What books should you read and what should you avoid?

It’s tempting, isn’t it? The stock market has crashed again and your portfolio is down 20% or more for the year. At the same time, from what you hear on the street and read in the paper, one thing is more than clear – real estate is stable and the forecasts for the future are positive. What if you pull some money out of the losing mutual funds and buy an investment property? Your neighbor down the street made a small bundle this summer selling his rental duplex. He is looking to buy again. Should you try too?

Such burning thoughts keep interrupting your sleep and the quiet conversations around the dinner table. Half of you wants to jump in, because you may miss on the opportunity – rental units become more and more expensive year after year – but the other half is cautioning you with a clear voice: “You know nothing about property management”. Then your college education kicks in and convinces you that there are books on any subject on the planet and as long as you are not lazy to read, you can learn anything, I mean anything. What’s the big deal about being a real estate investor, after all? Isn’t the availability of capital the most critical requirement?

See, making that initial mental jump is perhaps the more difficult. You hit the local library and under the subject “real estate” you easily find dozens of books.  The big problem here is what you should read and what should avoid.

The real estate guru

Like in any activity involving money and profits, the field of real estate is littered with gurus, who whant to teach you how to become rich. They cover juicy topics like how to buy with nothing down, how to spot the distress property, how to save on taxes, and so on, and so on. They have their printed books, their audiobooks, and run their own seminars. They will show up in your city for a free information session and try to get you to sign up for full training for only $5,000.  They look successful, talk about how they have built their personal wealth, and hint that you can do it too by just using the cookie cutting approach. Everything is presented to be easy if you know the right formula. Are you ready to start?

John T. Reed

We’ve heard their names – Donald Trump, Robert Kiyosaki, Carleton Sheets, and Robert G. Allen first come to mind. They are the big guns (financially successful, excellent speakers, well publicized by the media). The list of “smaller guns” is so long that there is no point to even start it. The good news is that a man named John T. Reed has taken to time to research all the real estate gurus and even rate them. He reads their books with a critical eye and rates them. John T. Reed is himself sort of a real estate guru, but he does not want to be called that way. He has also published books for real estate investors and has personally profited from being active landlord himself. His assessment of the so called gurus may be disputed and controversial, but nonetheless very helpful to anyone, who doesn’t know where to start.

Here is what he has to say about Kiyosaki’s best seller “Rich Dad Poor Dad”:

Rich Dad, Poor Dad is one of the dumbest financial advice books I have ever read. It contains many factual errors and numerous extremely unlikely accounts of events that supposedly occurred.

Kiyosaki is a salesman and a motivational speaker. He has no financial expertise and won’t disclose his supposed real estate or other investment success.

Rich Dad, Poor Dad contains much wrong advice, much bad advice, some dangerous advice, and virtually no good advice.

Dangerous advice

• “If you’re gonna go broke, go broke big”
• Convinces people that college is for suckers

Law-breaking advice

• Advocates committing a felony: have rich friends for trading stock based on non-public insideinformation, he says “That’s what friends are for.”
• Recommends tax fraud by deducting vacations and health club dues
• Brags about using a partner weasel clause in which his cat is his partner…

It’s kind of entertaining reading Reed’s opinions. When it comes to his personal credentials, Reed holds a business degree from Harvard and enjoys the backing of the National Association of Realtors in the US.

With the gurus being pushed aside for the time being, your starting point should be much more boring – you are better off starting with books and sources that:

• Teach you how to analyse the cap rate and cash flow of a rental property
• Inform you about the legislation governing the landlord-tenant relationship in your province
• How to screen potential tenants and how to deal with bad tenants

Being an investor in real estate is not as simple as it may have been presented in some books. So, what are the books you should read? Where is the list?

It’s coming. Keep reading the blog. In the meantime tell me which books are your “must read” for novice real estate investors.