Prepare to Profit.
Published by Tam Tam Press, Murrietta, California, 2007, 140 pages $15.95, hardcover
One of an appraiser's main jobs is to understand market participants, so if an appraiser is appraising property purchased often by real estate investors, it makes sense to be aware of what they are reading. Appraisers need to be aware of investors' thinking and strategy, their rationale, their methods and motivations. We need consumer real estate investment publications that have a better understanding of market participants. In spite of the title, this book is of marginal help to appraisers in this regard.
This is a book about the need for different teams in different phases of real estate investment. It is about people involved in the investor's purchase, operation, and sale of residential investment real estate, from single-family residential to apartments. It is about the importance of operating as a team, an investment team, and the role of team members that investors deal with in buying, managing, and selling residential investment real estate.
Prepare to Profit is written by a husband and wife who chose to pursue real estate investment after other careers. They function as a real estate investment team and recommend a team approach, which means hiring experts in different fields and facets of real estate in order to share their knowledge and experience. As the authors put it, "Most books on real estate investing today simply focus on specific techniques without giving enough--or any--background information on the team players who should be involved"
It is pointed out that "there are usually multiple ways to make money in real estate," no one method or activity is best. "It is crucial to learn about as many methods of investing in real estate as you can before you actually plunk down any hard-earned money on a property." Education is stressed, along with managing a team of experts who provide advice. Six basic parts of the message include:
1. Avoid negative thinkers. Avoid those who say, "You used to be able to make money in real estate but not anymore"; also, "never say "never" or 'always' when it pertains to what is possible."
2. There are four basic reasons for investing in real estate. The basic reasons for investing are appreciation, tax benefits (expense deductions, depreciation), equity buildup or loan repayment (by tenant), and cash flow. Appraisers should be familiar with these, just as investors are.
3. Use a purchase team. Investors should use a purchase team including an agent, mortgage lender, appraiser, escrow/rifle company, real estate attorney, home inspector, insurance agent, chattels appraiser, entity expert for corporations and asset protection, and spouse or significant other. Each of these team members is usually in place anyway, but the investor has some choice in selection. However, the authors do not mention that most of these purchase team members are involved in the purchase process for a fee or commission tied to the sale and thus lack objectivity.
The appraiser is one of the team members on the list, but the description of the appraiser's function and work is shallow. There are generalized and incorrect statements, which are potentially misleading as the following shows:
Appraisers have the tough job of assigning a home's value. They are independent, yet they are influenced by various groups of people.... In general, the lender looks for a low figure from an appraisal so that they don't have to lend as much money, thus reducing their risk.... Appraisers can often make or beak a deal, depending on what method is used and who holds their loyalty.... There is one way to completely avoid appraisers: by paying cash for a property and not even involving a bank or lender.
Even in a discussion of how to find a good appraiser, in which the authors suggest, "ask your loan officer for a referral," there is no mention of designations, education, or the importance of professional affiliation and the Appraisal Institute. The authors go on to say, "Make sure the appraiser has a good working knowledge of the local market. Experience in an appraiser is desired; however, it is not a useful gauge if he or she is difficult to get along with."
Unfortunately, there is no mention of the residential real estate investor hiring an appraiser for counseling, advice concerning locations, market conditions and market outlook for specific types of properties, or advice concerning value and potential value after repair, remodeling, or renovation. The authors do not recognize the independent advisory role of appraisers.
4. Choose teams carefully. Investors need different teams in different phases of real estate investment, but investors should not rely on those who espouse get-rich-quick schemes. The authors state:
Many of you may still be wondering when this book will cover specific techniques for buying the next deal Well, as we told you in the beginning, that is no what the book is about. There are too many books that espouse the next surefire way of making a million in six months using real estate. These "experts" use arrogance and attitude to trick the general public into believing that using their so called simple steps and methods will make you rich This is grossly misleading. .. so buyers beware. Instead of losing your hardearned money to these schemers, surround yourself with real experts.... Every investor needs to figure out what method works the best in their own location as well as for their own personality and preferences. (81)
5. Use a management team. The authors advise investors in residential real estate that they will need management assistance. This includes property management (with a discussion of being your own property manager), marketing connections, certified public accountant (CPA), bookkeeper, banker, home warranty company, general maintenance service, landscaper or gardener, pool service.
6. Use a sales team. The authors advise, "When you purchase, it is an excellent idea to think about your exit strategy for this particular property." They state that sales team members should include a real estate agent (and a discussion of for sale by owner versus using agents), a certified public accountant, and Section 1051 exchange intermediaries. Here again, there is no mention of an appraiser to help by consulting on marketing strategy, pricing, conditioning the property for sale, etc.
Chapters 8 and 9 discuss some case experience the authors have had with various investments, the importance of keeping your sense of humor when involved in real estate, and deflecting naysayers and doomsayers.
Chapter 10 provides some information-source suggestions including a host of books and publications; the experts on the specific teams the investor uses; and some Internet sources such as realtor.com, realtor.org, realtytimes.com, ofheo.gov, census.gov, bls. gov, bankrate.com, hsh.com, overstock.com, zillow. com, and others.
The glossary defines over forty terms, such as amortization, appreciation, ARM, depreciation (accounting), chattels, LLC, but the definitions are all on a very elementary level, which limits their usefulness.
Interestingly, the glossary defines an appraiser as, "a person trained and licensed to determine the value of certain property using different methods." With this definition, it is no surprise that the authors omit appraisers from the sales team and the management team in making significant property decisions. There is no mention that appraisers also provide advisory and consulting services concerning valuation, pricing, conditioning property, investment decision making, marketing strategy, and the economic impact of various physical changes (repair, renovation, etc.) in property. The authors' incomplete understanding of appraisers' services is not unusual; however, appraisers do more than provide a report to the lender, and the public and investors should know that.
Finally, the authors refer to "making money" in real estate, with no distinction between "making money" and "earning money" This book fails to advise investors that to make money, they will need to earn money for doing something productive or making property more valuable, desirable, or useful; or that investors will need to do something besides simply being a holder-in-due-course raising the prices or rents to consumers.
As previously mentioned, appraisers should know what market participants are reading; however, Prepare to Profit is of marginal value to appraisers. I do not recommend appraisers buy this book.
(Reviewed by Dan L. Swango, PhD, MAI, SRA, Swango Real Estate Counseling and Valuation, Tucson, Arizona)
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|Author:||Swango, Dan L.|
|Article Type:||Book review|
|Date:||Mar 22, 2007|
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