Eric Tyson Bestselling author, Personal Finance For Dummies and Investing For Dummies Robert S. Griswold Author, Property Management Kit For Dummies Learn to: • Make real estate part of your long-term investment plan • Master the art of property valuation • Get the best deals on financing • Build wealth in any market Real Estate Investing 2nd Edition Making Everything Easier! ™ “Both beginner and experienced real estate investors will profit from studying all the aspects to consider when maximizing property profits.” —Bob Bruss, Inman News, on Real Estate Investing For Dummies “This is simply the best book on the topic.” —Randall Bell, author, Home Owner’s Manual Open the book and find: • Tips for buying and improving properties • Proven methods for boosting a property’s return and value • The opportunities of the market downturn • Expanded coverage on foreclosures, short sales, and REOs • The latest on buying fixer-uppers and flipping • New details on buying hotel condos and timeshares • Changes in the tax laws • Finding properties online Eric Tyson is a nationally recognized personal finance counselor, bestselling author, and syndicated columnist. He is the author of numerous bestselling For Dummies books on real estate, small business, personal finance, and investing. Robert S. Griswold is a successful real estate investor and hands-on property manager with a large portfolio of residential and commercial rental properties. $21.99.99 US / $25.99 CN / £15.99 UK ISBN 978-0-470-28966-2 Business/Real Estate Go to dummies.com ® for more! Now updated — your guide to building long-term wealth through real estate Want to be a successful real estate investor? Eric Tyson and Robert Griswold present their proven strategies, along with updated tips for easily riding out downturns in the real estate market. From homes and apartment buildings to duplexes, commercial properties, and real estate investment trusts (REITs), you’ll master every aspect of investing in and financing properties, and see how to increase their value. • Build a foundation for investing success — get your finances in order, weigh your investment options, understand the risks, and work with real estate pros • You have to pay to play — raise capital, finance your purchases, and secure the best mortgage terms • Find and evaluate properties — choose the best locations, understand leases, project a property’s cash flow, and decide how much to pay • Master the negotiation process — assemble attractive offers, complete the purchase agreement, conduct formal due diligence, and close the sale • Manage your property — be a top-notch landlord (or hire help), get the insurance you need, know the tax angles, and decide when and how to sell Real Estate Investing Tyson Griswold 2nd Edition spine=.816” Praise for Eric Tyson’s Real Estate and Investing Titles “You won’t  nd a better ‘how-to-sell-your-home’ book than this one. The authors have included practical knowledge you won’t  nd anywhere else. . . . On my scale of one to 10, it rates a solid 10.” — Bob Bruss, Tribune Media Services, on Home Buying For Dummies “ . . . takes you step by step through the process . . . humorous insights that keep the pages turning. This is a reference you’ll turn to time after time.” — St. Petersburg Times, on Home Buying For Dummies “. . . Home Buying For Dummies . . . takes a holistic approach to home buying.” — San Jose Mercury News “. . . Home Buying For Dummies provides a much-needed emotional stabilizer.” — Knight-Ridder News Service “The humorous Home Buying For Dummies by Ray Brown and Eric Tyson is a favorite . . . because the editorial is so good. They check their facts very well. They set out to make you understand this subject and make it fun reading and informative.” — Minneapolis Star Tribune “Eric Tyson . . . seems the perfect writer for a . . . For Dummies book. He doesn’t tell you what to do or consider doing without explaining the why’s and how’s — and the booby traps to avoid — in plain English.” — Chicago Tribune “House Selling For Dummies by Eric Tyson and Ray Brown is fun . . . and also  lled with practical advice.” — Charlotte Observer “Home Buying For Dummies and House Selling For Dummies . . . go into surprising depth on their topics without straying from their mission of explaining the processes simply.” — Washington Post “In Investing For Dummies, Tyson handily dispatches both the basics . . . and the more complicated.” — The Capital-Journal Praise for Robert Griswold’s Property Management For Dummies “Robert Griswold is the guru of smart property management. You won’t  nd a better written, more practical book on the subject.” — Kenneth Harney, nationally-syndicated real estate columnist, Washington Post Writers Group “Anyone who is contemplating becoming a landlord — or for that matter anyone who already is — would do well to read Robert Griswold’s book, Property Management For Dummies. . . . Mr. Griswold covers all the bases of property management. . . . Whether you have one rental or hundreds, this is a book to keep close by.” — Dave Liniger, Chairman of the Board, RE/MAX International, Inc. “Robert Griswold is a national leader in the property management  eld. This is an outstanding reference guide authored by an experienced and outstanding property management professional.” — Dr. Rocky Tarantello, Tarantello and Associates, Newport Beach, CA “If you’re a  rst-time landlord, this is the only book you’ll need. Robert Griswold is a real pro and simpli es every step of the process.” — Dick Barnes, Inman News Features More Bestselling For Dummies Titles by Eric Tyson Personal Finance For Dummies ® Discover the best ways to establish and achieve your  nancial goals, reduce your spending and taxes, and make wise personal  nance decisions. Wall Street Journal bestseller with over 1 million copies sold in all editions and winner of the Benjamin Franklin best business book award. Mutual Funds For Dummies ® This bestselling guide is now updated to include current fund and portfolio rec- ommendations. Using the practical tips and techniques, you’ll design a mutual fund investment plan suited to your income, lifestyle, and risk preferences. Taxes For Dummies ® The complete, best-selling reference for completing your tax return and making tax-wise  nancial decisions year-round. Home Buying For Dummies ® America’s #1 real estate book includes coverage of online resources in addition to sound  nancial advice from Eric Tyson and frontline real estate insights from industry veteran Ray Brown. Also available from America’s best-selling real estate team of Tyson and Brown — House Selling For Dummies and Mortgages For Dummies. Small Business For Dummies ® Take control of your future and make the leap from employee to entrepre- neur with this enterprising guide. From drafting a business plan to managing costs, you’ll pro t from expert advice and real-world examples that cover every aspect of building your own business. Investing For Dummies ® Get back to basics with Eric Tyson’s revised and updated bestselling guide to investing. You’ll discover how to cut through the hype to  nd the real deals, how to calculate securities, how to  ourish in any market, how new tax laws affect your investments, and much more. by Eric Tyson and Robert S. Griswold Real Estate Investing FOR DUMmIES ‰ 2ND EDITION Real Estate Investing For Dummies ® , 2nd Edition Published by Wiley Publishing, Inc. 111 River St. Hoboken, NJ 07030-5774 www.wiley.com Copyright © 2009 Eric Tyson and Robert S. Griswold Published by Wiley Publishing, Inc., Indianapolis, Indiana Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permit- ted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600. 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Library of Congress Control Number: 2009920906 ISBN: 978-0-470-28966-2 Manufactured in the United States of America 10 9 8 7 6 5 4 3 2 1 About the Authors Eric Tyson, MBA, is a best-selling author and syndicated columnist. Through his counseling, writing, and teaching, he equips people to manage their personal finances better and successfully direct their investments. Eric is a former management consultant to Fortune 500 financial service firms and has successfully invested in real estate for more than two decades. Eric earned his Bachelor’s degree in economics at Yale and an MBA at the Stanford Graduate School of Business. Despite these handicaps to clear think- ing, he had the good sense to start his own company, which took an innova- tive approach to teaching people of all economic means about investing and money. An accomplished freelance personal finance writer, Eric is the author of the national bestsellers Personal Finance For Dummies and Investing For Dummies, coauthor of Home Buying For Dummies and Taxes For Dummies, and was an award-winning columnist for the San Francisco Examiner. His work has been featured and quoted in hundreds of national and local publica- tions, including Newsweek, the Wall Street Journal, Forbes, Kiplinger’s Personal Finance Magazine, the Los Angeles Times, and Bottom Line/Personal; and on NBC’s Today Show, ABC, CNBC, PBS’s Nightly Business Report, CNN, CBS national radio, Bloomberg Business Radio, and Business Radio Network. He’s also been a featured speaker at a White House conference on retirement planning. Despite his “wealth” of financial knowledge, Eric is one of the rest of us. He maintains a large inventory of bumblebee-colored computer books on his desk for those frequent times when his computer makes the (decreasing amount of) hair on his head fall out. He’s on the Web at www.erictyson.com. Robert S. Griswold, MSBA, is a successful real estate investor and hands-on property manager with a large portfolio of residential and commercial rental properties who uses print and broadcast journalism to bring his many years of experience to his readers, listeners, and viewers. He is the author of Property Management For Dummies and Property Management Kit For Dummies and the real estate expert for NBC San Diego, with a regular on-air live-caller segment since 1995. Robert was the host of a live weekly radio talk show, Real Estate Today!, for nearly 15 years, and he’s also the columnist for the syndicated “Rental Roundtable” and “Rental Forum” columns. These popular features are published in dozens of major newspapers throughout the country, and Robert has been recognized twice as the #1 real estate broadcast journalist in the nation by the National Association of Real Estate Editors. Robert’s educational background includes having earned BS and master’s degrees in finance and business economics, real estate finance, international finance, real estate and urban land economics, and real estate develop- ment, all from the Marshall School of Business at the University of Southern California. His real estate investing and managing professional designations include the CRE (counselor of real estate), the CPM (certified property man- ager), the CCIM (certified commercial investment member), the GRI (gradu- ate, Realtor Institute), and the PCAM (professional community association manager). Robert has been retained on over 1,000 legal matters as an expert in the stan- dard of care and custom and practice for all aspects of real estate ownership and management in both state and federal cases throughout the country. He’s the president of Griswold Real Estate Management, Inc., managing resi- dential, commercial, retail, and industrial properties throughout Southern California and Nevada. On a personal level, Robert enjoys travel (particularly cruises), sports, and family activities. He truly enjoys real estate and tries to keep life in perspec- tive through humor! [...]... (undeveloped) land We also cover indirect real estate investments such as real estate investment trusts (REITs) that you can purchase through the major stock exchanges or a real estate mutual fund We’ve always relied on tried-and-true methods of real estate investing and our core advice is as true today as it was before the real estate downturn in the late-2000s Our book is an especially solid reference... Robert Griswold has extensive hands-on experience as a real estate investor who has worked with properties of all types and sizes He is also the author of Property Management Kit For Dummies (Wiley) and is the author of two popular syndicated real estate newspaper columns He has appeared for over 15 years as the NBC-TV on-air real estate expert for Southern California And for nearly 15 years, he was the... we explain how real estate compares with other common investments, how to determine whether you’ve got what it takes to succeed as a real estate investor, how much money you need to invest in various types of real estate, and the tax advantages of real estate We also cover how to fit real estate investments into your overall financial and personal plans 3 4 Real Estate Investing For Dummies, 2nd Edition... are more accessible and appropriate for nonexperts.) ✓ Although you should make money over the long-term investing in good real estate properties, you can lose money, especially in the short-term Don’t unrealistically expect real estate values to increase every year As many folks experienced in the late-2000s, they don’t! When you invest in real estate for the long-term, which is what we advocate and... Book 5 Where to Go from Here 6 Part I: Stacking Real Estate Up Against Other Investments 7 Chapter 1: Evaluating Real Estate as an Investment 9 Understanding Real Estate s Income- and Wealth-Producing Potential 10 Recognizing the Caveats of Real- Estate Investing 12 Comparing Real Estate to Other Investments 13 Returns 14 Risk ... estate is really for you ▶ Arranging your overall investment and financial plans to include real estate W hen Robert first entered the real estate field while attending college decades ago, his father, a retired real estate attorney, advised that he use his monthly income primarily to pay day-to-day living expenses and allocate money each month into long-term financial investments like real estate This... owner of a mortgage-free property worth more than triple what you paid for it! After you get the mortgage paid off in year 30, take a look at what happens to your monthly expenses (big drop) and therefore your cash flow in year 31 and beyond (big increase) Recognizing the Caveats of Real- Estate Investing Despite all its potential, real- estate investing isn’t lucrative at all times and for all people —... position yourself for the rebound Unlike so many real estate book authors, we don’t have an alternative agenda in writing this book Many real estate investing books are nothing more than infomercials for high priced DVDs or seminars the author is selling The objective of our book is to give you the best crash course in real estate investing so that if you choose to make investments in income-producing properties,... types of information Here’s what each icon means: This icon points out something that can save you time, headaches, money, or all of the above! Here we’re trying to direct you away from blunders and boo-boos that others have made when investing in real estate This icon alerts you to hucksters, biased advice, and other things that can really cost you big bucks 5 6 Real Estate Investing For Dummies, 2nd... fit real estate into your overall personal financial plans We also cover the gamut of real estate investments you have to choose from and how to begin to assemble a team of competent professionals to assist you with the process Chapter 1 Evaluating Real Estate as an Investment In This Chapter ▶ Getting started ▶ Contrasting real estate with other financial options ▶ Deciding whether real estate is really . UK ISBN 97 8-0 -4 7 0-2 896 6-2 Business /Real Estate Go to dummies. com ® for more! Now updated — your guide to building long-term wealth through real estate Want to be a successful real estate investor?. author, Personal Finance For Dummies and Investing For Dummies Robert S. Griswold Author, Property Management Kit For Dummies Learn to: • Make real estate part of your long-term investment plan •. how to sell Real Estate Investing Tyson Griswold 2nd Edition spine=.816” Praise for Eric Tyson’s Real Estate and Investing Titles “You won’t  nd a better ‘how-to-sell-your-home’ book than