more about academic use of this software, please contact me via our online contact form.


Making the best seller list at realtor.org

To my surprise and delight, when I opened my Twitter account this morning (twitter.com/fgallinelli) I found news of one of my books making the 12/31/09 best seller list at Realtor® Magazine.  There will be no living with me today!

What Every Real Estate Investor Needs to Know About Cash Flow… was released by McGraw-Hill six years ago, and in a second edition last fall.  It covers what I believe are the key concepts and calculations that every real estate investor ought to understand when making a decision to buy or sell.

I tried to make the book accessible and useful to beginners, students, and experienced investors alike.  It works well for me when I teach my continuing ed classes and my grad-school course in real estate finance at Columbia.  I hope it has been or can be helpful to you as well.

Many thanks to Realtor® Mag for the plug!

Frank Gallinelli

P.S. Speaking of plugs, I have a sequel: Mastering Real Estate Investment

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