Wall Street Journal Complete Real-Estate Investing Guidebook
Occasionally, publicity agents, publishers, or sometimes even authors, send me books with the request that I read and review what they send. That was not the case with this book.
A few months ago, I wrote about the cost of owning a home over 30 years based on information in the Wall Street Journal, and it generated a fairly intense discussion. The data presented show that ownership of your primary home is not a good investment. When people talk about their home appreciation as a function of current market price minus purchase price, they’re forgetting about the thousands of dollars in maintenance, repairs, and upgrades, which in any real investment would be added to the cost basis, reducing their real return.
The author of the article showed, from his own experience as well as extensive external data, that you could easily be $1 million into your home after 30 years.
I took some questions from Consumerism Commentary readers to the article’s author, David Crook, the editor of The Wall Street Journal Sunday. We exchanged emails and I presented a follow-up post outlining a realistic picture of the cost of home improvements. I added Crook’s latest book, Complete Real-Estate Investing Guidebook, to my Amazon wish list so I would remember to look for it while browsing a bookstore some day.
Not much later, a friend of mine (and occasional Consumerism Commentary commenter) who works at Dow Jones presented me with a copy of the book signed by the author. Thanks! Distracted by my move, I have finally finished the book.
David Crook’s Complete Real-Estate Investing Guidebook goes into the kind of detail “gurus” like Robert Kiyosaki make you believe you have to pay thousands of dollars at a seminar to receive. Don’t get me wrong, the book does include a requisite hook: “The 20 Things Every Real-Estate Investor Needs to Know,” but thankfully Crook doesn’t toy around with this concept. Instead there are specific, actionable ideas surrounded by examples and case studies throughout the 241 pages.
There are no get-rich-quick schemes here. Crook routinely warns the reader against promises of no-money-down investments and “something-for-nothing hucksters.” The author’s advice is meant to be taken by a novice investor over a period of time, perhaps up to 12 months or longer just to get started on the first property.
After Crook sets the premise that the house you live in is not an investment for the purpose of income, he goes on to explain how to find the money to get started, emphasizing the importance of leverage. The author presents detailed formulas for evaluating properties in order to find good values in real estate, suggesting that the best purchases would be at a 30% discount from the property’s market value.
A significant chapter is devoted to explaining in detail the tax benefits of real-estate investing. The government in this country starting with the Founding Fathers has always encouraged land development, and this continues to the current day. Here is Crook’s comparison:
A person making a $135,000 salary would probably end up paying $20,000 to $25,000 a year in federal income taxes, plus $7,000 more in Social Security and Medicare taxes. A stock investor earning $135,000 a year in dividends would pay $20,000 a year in taxes. The landlord’s tax bill [on $135,000 rental property income]? About $1,800.
In the next few chapters, David Crook writes about smaller residential investment properties, larger residential properties like apartment complexes, and commercial buildings. Each type of investment has its own benefits and drawbacks and an investor may be a good fit for one type while not the others. For example, Crook discusses the need for staff, including “supers” and rental managers, when it comes to investing in multifamily buildings.
The author explains the differences between six different forms of ownership (sole proprietorship, general and limited partnership, C and S corporations, and a limited liability company) and what investment situations call for which types.
I found it interesting that Crook gives the reader a “way out,” asking for the would-be investor to question whether he or she truly wants to be a landlord. He admits that the type of work necessary to be successful is not a piece of cake. Other gurus would be happy to let you believe that all you have to do is wish, and you can make money in real-estate investing.
The section on Real Estate Investment Trusts (REITs) is informative. These investments are presented as a way to use the stock market to invest in real estate, perhaps for those who can’t stomach being a landlord. He discusses recent REIT performance and explains what type of investments to look for based on recent performance and growth opportunities.
The final chapter includes the aforementioned 20 Rules, but rather than being built up throughout the book as a secret to be revealed, it is basically a summary of the most important points already discussed in detail.
Crook takes a page from Stanley and Danko’s The Millionaire Next Door in his description of real-estate millionaires.
The vast majority of rich people are distinguished by one overwhelming, dominating trait: They’re frugal. They drive old cars, live in modest houses and wear average clothes. They are rich, not because they are lucky or they have found some secret formula to wealth, but because they work hard, keep a long-term perspective and spend little.
Readers who get comfortable with David Crook’s Complete Real-Estate Investing Guidebook have a good chance of determining which type of real-estate investment (if any) is right for them and becoming successful after the appropriate time and effort.
I will be giving away one copy of Complete Real-Estate Investing Guidebook from Amazon.com, so stay tuned for an announcement of how you can be the lucky winner.
Updated February 6, 2012 and originally published July 19, 2007.