A Review of The ABC’s of Real Estate Investing by Ken McElroy

If you are new to Real Estate Investing, this book is a great place to start. Author Ken McElroy is certainly qualified to write on this topic as he is a “real” expert on real estate – and so he should be after over fifteen years of developing and managing real estate properties. He is also “Rich Dad” Robert Kiyosaki’s real estate advisor, partner and right hand man.

The wealth that we have accumulated thus far has largely been due to our real estate holdings. However, those holdings have been in single-family properties. This book has opened up a whole new realm of possibilities in the real estate investing market.

There are two key concepts in the beginning that we found very interesting:

You Don’t Have To Have Money To Invest In Real Estate

Yeah yeah, we’ve all heard of the “No Money Down” gimmick for investing in real estate. I’m sure you’ve seen the many infomercials just like we have. Lord knows we’ve spent our fair share of money on “No Money Down” type courses. Ultimately, we found that it just didn’t really seem to work in the real world. But…

There is a better way to invest in real estate with no money down

Once you have found a good real estate opportunity, locate investors who are looking for a good return on their money and give the majority of the ownership to them. (Note: The deal has to have good profit potential based on solid financials.) And yes, the first deal can be difficult because you don’t have a track record, but if the deal is good people will want to be a part of it and each successive deal will get easier. Hey, 10% of something is better than 100% of nothing, right?

Small Deals Can Be Riskier Than Big Deals

You do not have to start small, and in fact, small single-family units can be riskier. Why is that? There are three reasons:

1. Mortgages on these types of properties are almost always personally guaranteed by the buyer. However, investment loans on commercial properties, such as a fifty-unit apartment building, are secured by the building itself.

2. Unlike the value of a home, the value of a commercial property is based on the cash flow of the building. When cash flow increases, the value of the property increases.

3. When a single-family home sits empty, it is 100% vacant and you are covering all of the costs out of your pocket. In a larger building, if one resident leaves, you still have others paying rent, thus reducing your exposure and risk.

If you want to cash out because the property has appreciated, you don’t have to sell – simply refinance and pull out what equity you can. This way you continue to receive the cash flow and you can pull the gain out without being taxed on it.

You Need A Team – Don’t Cheap Out

You’ve got to have a team of experts. Without them it will take you longer to find, evaluate and close deals and it will end up costing you in the long run. Your core team should consist of an attorney, accountant, real estate broker, property manager, lender or mortgage broker, investors and contractor.

In Conclusion

Ken continues on to discuss researching a market, evaluating supply and demand, determining property values, conducting due diligence, and property management. In a nutshell, there is no fix, repair or improvement that can mend a property that you paid too much for. Doing your homework is critical.

While seasoned real estate investors may find this book to simple or basic, it is a place for the beginner interested in real estate investing to start and will certainly help them avoid the many pitfalls by following each of the steps outlined. I know we’ll definitely get our money’s worth.

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