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How to Make Money in Commercial Real Estate: For The Small Investor ReviewWhile Mr. Masters does make several good points, most of the information in this book could apply to any real estate investment: whether it be residential or commercial even though the title of this book clearly makes it appear that this book will focus on commercial properties, which it does not.Mr. Masters starts the book by making a quick comparison between real estate and other investments, such as holding your money in cash, saving accounts, securities, collectibles, and precious metals. He gives the advantages and disadvantages of each: namely, liquidity versus returns. Now, we get into the meat of the subject matter. First, Mr. Masters argues that an investor should own their own primary residence and have 12 months of expenses in the bank before venturing to invest in commercial real estate: conversative, but good enough advice. He gives comparisons between different commercial properties you can invest into, with garden apartment complexes and anchored shopping centers getting his nod as the best investment choices for a real estate novice. He argues that novice investors should form investment clubs to invest in real estate together; however, he gives very little advice as how to hold title and what form of ownership the group should take. I understand that people must consult with tax and legal professionals to see what best matches their situation, but it would have been nice to have Mr. Masters elaborate on this since its a key argument of his book.
To find property, Mr. Masters tells the aspiring investor to work with a knowlegable broker and not purchase a property with a cash-on-cash return or a cap-rate under 8-10%. While I agree its very important to buy properties with positive cash-flow, this is one of my biggest issues with this book: while in theory it'd be great to skip every property that offers lower returns, in today's market its virtually impossible in most top markets to find properties with those types of returns. If you follow the advice of the author, it will now be impossible to purcahse most investment opportunities as he does not leave room for exceptions in his rule. He also ignores other calculations and never shows how to construct an APOD, which really dates this book. There is no mention of an IRR or projected cash-flows. He also never says to independently confirm the income and expense figures given by the seller even though 9 times out 10 the cap-rate the seller gives on a property is calculated off of proforma numbers that are not aligned with market realities. I can sum up his financing section in a single sentence: find a good mortgage broker to find you a good rate on a fixed, 15-30 year mortgage. And to manage your property? Use a professional management company and watch them for a year to see how they do it, then you can consider doing it on your own. He gives very little helpful advice on what to look for in a management company, mortgage broker, or real estate broker as well.
Tax information is included relegated to an appendix, yet it doesn't even touch on a 1031 tax-deferred exchange and tax implications of real estate investments are hardly touched upon, and when they are, they're no longer applicable as tax laws have changed. I don't remember reading anything about what will effect the basis of your property, how to calculate cash-flow after taxes, or even more than a few quick words about depreciation!
For someone who has purchased their own home or has even a little bit of real estate knowledge, this book has little pratical use -- the only difference between this book and better, cheaper books that I've read is the author's limited information on investment clubs. He even gives poor advice on finding information online: he tells the reader to go online and type in a few keywords on a search engine, not realizing that the reader will find plenty of advertisers and unscrupulous companies in the results.
For anyone who's interested in investing in real estate, I recommend the first thing they learn is how to evaluate properties so they know what to look for in an investment opportunity. To that extent, I highly recommend Frank Gallinelli's "What Every Real Estate Investor Needs to Know About Cash Flow and 36 Other Key Financial Measures", a far-superior, more-practical, and less expensive book.How to Make Money in Commercial Real Estate: For The Small Investor Overview
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