What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures

Formulas that make the difference between making profits and losing equity

The only way to win the real estate investing game is by mastering the numbers. This revised and updated edition of the popular reference shows how to target the best investments in the present market. It answers all your real estate questions, and provides new discussions of capital accumulation and internal rate of return. This book’s basic formulas will help you measure critical aspects of real estate investments, including

• Discounted Cash Flow
• Net Present Value
• Capitalization Rate
• Cash-on-Cash Return
• Net Operating Income
• Internal Rate of Return
• Profitability Index
• Return on Equity
  
  

After working my way through all ten books, I can tell you without reservation that Gallinelli's book is head and shoulders above the rest. There was something to be learned from each them, of course, but the others tended to get a bit fuzzy about the financial details, often substituting simplistic rules of thumb for real analysis or doing a hand wave just about the time I needed hard information. Worse, there was a disturbing lack of consistency among the books where they did provide financial details, and there was no obvious way to sort out which book had the right take on a particular calculation or financial ratio. And it seems to me that, important as general principles may be, if the financials don't work then nothing else matters very much.

Fortunately, Gallinelli took me right down into the nitty gritty stuff and showed me, step by step, just how the whole business works. He was also the only author to even consider the possibility that I, as a modern-day investor, might have the ability to run these calculations in a spreadsheet, and he provides clear instructions for entering the required formulas in Excel. Not that you have to be an Excel user to benefit from this book; the financial analyses he describes are absolutely essential to knowing what you're getting into, and you need to run them whether you do it on a calculator, use packaged financial analysis software, or build your own spreadshet. But for those who do know how to use Excel, it's a tremendous benefit to have the step-by-step instructions right there.

After reading this book, I now understand how to figure out the total return on a residential property from all it's sources, including operating income, depreciation writeoffs, equity accrual, appreciation, and capital gains benefits, and I know how to calculate the effect of leverage on each of these sources. Better still, based on the formulas Gallinelli provides, I can quickly see how these sources play off against each other to predict my total return on investment in any particular scenario. More than any other book I read, this one prepared me to analyze a candidate property and evaluate its potential return, allowing me to determine whether it's a good investment and, if so, under what price and financing conditions. Based on what I've learned, I'm now shopping for apartment buildings to make my first acquisition.

Of the ten books I purchased, nine now sit on my shelf within easy reach. But this one sits right next to me and will always be close at hand. If you are thinking about investing in real estate, buy this book and read it before you do anything else. It's that good.


Required Reading for Real Estate Investors   April 23, 2004
Rosalind Resnick (New York NY)
133 out of 138 found this review helpful

Before you invest $1 into income-producing real estate, be sure to pick up a copy of Frank Gallinelli's excellent book, What Every Real Estate Investor Needs to Know About Cash Flow...And 36 Other Key Financial Measures: Guidelines, Formulas, and Rules of Thumb for Making Money in Real Estate. While the title may sound somewhat forbidding, the book is so well-written and accessible that even novice investors who wouldn't know a cap rate from a rate of return can quickly and easily master key concepts such as present value, gross scheduled income and discounted cash flow. Better yet, Gallinelli offers free spreadsheets that you can download from his site that do the numbers-crunching for you. I like to think that I'm a pretty savvy investor, but, thanks to Frank and his amazing formulas, I narrowly avoided overpaying for a five-story office building in the Chelsea section of Manhattan. While there's no guarantee that the seller will accept my lower offer, I feel confident that, if I do get the deal, I will be paying a fair price now that Frank has taught me how to do the math.


So you think you know real estate math?   September 5, 2005
Anthony Davidson (New York City)
55 out of 58 found this review helpful

I recently asked a potential joint venture partner to send me some profit projections. What I got was an eye opener. My prospective partner was clueless about rates of return, generally accepted accounting terminology, and real estate calculations in general. Her seven year projection spoke of: "Money Partner ROI" (180%), "Average Yearly ROI" (25.8%) and "Average Yearly Compounded ROI" (15.9%). How the first two were computed (or what they meant) were impossible to ascertain. Apparently they were returns without compounding. The third was an unsuccessful attempt to compute the Internal Rate of Return (the correct calculation was 17.3%). IRR, the industry standard and the means professional investors use to compare alternative investments, was unknown to this mathematically-challenged young lady. If, like my prospective partner, you feel your grip on the mathematics of real estate investing is a little shaky, then this is the book for you.
The first half of the book is an unusually clear and up-to-date discussion of the gathering and use of data needed to make investment decisions--plus a running commentary, sometimes humorous, on real estate investing in general. This section alone is worth the price of the book.
But wait, there's more! The second half lays out most of the mathematical tools needed to invest in real estate. Each short chapter covers one topic with definitions and examples offered in clear, jargon-free prose. Topics include: Internal Rates of Return, Net Operating Income, Gross Rent Multiplier, Net Present Value, discounted cash flow, calculating taxable income and much more.
Plus, there's a nice bonus. The book directs you to their free website where calculators for many of the more complicated transactions are available. I recently used the website's IRR calculator to compute the return of seven years worth of annual cash flows plus the sales proceeds from reversion. Elapsed time: under one minute.
Oh yeah, I recently purchased a second copy of the book for my mathematically-challenged woman friend. Hey, she understands real estate--she just can't do the math!


Frank Gallinelli takes you from ground zero to infinity>   April 12, 2005
Thomas D. Auito (Florida, Alaska and the Web)
39 out of 42 found this review helpful

As a duel licensed real estate agent, appraisal certified 15 year real estate investor and real estate website operator, I can honestly say that I have never seen anyone that gives you the nuts, bolts and tools of mathematical computation and analysis like MR. Gallinelli.

Of the hundreds of real estate books that line my shelves, Franks book here has a place above my desk that is within arms reach, this book doesn't collect any dust!

I can't stand books that leave you with some off the wall idea that only the author has figured out how to use, those are worthless, Frank takes you by the hand and knocks the fear of math right out of your head and gives you a monstrous calculator data base at no charge to actually DO the math while you're reading along.

I'm going to have to give up a little secret here too, Frank is reachable, you can actually get in touch with this man when you have a question. He also teaches in his spare time at Columbia University to keep his skills sharp while giving back to his community in more ways than most.

I'm a stickler for ethical treatment of the consumers in real estate and without going into the details of Franks mathematical formulas, models, presentations, examples, hints and rules of thumb, I will say that for less than $20 your are getting what many boot camp promoters charge thousands for.

This is a full blown investment course that gives you the ability to accurately project forecasts that directly impact the bottom line, I may be a little biased as Frank can be found at my site www.magicbullets.com but I'm not exaggerating when I say Frank Gallinelli is the best in the business and I have never seen anything better than what Frank is offering you here! Dan Auito of www.magicbullets.com



Complete lack of fluff!   March 5, 2005
Joseph P. Milligan (Virginia, USA)
30 out of 32 found this review helpful

One of the most annoying things I find about real estate investment books is that most of them can be condensed to about 30 pages. The other 170 pages usually try to sell you on the idea of getting into real estate in the first place, and offer plenty of examples that don't have anything to do with anything.

This is 252 pages of pure information. There are examples, of course, but they relate directly to the concepts he's working with and illustrate them clearly.

It's heavy on math, but that's why I bought it. I'm a math person and have been jonesing for something like this book for a long time. It's not difficult - all the calculations are high-school algebra at their most complex- but if you're not a math person, as stated, he gives out free spreadsheets that do them for you.

Also as stated, if you have a finance degree this book isn't for you. If you're like me, and want to know what to do with the numbers, then this book is a must.