Paperback: 384 pages
Publisher: For Dummies; 1 edition (January 3, 2008)
Language: English
ISBN-10: 0470174919
ISBN-13: 978-0470174913
Product Dimensions: 7.4 x 0.8 x 9.3 inches
Shipping Weight: 1.3 pounds (View shipping rates and policies)
Average Customer Review: 4.3 out of 5 stars See all reviews (52 customer reviews)
Best Sellers Rank: #32,222 in Books (See Top 100 in Books) #56 in Books > Business & Money > Investing > Real Estate #104 in Books > Business & Money > Real Estate #522 in Books > Business & Money > Economics
In this book, readers learn how to invest in commercial real estate such as office buildings and apartment buildings. I think that it provides a good introduction to real estate, but I will say that Chapter 13, Why Properties Fail, is the most important one. People tend to get excited about how much money they will make and forget about what can happen when they do not. I really liked how the author said one of the reasons for failure is to forget to run the property like a business. I will add to this a little more because this creates a refinancing risk.Residential real estate is completely different from commercial real estate. Investors can place a 30-year mortgage on a single-family home and only refinance when the rates drop to a level that it is beneficial to them. However, commercial real estate can only be financed with a 3, 5, or 7-year mortgage meaning that the owner has to refinance after these years. This requirement can have a huge impact on whether you make or lose money. Here is why:Let's say you buy a commercial property for $3,000,000, and it generates income of $600,000 and incurs expenses of $300,000. So you are left with $300,000, which is your net operating income. Let's say that the bank requires you to put down 25%, which, in this case, is $750,000, and you get a mortgage for $2,250,000. You operate the property for 3 years, and it is time to refinance. But for some reason your real estate taxes, insurance, and other expenses went up from $300,000 to $350,000. Also, you had to lower your rent or you lost some tenants and your income went from $600,000 to $550,000. Now, your net operating income is $200,000 ($550,000 - $350,000), which is less than $300,000 before. You might say this is not big deal because you are still making positive cash flow.
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