Book Summary & Review: The Complete Idiot's Guide to Commercial Real Estate Investing (Third Edition)

I thought you FWFers might be interested to hear about this book. Hopefully I'll get to read some other users' recent book reviews in response. This book was not amazing but it was pretty solid. I'd be especially curious if anyone read a similarly themed book that they feel was better.

Summary & Review:
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The author, Stuart Leland Rider, begins the book by telling you that there exists a real estate deal for everyone and why he thinks you should invest in real estate. He states it is less risky than stocks and it allows you to use leverage which dramatically increases your rate of return on your invested cash. He defines the goal of the real estate investor as simple: create cash flow via rent, tax shelter this cash flow as much as possible with depreciation, and build equity for ultimate sale or refinancing. Developers are said to make higher rate of returns for their higher risk compared to most investors who purchase developed properties or help to fund a developer’s project. Flips and roll-overs are briefly explained as short-term investments with high rates of returns and high risks. Speculation via purchase options is also briefly examined as a very high rate of return investment with equally high risk.

Rider is a firm believer in NNN leases as the best lease for both the owner and tenant since it purportedly allows both parties to accurately project their respective costs. Single-tenant credit buildings are shown as safe, long-term investments with modest cap rates that house well-established tenants like Walgreen’s. Multi-tenant diversity buildings are pointed out as the better long-term investment with higher cap rates even though they require more management and the need to efficiently reduce the average tenant size so as to not rely on any one tenant to avoid high vacancy rates. Rider insists that you avoid two-story neighborhood shopping centers since second floors will usually flop. In fact, he says to avoid any property that does not fit an easy property stereotype (implying that unique means not popular and thus generally not successful).

He stresses that you know your financial situation before you start investment. Additionally, he recommends that you make a realistic plan for what you want to achieve with your investments in what timeframe and stick to it. Fine-tune your plan as time goes on. You should research your target market well, as his favorite saying is: “You make money when you buy, and you collect it when you sell. In between is a lot of hard work and attention to detail.” Rider suggests being flexible when appropriate in negotiations but always keep your vital contingencies in the agreement. Still, have the courage to say “no” to a deal when necessary. Other advice given is to ignore property cosmetics but do not buy poorly constructed buildings. Also, buy undervalued properties with poor leases, bad maintenance, and/or upset tenants which are all more fixable problems than a failing building foundation.

Success is said to be easier if you shop for properties based on your budget and personality. The various investment methods are hashed out in more detail, e.g.: speculation, cash-flow projects (land/lots, housing), short-term investments (flipping, initial development), long-term investment (buying, building). Also, the various real property “products” are compared in more detail, e.g. land, industrial, office, retail, and very large projects. Researching the target area’s demographics along with business types and building permit trends is said to be mandatory. The book even helps you find sources of this type of data, such as the U.S. census, chambers of commerce, industry group publications, appraisers, brokerage companies, mortgage bankers, banks/lenders, tax roll information, etc. Rider teaches you some handy research tricks too, for example: Ask lenders what their average lending amount is per square foot in your target market for your chosen building type. If “…they respond $75 per SF, then you know that the competition is spending approximately $100 per SF to produce their projects. Lenders today like to lend approximately 75 percent of cost rather than 75 percent of value.” The author also believes its best to find good experts/consultants to fill the roles in which you have little to no experience (e.g. real estate broker, architect/engineer, attorney, contractor, manager, etc.) but he maintains that you must always make your own decisions.

He helps you through the purchase decision by teaching you how to scrutinize a building and determine its condition and potential. This includes calculating cap rates and the cost of all deferred maintenance and potential upgrades. “Grade B” buildings have higher rates of return than “Grade A” buildings in Rider’s experience. He explains that purchasing income property means purchasing cash flow but you must purchase it for its potential income increase and long-term appreciation. Therefore, leases are the most important aspect of a property you purchase and so they must be analyzed so you can improve upon them. It is shown how to write a purchase agreement with the necessary contingencies such as the title report, ALTA survey, etc. The purchase agreement is also described as the most important risk-limiting document. But you are of course advised to understand all documents and to use the “free look” period to set up and fine-tune your business plan.

One book section is dedicated to helping you determine whether you want to go solo or have partners. The LLC is said to be the best method of property ownership, though I don’t believe he suggested the popular advice of using one LLC per property. For such reasons, I believe this section could have used more detail on LLC benefits and techniques. Instead, Rider reiterated that you must enforce the leases and collect rents consistently and on time, every time to protect yourself financially and legally.

Another section teaches you to write a good lease, improve it constantly and know it well. It also lists the various types of loan documents, consultant agreements, and management documents. Some basic accounting suggestions and spreadsheet examples are given for bookkeeping, tenant information and income projection.

The investment management section clarifies that operating costs are paid by the tenants whereas ownership costs are paid by the LLC. Rider illustrates ways to minimize the acquisition cost, monitor the industry/market, and how to keep an eye out for good refinancing opportunities. Other tips he gives: avoid government and call center tenants, make sure to establish sufficient reserves and security deposits, keep a paper trail to prove the building is in good shape, and decide whether to expand geographically with the same property types or locally with diverse property types (i.e. do not become your property’s own competition).

The book’s last section talks about property sales and refinancing. This includes how to create sales presentations, how to prove your building has above-average performance with supporting documents, how to write a sales document, and how to decide whether you want to sell, trade or refinance. An overview of the following concepts is also given: cost basis, depreciation, recapture, capital gains, and property exchanges. Lastly, there are the appendices which contain a glossary, a sample purchase agreement, and a sample commercial lease. Some other sample documents like an estoppels certificate is provided earlier in the book.

Overall, I think this book is extremely informative even though some of it is common sense. However, at around 400 pages I think some repetition could be removed, more brevity could be introduced and more real-world calculations could be used. That would make it an easier read and more cohesive. In conclusion, I give this book a solid B grade and would recommend its purchase to anyone pondering commercial real estate investment.
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Just looking and the Commercial Real Estate Investing For Dummies (3rd Ed) that came out in Jan 2008. It has 5 starts on Amazon after 10 reviews. I am thinking of getting this one instead.