Hard book to understand. Multiple rereads are required.

Informative book

Lots of great formulas to help you in your pursuit of how to discern if an investment is right for you and if it makes sense.

This book was consistently in the “must read” category for real estate investors and unfortunately for me I wasn’t ready for it. It was over my head. I will reference it as needed for all of the calculations it offers and tax insights (If I don’t just google it) but not much is sticking in the brain from this book.

I found this to be an good reference for commonly used real estate definitions and concepts. There were some terms I had come across for a while now, and was not entirely sure what they meant or fully entailed. This book filled a lot of knowledge gaps.
Unfortunately, though, it is very technical and frankly, boring. There are many examples used to illustrate the terms and concepts, usually involving math and sometimes complex equations. These were, for me, incomprehensible and not worth my time trying to make sense of them. Most of these particularly intricate equations were intended to be done with a spreadsheet or computer program, so without access to that when I was reading, I just opted to move on.
I would recommend it to newbie investors and to those who have a property or two and want know more about their returns. This book will help you learn the lingo and talk real estate.

Notes"
There are 4 Basic Investment returns in real estate (xvii):
1.Cash Flow
2. Appreciation
3. Loan Amortization
4. Tax Shelter

If you inherit tenants, ask about rental rates and how long each lease runs? (4) Most gas, electric, and water companies will give you usage information if you call.

Income-and-expense statement for real is commonly called the "annual property operating data (APOD)(10).

Gross Scheduled Income- total annual rent value of all units in the property. This amount includes the actual rent generated by occupied units, as well as the potential rent from vacant units; sometimes called potential gross income (111-112).
Gross Schedule Income (for a given year)=Total rent payable for that year under existing contracts for occupied space +Total potential rent (at market rates) for vacant spaces

Vacancy Allowance- estimate of the amount of potential income that will be lost due to vacancy; expressed as a percentage of the gross scheduled income; also known as a "vacancy and credit loss"
In the absence of usable market data, many investors like to use a vacancy allowance in the range of 3% to 6% (11). If you don't experience some vacancy, you're just not charging enough.
Vacancy and Credit Loss (in dollars)= Gross Scheduled Income X Estimated % Vacancy and Credit Loss
(114)

Gross Operating Income (GOI)- The amount you actually collect; also called effective gross income
GOI=Gross Scheduled Income -Vacancy and Credit Loss

Operating expenses- items such as property insurance and taxes, repairs, utilities, and management fees; costs that are necessary to keep the revenue stream flowing. Mortgage payments and depreciation are not considered operating expenses, nor are capital improvements

Net Operating Income (NOI)- Gross operating income minus the operating expenses (Capital expenditures and mortgage payments not included)
NOI= GOI-Operating Expenses
NOI=Value X Cap Rate

You can determine how big a bite each expense takes out of your income by computing the percentage of GOI that each expense represents. You accomplish this by dividing each expense by the GOI and multiplying the result by 100 (12).

PV=Present Value
FV=Future Value (29)

It's common practice when evaluating a property to annualize the cash flows (40).

The typical amortized mortgage is structured as something called an ordinary annuity. That's a series of regular, equal amounts disbursed at the end of each payment period. Four variables are involved in any mortgage calculation: the principal amount, the periodic interest rate, the number of payment periods, and the payment amount(44).

*Mortgage Constant-Multiply the total dollar amount of the mortgage by this factor to calculate the monthly payment (See Appendix sheets) (44-45)

Net Income-What is left over after expenses are deducted from revenue (49)

To be considered a real estate operating expense, an item must be necessary to maintain a piece of a property and to ensure its ability to continue to produce income (50). NOI is essential to understanding the market value of a piece of income-producing real estate.

There are two elements to a property's value equation: The NOI and the cap rate (51). The NOI represents a return on the purchase price of the property, and the cap rate is the rate of that return. Hence, a property with a $1,000,000 purchase price and a $100,000 NOI has a 10% cap rate. Appraisers, brokers, and independent services can provide you with the typical cap rate for a particular type of property in a given location (76). The downside of the cap rate is that it looks at the property at a point in time (usually the current year), without regard to the property's expected performance over your entire holding period.
PV=NOI/Cap Rate

Whenever you're considering purchasing an income property recite this: "If it's not worth selling, then it's not worth buying." (62)

*Cap Rate- the rate at which you discount future income to determine its present value (128); A higher cap rate yields a lower estimate of value. A lower cap rate yields a higher estimate of value (64). Because if the property generates a certain number of dollars of income (the NOI), the less you pay for the property, the higher the rate of return on your investment will be. The more you pay, the less the rate of return.
Cap Rate=NOI/Value
Value=NOI/Cap Rate

Payback Period- length of time required to recover your initial cash investment (71). To achieve a quick payback, your property must have a strong positive cash flow. The sooner you get your investment back, the sooner you can begin to "make" money (72).

Cash-on-Cash return- Cash flow (usually before taxes) from a particular year of a property's operation and compare it to the cash you invested to purchase that property. You express the result as a percentage, so if you have a $10,000 cash flow this year from a property in which you initially invested $100,000 of your own cash, you would have a 10% cash-on-cash return. It considers a property's performance over just a single year.
Cash-on-Cash Return= Cash Flow before Taxes/Cash Investment

Gross Rent Multiplier (GRM)- Method of estimating or expressing a property's value as a multiple of its gross rental income (73); a technique that looks at comparable income-producing properties and establishes a typical income multiplier.
GRM=Market Value/Gross Scheduled Income (annual)

Debt Coverage Ratio- ratio between the annual net operating income and the annual debt service
Debt Coverage Ratio= NOI/Annual Debt Service (74)

Opportunity cost- If you receive a dollar today, you can invest it and earn some return during the next year. If you receive the dollar a year from now instead, that delay has cost you the opportunity to invest, and hence, has cost you the return that the opportunity represents (77).

Simple Interest-Method of computing interest where you apply the interest rate only to the original principal amount (93).
Interest=Principal X Rate X Time
Total amount after interest= Principal X [1 + (Rat X Time)]

Compound Interest-Method of computing interest where you apply the interest rate to the original principal and also to all accumulated interest (96).

Taxable Income-The amount which you must pay Federal income tax (138). It is NOT your total rental income, not your income after operating expenses (i.e., NOI), and not your cash flow.

"You're more likely to encounter surprise expenses than surprise income, so be realistic when forecasting the cash flow from a property you plan to buy (151).

Price, Income, and Expenses per Unit-Property's price, gross scheduled income, or total operating expenses and divide it by the number of rental unit (185). For example, if a building has 20 rental units and is offer $400,000, then it's price is $20,000 per unit. Those who use this technique usually do so only with residential properties (apartment complexes) because the units in such properties tend to be more uniform in their ability to generate revenue. You commonly rent commercial property by the square foot, and so "per unit" specifications are generally meaningless.
Price per unit=Price/Number of units
Income per unit=Gross Scheduled Income/number of rental units
Expenses per unit=Operating Expenses/Number of rental units

Price per square foot= Price/Gross Building Area or Net Rental-able Area
Income per square foot=Gross Scheduled Income/Gross Building Area or Net Rental-able Area
Expenses per square foot=Operating Expenses/Gross Building Area or Net Rent-able Area
(188)

Operating Expense Ratio-Ratio of individual operating expenses or of total operating expenses to the gross operating income (192); tells you how the money you spend to operate the building relates to the money you receive.
Operating Expense Ratio=Operating Expense/Gross Operating Income
Ex. (193):
Property Taxes=$12,500 17.86%
Repairs and Maintenance=8,500 12.14%
Utilities= 4,500 6.43%
GOI= 70,000

Annual Debt Service (ADS) (197)- The total of mortgage payments for the year. If you make monthly mortgage payments, then the ADS equals that monthly payment times 12.
Annual Debt Service= Monthly Mortgage Payments X 12

Debt Coverage Ratio (DCR)-Ratio between the property's net operating Income for the year and the Annual Debt Service (ADS)(196). If your NOI and ADS are exactly the same (say $1,000), then the ratio is 10,000 divided by 10,000 or exactly 1.000. A DCR of 1.00 implies you have exactly enough net income from the property to make your mortgage payments; not a nickel more or less. If your DCR is less than 1.00, it means the property does not generate enough income to pay the mortgage. If your DCR is greater than 1.00 then the property does generate enough, with some left over. When you try to finance a property, that lender will examine the DCR to see if the property can expect to generate enough cash to cover its mortgage payments. You can be certain that "just enough" (i.e., 100) is not good enough. The lender wants to be sure that there is a margin for error, so both the current DCR and its future projections must be higher than 1.00. Most lenders look for a DCR of at least 1.20 (198).
Debt Coverage Ratio=Annual NOI/Annual Debt Service

Break-Even Ratio= (Debt Service +Operating Expenses)/Gross Operating Income
Benchmark often used by lenders when underwriting commercial mortgages (200). Its purpose is to estimate how vulnerable a property is to defaulting on its debt should rental income decline. Most lenders look for a BER of 85% or less (201).

Return on Equity (ROE) is expressed as a percentage and typically is calculated for the first year only (203).
Return on Equity=Cash Flow after Taxes/Initial Cash Investment

Loan-to-Value Ratio (LTV)- Ratio between the total amount of a property's mortgage financing and the property's appraised value or selling price, whichever is less; It is expressed as a percentage(206). If you were to purchase a home as a personal residence, the maximum LTV (i.e., the most the bank would lend you) would typically be 80% for a conventional mortgage. To put it another way, you could borrow 80% of the value or purchase price. The more of your own money you have tied up in this property, the less likely you are to give the property back to the bank (207).
Loan-to-value Ratio=Loan Amount/Lesser of Property's Appraised Value or Actual Selling Price

Points- fees that you pay to the mortgage lender as a premium for making the loan. They represent a form of prepaid interest on the loan. One point equals 1% of the mortgage loan amount (211).
1 Point (in dollars)= Mortgage Loan Amount/100
Dollars Amount of Points Paid=Mortgage Loan Amount X No. Points/100

Balloon Payment- A mortgage so that your monthly payment is based on a term of 15 years or more, but when the full balance comes due much earlier, perhaps in 5 to 10 years. Hence, the last payment you make "balloons" to include the entire loan balance at that time (218).

Property Taxes=Assessed Value X Tax Rate
Appraised Value=Assessed Value/Assessment Ratio
If you require a new property assessment, use it to calculate the appraised value so that you an begin to make a judgement as to whether you think your property has been assessed fairly and whether or not you should appeal the assessment. Keep in mind it is not enough to be satisfied that the assessment suggests a reasonable property value. It's more important that your calculation is in line with other comparable properties (232-233).

Adjust Basis- the original cost of an asset such as real estate, plus capital improvements and costs of sale, less accumulated depreciation (235).

Depreciation (also called "cost recovery") is the amount of the tax deduction that a property owner may take each year until he or she has written off the entire depreciable asset. With real estate, you treat the physical structures (called "improvements") as your depreciable assets, but not he land. Therefore, there is no depreciation allowance for the value of the land (238). The exact amount of your depreciation deduction each year is determined by the asset's "useful life" as specified in the tax code. The useful lufe for tax purposes is not necessarily the same as the actual physical life expectancy of a particular asset. "As of this writing, the useful life for residential property is 27.5 years, and for nonresidential, 39 years."

Gain on Sale (or simply "Gain")- taxable profit that you make when you sell an income-property investment. "Under current rules, if you have held the property for more than 12 months, then the gain is a capital gain, which means that least some of it will be taxed at a rate that is lower than what you pay on ordinary income." (242)

Good 50,000 foot level overview of real estate investing. A good place to start, but does not go into the detail necessary for you to start.

Very useful information particular in first half. Second half of book is mostly useful for reference.

Excellent book, extremely thorough!

Good book for those interested in investing in the real estate industry.

Plenty of ratios and examples for investing in different properties (a single appartment, an entire building, etc). It also gives you access to a web page where you can analyze cash flows, depreciation, etc.

I recommend to use this book and at the same time use excel to plot all the formulas and construct a personal template to use it to analyze future deals. In this case, it will take more time to read it, but the understanding will be higher.

In my case, it helped me to build a better excel template, adding new features.

this should be your first introduction to real estate investment if you’ve never worked with those formulas before.

extremely dummy-friendly language + enough useful info on the basics WITH EXAMPLES!

even if you work in an adjacent field of real estate, like sales or marketing, it might help you to understand the market better.

More financial than most other books, but came across as very basic to me. Maybe it's better suited for someone who doesn't have any experience in finance.

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Very comprehensive for beginners, and a good refresher for intermediate investors as well. The section on how "depreciation is a tax write off, and also an expense" and "compare the expense percentages" aren't mentioned often elsewhere.