Real Estate by the Book
Real Estate Books
Using business books to learn more about real estate is both an excellent idea and a challenge at the same time. Listening to what experts have to say about anything is a wise strategy. A well-written real estate book can be a cost-effective source of expert advice, but then come the inevitable challenges:
- What kind of advice do I need?
- Which experts?
- Which books?
There is not likely to be a single source providing all the help you will need as you attempt to learn more about real estate. The best you can hope for is that you find a few realistic information sources. My goal here is to lend a helping hand on your real estate journey by offering practical learning choices that include a short list of recommended real estate books.
Eventually you should make sure that you are asking the "right questions at the right time." For example, what about no money down for mortgage loans? But in the beginning of your quest for real estate knowledge, try to learn as much as you can without the pressure of a "to do" list. Here are two question examples that can guide you as you get started:
- Is this a good time to invest in real estate? The video in the next section provides the perspective of Warren Buffett. Please keep in mind that even he is not always right about financial markets! Additionally, it is critical to remember that focusing on a long-term viewpoint is how Warren Buffett continues to be successful, and this longer time frame is certainly part of his real estate investing advice.
- Do I want to buy real estate myself or do I want to help others buy and sell property? If you want to be a real estate broker/agent, the second video shown below represents some useful observations and career information.
Warren Buffett Talks about Buying Real Estate
Applying Warren Buffett's Teachings to Real Estate
As a logical follow-up to the Warren Buffett interview shown above, here is a book from Howard Yen about how you can approach real estate investing by incorporating Mr. Buffett's successful investment principles. As noted by the author, he has reviewed Warren Buffett’s approaches to the stock market and has then described how those strategies can be applied to real estate.
Risk assessment is now increasingly necessary for commercial borrowers. This involves both asking the right questions and finding candid answers from commercial loan experts.
For small businesses, the most practical and effective answers will often come from a small business expert who is willing and able to provide help. Some of these answers are provided here. Please use the Contact page to reach us regarding additional questions.
There have been a series of financial and banking surprises during the past several years. Is it really reasonable for a small business owner to think that they will avoid the chaos and changing business environment that is surrounding them and impacting the rest of the business world?
Avoiding Mistakes with Commercial Real Estate Loans
Bankers obsessed with generating quick profits frequently lost sight of a basic investment principle that asset valuations can decrease quickly and do not always increase. Many commercial loans were made in which there was little or no equity by the business borrower. Banks invested almost nothing in cash (as little as three cents on the dollar) when buying future toxic assets. The apparent assumption was that if any downward fluctuation in value occurred, it would be a token three to five percent. In fact we have now seen many commercial real estate values decrease by 40 to 50 percent. Commercial real estate is proving to be the next toxic asset on their balance sheets for the many banks that made the original commercial mortgages on such business properties. While there were huge government bailouts to banks that have toxic assets based on residential mortgages, it is not likely that banks will receive financial assistance to cover commercial real estate loan losses. It is currently projected that these growing commercial mortgage losses will pose serious problems for the ongoing survival of many business lenders. Despite ongoing concern and criticism about current reduced business lending activity, many commercial lenders have effectively stopped any meaningful small business financing.
A current and ongoing problem is represented by misleading and inaccurate statements by business lenders about their lending activities that include small business loans to business owners. While many banks have routinely indicated that they are providing business financing on a normal basis, the actual results by almost any standard indicate otherwise. It is obvious that lenders would rather not admit publicly that they are not lending normally because of the negative public relations impact this would cause. Business owners will need to be skeptical and cautious in their efforts to secure small business financing because of this particular issue alone.
Valerie Fitzgerald Talks about Her Real Estate Career
Success in Real Estate Is Not Easy
For many years, real estate was a popular profession. Despite the ups and downs of the past few years, it still represents a career path that many would like to follow. Here is a heartfelt description of Valerie Fitzgerald’s journey that succeeds in taking a different approach. While it is an inspiring story that makes this a worthwhile business book on that score alone, there is invaluable real estate procedural help as well.
Both career planning and real estate investing require due attention to “What can go wrong?” Small businesses are now facing a new harsh reality in which there are likely to be multiple examples of material things going wrong. While it is always healthy to predict and assume an optimistic outcome, the most prudent and practical approach is likely to be an assessment of several alternative business solutions that can be implemented when necessary if projected outcomes do not occur.
Business borrowers should “Always have a Plan B” for their small business loan programs. For commercial financing there is often inadequate attention paid to what can go wrong with business finance arrangements. A key example — numerous banks have already pulled the plug on business financing (in most cases with little advance notice to commercial borrowers). Based on evolving uncertainties in commercial finance markets, all business owners would be wise to immediately formulate a Plan B that identifies what to do if current financing is revoked or reduced for working capital financing and commercial mortgage loans.
The truly dangerous thing is asking the wrong questions.— Peter Drucker
As you read about what real estate experts have to teach you, it will be natural to identify questions and concerns that might not be adequately discussed in books. When you become more specialized and advanced in your research and decision-making, some of the following questions are likely to emerge:
- Is reliable real property financing available from financial markets?
- How will the recent financial crisis impact both residential and commercial real estate?
- Can I avoid banking problems that have created weak institutions known as zombie banks?
- How does Plan B and contingency planning apply to real estate?
- What is negotiable? Will finance negotiation strategies help?
- Should I use cash or debt to buy real estate?
Mastering the Financial Aspects of Real Estate
Many of us can be intimidated when it comes to financial measures used to evaluate real estate investments. It is wise to master the numbers, and this is the most practical book that I have encountered to help you do it. Frank Gallinelli has also written other commendable real estate books, but this is the one I recommend if you only buy one.
Bank Mortgage Lending Choices
During 2013, several of the biggest banks decided that they could no longer ignore payday lending programs with rates of return almost always exceeding 250 percent. That could be the single biggest obstacle to normal lending by banks. 250 percent or under 10 percent? Which lending program do you think banks and bankers will continue to choose?
Unfortunately, the banks do not march to anyone's drummer but themselves. When we had an important law like the Glass-Steagall Act on the books to protect individual consumers from reckless and risky behavior by the banking institutions, it was ignored by bankers and finally abolished by Congress in 1999. When there was a bank bailout in 2008, the banks were not required to do anything in exchange for saving them from insolvency. So of course they now feel that they are under no legal or even ethical obligation to loan money to individuals and small businesses except when it suits them. Credit cards with interest rates from 20 percent to 36 percent seem to be getting approved while residential and commercial mortgages with rates from 4 percent to 8 percent are being declined.
One practical solution:
Avoid banks that are ignoring the best interests of individual and small business borrowers.
Military Career Transitions to Real Estate and Business
There are literally thousands of individuals with a military service background who are looking for a viable career strategy to transition from military life to new careers. It is certainly true that both business and real estate sectors have been less than shining examples of steady growth in recent years. Nevertheless, these areas do represent career transition opportunities when leaving the military. The best long-term employment possibilities will frequently involve jobs that are not well-known or obvious.
The video below summarizes some of the critical issues and questions that should be addressed by anyone considering real estate and related careers. One practical matter that should always be subjected to extensive due diligence is the availability of specialized career training.
Transitioning to New Careers
Real Estate Risks
A few years ago, most real estate "gurus" would have attempted to use their best bullying tactics to dismiss any suggestions that perhaps they were not paying enough attention to the potential risks when they were flying around the country doing investment seminars about buying as many real estate income properties as possible with little or no money down. Meanwhile, I was actively telling my small business clients that they needed to have a "Plan B" for their commercial real estate financing.
We are still experiencing a significant period of volatility in real property prices. Many of the risks that were always there have become more obvious. Plan B might not be enough, but it is still a step in the right direction because it forces you to acknowledge the risk parameters if you are being totally honest with yourself.
In a variation of the X-Files, the risks are out there. Condominiums being sold on "cash only" financial terms are a prime example.
Real estate terms are frequently confusing even to experts. This dictionary was designed for multiple audiences of users and will serve both seasoned professionals and real estate novices very well. This is a superb reference book that will prove to be helpful more often than you can imagine.
The process of finding what went wrong with commercial lending and small business financing is designed to help business owners avoid serious future mistakes and problems with their working capital loans and commercial mortgages. While many banks have worked hard to solve their massive problems involving residential loans, it is prudent to determine if problems are lurking in the wings for commercial banking.
By exploring what went wrong with commercial lenders and commercial financing, business owners will be better prepared to avoid serious future problems with their working capital financing and commercial real estate financing. For many commercial borrowers, this is not a hypothetical issue at all, especially if they need help currently with small business finance options. Business owners should be prepared for the banks and bankers who caused the recent financial chaos to say that nothing has gone wrong with commercial lending and even if it did everything is back to normal. Most observers are increasingly skeptical of this viewpoint. There were serious mistakes made by commercial lenders, and to borrow a popular phrase, if small business owners and business lenders choose to ignore these mistakes, they are doomed to repeat them. This is as true in 2017 and beyond as it was during the 2007-2008 financial chaos.
Risk comes from not knowing what you’re doing.— Warren Buffett
Real Estate Should Be Thought of as a Long-Term Investment
No matter whether you invest in real estate or not, please remember the long-term nature of real estate investments. For example, "flipping houses" is a speculative, risky and short-term strategy that will miss out on many of the long-term investment benefits that often accrue with a longer holding period and perspective.
© 2012 Stephen Bush