Hindsight, as they say, is 20/20. Thus, I found it timely that I received Dr. Marc Andersen’s book Retire Rich from Real Estate in the same week as the global markets came to the realization the American economy may, indeed, be headed for recession (if not already so) due, in part, to the bursting of the real estate bubble.

Although published in 2008, the book was most likely written in 2007 with an eye to the real estate collapse currently unfolding. Andersen highlights in several instances the shift in this decade away from fundamentally sound principals of real estate investing (such as declining capitalization rates, appreciation of property outstripping rental rates and falling net operating income) as a harbinger of real estate collapse (Vancouver real estate investors pay heed!). Although Andersen refuses to state explicitly that we were living in the midst of a real estate bubble, his quantitative analysis, and as history is proving, certainly suggested as such.

Retire Rich from Real Estate is not your typical real estate investing guide. The book takes as its underlining analytical tool the Property Owners and Mangers Survey (POMS) conducted by the U.S. Census Bureau which is the first known survey of its kind. The POMS survey came to a shocking conclusion- only 41.4% of property owners in the survey reported they made a profit on real estate investing! The findings appear to shatter the commonly held belief that real estate investing is “safer” than investing in stock.

Why is real estate investing unsuccessful for over 50% of investors? Andersen undertakes a step-by-step analysis on how to find, buy and rent real estate using the POMS findings as a guide on what to avoid. For example, investing in highly appreciating properties is not necessarily a good thing. Why? Appreciation does not always equal good cash flow- a fundamental cornerstone of real estate investing. Andersen’s analysis suggests a Goldie Locks approach to buying investment property- not too hot and not too cold- which will be both cash flow positive and appreciate over time. I also found it interesting that Andersen’s analysis suggest that average operating expenses (the cost of keeping up a property less mortgage payments) should be in the range of 40-45% of monthly rents; personal experience tells me that most people dramatically under-estimate this figure and end up with zero to negative cash flow.

The book is full of great tidbits on finding good investments in an uncertain real estate market. For example, look for properties that rent for less than the carrying costs of a mortgage in the same area. Why? The tenants cannot convert from renters to owners that easily since they make enough to pay the rent but not enough to carry a mortgage. I also found it interesting that the bigger the unit, the more effective word of mouth referrals was to finding tenants.

Retire Rich from Real Estate is an excellent resource for guiding someone through real estate investing in these turbulent times. One caveat though- the author makes no attempt to dumb down the subject matter. There are times his analysis is very numbers driven and dense. It is not a book for the timid or tire-kickers on the subject.

Thus, my main criticism of the book is that it does read a little too much like a text-book. The copy is long at times and unbroken. There should be a more liberal use of text-boxes, graphs and other devices to break up the analysis. Some more real life examples would be helpful as well to bring the numbers into perspective. Perhaps this is something for the 2^nd edition which, may have to be written sooner rather than later, given what is occurring in real estate.

Million Dollar Journey reviewed the same book yesterday. Clearly, he reads at a slightly faster pace!

I’ll be giving away one copy of this book. Details on Friday.