Ten Books That Will Make You a Better Person

I started saving money and got serious about my finances when I was 25 years old.  I was still in school finishing my graduate studies.  As most students, I did not have a lot of discretionary cash, and I remember going to Barnes and Nobel (when brick and mortar stores where still a thing), and reading as many books on finance and investing as I could.  Today I will try to distill all the books that I have read over the last 20 years or so into 10.

Let me first state that on any journey or life endeavor, you have to start with a purpose, your purpose has to be so clear and so strong that you will not be stopped when facing challenges or disappointments (and you will, believe me).  Things will not always go your way, disappointments will come, reasons to quite will be abundant, the lure to buy things and spend the money you have saved will be constant.  All along, you will be armed with a strong will and a resolve to stay the course because you have clarity on why you re doing this.  For this reason, it is a combination of psychology and knowledge, and neither one is more important than the other, if nothing else, perhaps psychology would get the upper hand.  Psychology is about clearly defining why you want what you want, and having a vivid vision of where you want to be and who you want to be in the future.  Reasons come first, answers will come second, and as one of my mentors told me early in my career: “If you why is big enough, the how will take care of itself.”

With that let me start with my list of books that will help you develop your mindset, and will give you tools to remain strong:

1.- Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Do Not!; A classic and best seller by Robert Kiyosaki.  This book summarizes the concept behind an asset and a liability, and how cashflow producing assets are king.

2.- The Richest Man in Babylon:  Building wealth is not new, it goes as far back as the Persians and Sumerians.  George S. Clason teaches in this short book a number of concepts that we must keep in mind in our road to wealth.

3.- Think and Grow Rich: A classic by Napoleon Hill.

4.- The Millionaire Next Door: The Surprising Secrets of America’s Wealthy:  This book came out in the 90’s and it is as relevant today as it was back then.  Wealthy people are not necessarily the ones that you see driving the nicest cars and having the biggest houses.

5.-  The Geometry of Wealth: How to Shape a Life of Money and Meaning:  Brian Portnoy draws you to reflect on the true meaning of money and wealth.

In addition to having a purpose, it is also important to have some tools that will help you along the road.  I must admit that there are lots and lots of books with financial advice.  I am listing some of the best books that I have read and with sound advice to help you get started and continue on your road to personal financial success.  The books are listed in order from basic to more advance content, but does not mean that one is better than another.

1.- The Total Money Makeover: A Proven Plan for Financial Fitness; written by Dave Ramsey.  The book contains solid financial advice in easy to understand terms.

2.-  The Money Book for the Young Fabulous and Broke;  This book is one of Suze Orman’s first books.  It may contain advice that at times is similar to Dave Ramsey’s.  Nonetheless, if you consider yourself inexperienced in the topic, this is a great book to get you started.

3.-  MONEY Mater the Game: 7 Simple Steps to Financial Freedom; By Tony Robbins, this book is excellent, it is more than 600 pages long, but worth every page.  Tony give very sound financial advice, and discloses secrets from his interviews with world acclaimed investors.  If you have to pick only one book, this would be my choice, it is a mixture of basic and intermediate topics.

4.- The Motley Fool Investment Guide:How the Fools Beat Wall Street’s Wise Men and How You Can Too;  I must admit that the motley fools does more to educate the common individual such as you and me than anyone else.The book, written by Tom and David Gardner will teach you in a very easy way what you need to know to start investing in stocks, bonds, and funds.

5.-  Bull’s Eye Investing: Targeting Real Returns in a Smoke and Mirrors Market;  I cannot finish my list without recommending John Mauldin’s book.  The book is not new, but contains advice that is just as relevant today as it was when it was published.  John is a great writer and very candid and forthcoming with his advice.  I would say, this book is perhaps a little more advance than the others, but if you read it, you will gain precious advice on how the markets really work.

In the end, the important aspect is to have a clear goal, live below your means, save, invest wisely your money, and wait for it to compound.  I hope my book recommendations help you become a better investor and a better person.

Ten Books You Must Read Before Investing in Real Estate

I started investing in real estate more than 10 years ago.  Like many others, I got curious about this, and eventually I decided to buy my first property, and then my second, and many years later I have 21 units that I own along with my wife and I have passively invested in 9 different syndications (I will explain what that is), that own upwards of 1500 units combined.

Before I get to the book list, let me explain that there are several ways to invest in real estate, you can be an active investor or a passive one.  An active investor is directly involved in activities related to running or managing the property: you can buy a house and rent it, or you can put together a group of investors that look for a bigger size deal, put it under contract, gather another group of investors (passive) and buy and run the deal.  This is commonly referred as a syndication, and it is a profitable way to invest.

Now to the list.  I have read many real estate related books, and a friend asked me recently which books would I recommend to someone getting started in this journey, my list may be missing some good books, but I can tell you that the ones mentioned are worth every penny, and if you want to be an informed investor you must read at least a few of them.  If there are books you have read that are not mentioned here, please put them in the comments section.

1.- Rich Dad, Poor Dad: Without a doubt this is a classic, and if you ask among real estate investors, I would bet more than 90% have read this book and is perhaps the one that got them started in the business.  I am not sure if the rich and poor dad are real, but the book is full of practical advice and inspiration.

2.- What Every Real Estate Investor Needs to Know About Cashflow: This book is full of formulas and examples on key financial metrics related to real estate.  Many investors buy real estate banking on appreciation, and it is likely the property will appreciate, my advice is that any property you buy must cashflow.  This book is a must for any aspiring investor.

3.- The Hands-Off Investor: I just recently read this book, and I can tell you that the price you pay is a bargain compared to the value delivered.  I have been a member of an active mentorship group, where I have paid a good amount of money to learn, and I wish I would I have read this book earlier.  The author (Brian Burke), does an excellent job explaining how multifamily syndications work. 

4.- The Weekend Millionaire's Secrets to Investing in Real Estate: How to Become Wealthy in Your Spare Time: Getting started in real estate can be overwhelming, and this is like the saying: “How do you eat an elephant?” One bite at a time.  This book does exactly that, it simplifies the process and gives actionable advice on how to get started.

5.- Best Ever Apartment Syndication Book: This book is written by Joe Fairless and Theo Hicks.  They have a podcast with the same name, and furthermore, Joe runs a very successful syndication company and I have invested in a number of his offerings.  The book perhaps repeats some of the same concepts you will read about in other books, but it does it in a very easy to digest manner.

6.- The Geometry of Wealth:  Although this is not necessarily a real estate book, you must read this book to understand your reasons for getting into real estate.  Real estate can be a very profitable business, but your why must go beyond just making money.  A meaningful life in the end is what we all aspire to, and this book contains plenty of food for thought.

7.- Crushing it in Apartments and Commercial Real Estate: Another great book, told from a different perspective.  It has a mix of personal stories, financial concepts, and tactics to get started.

8.- The Book on Rental Property Investing: My list would not be complete without a book from the bigger pockets library.  If you have not stumbled on it, Bigger Pockets is an excellent website, with tons of free content.

9.- The Complete Guide to Investing in Rental Properties: This one of the first few books I read, and it gave me a good blueprint on how to get started.  This book is more appropriate for those seeking to buy their first small property (less than 5 units).  The concepts are applicable across and you will not go wrong making this one of your first reads.

10.- The Millionaire Real Estate Investor: Written by Gary Keller of world fame.  This book is full of actionable advice from a legend.

This concludes my top 10 list.  I still recall my wife telling me that she would not allow me to get into this business if I did not read at least 1 or 2 books before.  Many years and books later, I realize how right she was, in order to be successful in this business, I would recommend that you read as many books as you can get your hands on.  Best of Luck!!

Beware of Recaptured Depreciation

Whether you are an active or passive investor, I am most positive you have surely heard “cost segregation” and “bonus depreciation.”  One of the advantages of investing in real estate is that you are allowed to depreciate or “cost recover” the money you spend on the asset.  The purpose of depreciation is to allow individuals and businesses who use property in productive use or in a trade to recoup their capital over the useful life of the asset against ordinary income as an expense so that capital can be reinvested to generate more money.

Upon acquisition, each asset is classified into a specific class life based on the general rules set forth in the Internal Revenue Code.  Once the class life is determined, a statutorily defined deduction is taken for depreciation of the asset, regardless of the actual decline in value of the asset from year to year.  For residential real estate, it has been determined that the asset can be depreciated over 27.5 years.  Most apartment complexes fall in this category.  Lets look at an example:  You just bought a small apartment complex worth $1MM, does this mean that we can depreciate $1MM/27.5 yrs?  Not quite, first we have to figure out how much of this is really depreciable; the land is not depreciable.  Continuing with our example, the value of the building is only $700K.  However, not all depreciation is created equal, there is straight line, accelerated depreciation, modified accelerated depreciation, and bonus depreciation.  For our purposes we will deal with straight line and bonus depreciation. 

Under straight line we would divide the depreciable part over the number of years ($ 700K/27.5yrs), and I would be allowed to approx. $36.4K of depreciation that I can write against my expenses on a year-on-year basis.  As a passive investor, you are told that the general partner will do a cost segregation and apply for bonus depreciation, so what does this mean?  As I mentioned, different assets can have different depreciable lives, and the IRS is keen to make sure you do this right.  The general partner(s) will have to segregate or separate the different types of depreciable “parts” within the asset.  If you are a syndicator, you must make sure to hire a professional to come and “segregate” the apartment complex into these different asset classes.  Bonus depreciation is a form of accelerated depreciation. which allows you to take 100% of the accelerated benefit and utilize it all in year one of ownership. It's an amazing perk, but it will not last forever. In its current form, the full benefit lasts on properties acquired through the end of 2022.  With bonus depreciation, instead of the $36.4K/yr, we would be able to depreciate a much larger amount, for this example and to keep things simple I will assume our full original $700K is depreciable on year 1, indeed, quite a perk.

Obviously, Uncle Sam always wants his money back, and just as we are allowed to depreciate, that depreciation must show up at some point.  Unlike other assets that lose value through time, real estate actually appreciates.  Continuing with our example, lets say that it is 5 years later and it is time to return their money to your investors.  You did well and your apartment complex appreciated 60% and now is worth $1.6MM, your investors are anxious to get their profits and at the same time ask you if you know what the tax effects of the sale will be to them? 

First you must understand your gain and separate this into its different components (let me explain).  Recall you decided to take your depreciation benefit in the first year?  Well, now your basis in the asset is $1MM (purchase price) - $0.7MM (depreciation) = $0.3MM.  So your total gain is $1.6MM - $0.3MM = $1.3MM.  So far so good, so… how will you be taxed on this amount? Capital gain? Ordinary income? Other? Yes, yes, and yes. 

First the easy part, any gain above the purchase price will be taxed as section 1231 gain which gets taxed at capital gain rates (and since you held the asset for more than a year), this means long term or the more favorable capital gain rate.  Your investor is in the 24% tax rate, which corresponds to a 15% capital gain rate.  This means that $1.6MM-$1MM = $0.6MM will be taxed at 15%.  What about the rest?  The IRS assumes that you should have taken straight line depreciation or $36.4k/yr × 5yrs = $181.8K, and this is taxed at 25% as per regulations (regardless of your tax bracket).  The excess above this (due to bonus depreciation) or $700K-$181.8K = $518.2K is taxed as ordinary income (24% in our example).

Now we can tell our investor that after we sell the asset, the total tax will be approximately $260K, and he/she should expect to receive his K-1 form that will lead to his proportional tax.  At sale you will receive $600K of gain (minus closing costs and commissions), and if did not do anything else to get additional passive income, you would owe $260K in taxes.  Not all is lost though, you can tell your investor that your next deal is right around the corner, and this may bring additional passive losses from more depreciation, hoping that by then the government has not taken away this huge perk that is bonus depreciation.