In the article “The Skinny on Success” we reviewed the book by the same name written by Jim Randel.  Jim has done a great job with the series The Skinny On, capturing in a light-hearted, easy to read format, essential information on a variety of topics.  We will begin a series of reviews of the Skinny On books, covering a wide range of topics, from investing in real estate to willpower, and much more.

The Skinny on Real Estate Investing is an introduction to the topic.  But despite of the introductory nature of the book, it touches on very fundamental concepts that anyone who has ever considered investing in real estate should review and understand.  You will not be bored with complicated terms or dry business reading.   The few business terms used in the books are explained in a way that just about anyone can understand.  Here are a few examples of key terms explained in the book:

• Net Operating Income
• Cash Flow
• Capitalization Rate

If you plan on investing in real estate but are not familiar with these terms I would highly encourage you to read the book.  Not only it is instructional, but it is also entertaining and can be completed in about 45 minutes.

Jim points out in the book how the erroneous assumption that real estate would keep on increasing forever has resulted in significant losses for many people.  He emphasizes the fact that your real estate investment decision should be based only on a cash-flow analysis, and that no appreciation assumptions should be taken into consideration.  This is due to the fact that, other than inflation, there is no intrinsic reason for real estate prices to go up.  Like any other asset, real estate values can go up or down depending on the fundamentals of supply and demand.

As we have done here on Worldwide Success, Jim discusses the unfortunate fact that many “real estate gurus” whose main motivation is to sell you books and seminars on real estate fail to disclose the true risks and the time and effort required to make money in real estate.  Real Estate, unlike stocks and bonds, is not a passive investment.  Real Estate requires hands-on care and feeding, and can be very time consuming.  Unless you are willing to be a hand-on manager of your real estate investment, you may want to reconsider it as an investment vehicle.

The book does not discourage you from investing in real estate.  In fact, it tells you that you can truly make a tremendous amount of money in it.  But it is realistic in discussing the effort and risks involved.  It shows you that the way to make money investing in real estate is to find deals where you can ADD VALUE.  That means that you need to find opportunities to do something that will enhance the net operating income quickly, such as leasing vacant space or renovating the property.

Jim concludes by stating that, due to its non-passive nature, you should only consider investing in real estate if you truly enjoy it.  If your only motivation if the money, you are probably better off finding a passive investment vehicle that will not require so much of your time and energy.

If you ever wondered if real estate investment is right for you, please do me a favor.  Get a copy of The Skinny on Real Estate Investing.