A key tenet of ‘A Student of the Real Estate Game’ is to never stop learning. In my day-to-day as a real estate professional, I spend a majority of my time in the weeds, acquiring and asset managing value-add multifamily real estate in a few specific markets. One day may be spent negotiating a Purchase and Sale Agreement for a new acquisition, the next may be spent working with our onsite GC to trouble-shoot renovation issues, and others may be spent on calls and meetings with brokers and property management staff. While I enjoy every aspect of the job, this leaves little time for stepping back and thinking about real estate cycles, the forces changing the real estate industry, alternative business plans, and exit strategies. That’s why I enjoy writing this blog so much! It serves as my escape from the minutia and an avenue to step back and think about the big picture.
When I was given the opportunity to review the most important book in real estate, the Fifth Edition of ‘Real Estate Finance and Investments: Risks and Opportunities’, how could I say no? First, I have an insatiable thirst for knowledge and secondly, I have the utmost respect for the authors of the book.
The co-authors, Peter Linneman, PhD, and Bruce Kirsch are two industry giants who embody the ‘Student of the Real Estate Game’ approach. What stands out about them, is their balance between academic and practitioner. Peter Linneman is a real estate icon. He’s most well-known for the interview he did on ASotREG, but is also the founding Chairman of the Wharton Real Estate Department, Founding Principal of Linneman Associates, and has served for over 40 years as a consultant to leading real estate companies around the world. Bruce has an MBA from Wharton, taught real estate finance at Georgetown, and is the Founder and CEO of Real Estate Financial Modeling (REFM). REFM is a financial modeling consulting and coaching firm and also happens to be my top recommendation for anyone looking to improve their underwriting skills.
Although there are academic lessons scattered throughout the book, it’s so much more than a textbook, and it reads like a real estate history book with a series of mini case studies. Throughout, there is an undertone that real estate is a practitioner’s business best learned in the field from experience and from history.
The 4th edition of the book has sat on my desk for years, filled with highlights and page markers. I reference it weekly. It acts as my guidebook to successful deal execution, but even more, it’s a guide to a successful and fulfilling career in real estate.
There are several lessons taught throughout the book, which have shaped my career. Here are just a few:
- Real estate has a lot of different dimension and many different personalities. It’s important to choose a path that fits your skill set and personality.
- If you want a job in real estate, know how to do Excel in your sleep (start with REFM self-study classes!).
- Good real estate entrepreneurs see what others are doing, and they find ways to do it better, faster, and cheaper than the competition. Entrepreneurs also must be great salespeople, convincing others to invest in their vision with no track record.
- A career is a long time. Be patient. Do great work consistently and people will notice.
The book is not beneficial just for students, it’s an incredible resource for current real estate professionals. The lessons and fundamentals taught in the book can be applied to any real estate firm or deal. Here are a just a few of the lessons taught throughout the book of which I’m constantly reminding myself:
- Executing real estate deals is hard. ‘Football plays always work on paper’. Numbers are easy to manipulate to look good on paper. Achieving the expected outcome requires tremendous planning, knowledge, diligence, energy, concentration, adaptability, and luck. As Peter and Bruce say, “(just) being average is hard work and a full-time job.”
- Focus on bad outcomes, because you can always live with things turning out better than expected. As you gain business experience, you will be better at evaluating potential risks and how to best reflect those risks through financial models. Be patient. Your professional insight will improve over time.
- Little Mistakes + Big Numbers = Big Problems.
- Proper due diligence requires you to get out, walk around, talk to brokers, read reports, drive the area, and visit the property at night and during the day. You can’t learn real estate sitting behind a computer.
- Real estate operators are in the business of serving people. The greater insight you have on the local demand, the more confidently you can decide on the next steps.
- Expertise in the property-type and the local market is critical in determining the success of your investment.
- The numbers are a small piece of real estate finance and investments. There’s a reason analysts are paid a modest salary while the CEO’s make the big bucks!
- Real estate is priced relative to other asset classes. In interconnected capital markets, it is not enough to do better, one must do better than the alternatives.
- Surviving down cycles will result in a long and prosperous real estate career.
- Reputation is a rare asset which can generate great profits over the course of your career. Carefully choose the people with whom you deal.
Every time I reference the book, I’m reminded of how little I know and how important experience is to hone your real estate expertise.
When I interviewed Dr. Linneman for the blog in 2015 I asked him, ‘what are the 3 books every aspiring real estate professional should read?’. He responded, ‘if you’re going to read 3 books, read mine 3 times.’ He was joking, of course, but I also think he was right.
No matter what stage of your real estate career you’re in, ‘Real Estate Finance and Investments: Risks and Opportunities’ is the single most important book for you.