Without a doubt, investing in real estate is best done with a firm grasp of the financials involved. Financial calculations can appear daunting to say the least. With a quick look at the HP-12C financial calculator shown above you’ll quickly begin to wonder what the heck all those buttons do. While I don’t use all of them, using a similar calculator to quickly and accurately assess your costs and returns involved in real estate can help you immensely when evaluating investment opportunities. Is it better to invest in a vehicle that returns 16% annually but compounds only every three years, or an investment that returns 12% but can be compounded every two?
I recently did calculations for this example above & found, though compounding interest periods are a vital component of assessing how your money will grow or shrink overtime, the 16% return that compounds every three years is indeed a better investment for my 18 year horizon. In order to do this I had to use both my HP-12C and an excel spread sheet. Excel has many of the calculations the 12C does built right into it, but I’ve been really enjoying using the HP after reading a book that is basically half education on how money works, and half instruction manual to the HP-12c. This book relies heavily on the use of this exact calculator to illustrate it’s figures & if you’re looking for a solution you can carry around in your pocket without needing to lug your laptop around, I’d highly recommend reading it. The title is “Taking The Mystery Out Of Money” by Lonnie Scruggs, a now deceased investor who focused on flipping mobile homes. You don’t need to be interested in mobile home investment to benefit from his knowledge about how money works, and the material is so beneficial I’m left wondering why this book isn’t required reading somewhere along the education cycle of a high school senior.
The second book is definitely more real estate focused in-depth, but uses Microsoft Excel to explain the figures and calculations. While I really enjoy using the HP-12C, I have to admit that much of my record keeping, if not analysis takes place in this environment, so using the worksheets themselves to derive my results does have it’s benefits. Both of these books were recommendations from other real estate investors on podcasts I frequent, and both are chock full of information I’ll be able to use for the rest of my life. While I’ve heard that something like 70% of college graduates never read another non-fiction book after graduation, if you’re like me and see the value of a lifetime of learning, understanding how money and investment works can make the rest of your life more enjoyable! So even though some may see it as very dry material, understand it’s the fuel that will provide your life what it needs to get up those hilltops to where everything looks more beautiful.
The second book is titled “What Every Real Estate Investor Needs To Know About Cash Flow.. and 36 Other Key Financial Measures” by Frank Gallinelli. Links to both of these books will take you to Amazon where you can buy either as a paperback or Kindle version, if they interest you. A quick word about various ways to read; Especially if you’re learning something new, Kindle does include a dictionary to quickly look up any word you’re unfamiliar with, and provides an unlimited highlighter, notes section, and endless bookmarks with quick search functionality. I used to really love the ability to hold knowledge in my hands, flipping through it on real paper. When I discovered the benefits listed above, and realized I could take a hundred books with me on vacation while packing for the size of a small magazine, I was sold!
Another great thing about reading off a Kindle, is the ability to upload any PDF document, either converting it to kindle format or leaving it as a PDF. Some of the symbols used in financial calculations for the user guide to my HP-12C that I also keep for reference didn’t survive the translation, so I’ve kept that in PDF format to keep it readable.
Another document I’ve uploaded, but actually converted to Kindle format is one of the best books I’ve ever read. It’s less on the numbers and calculations, and more about the mindset of winding up in a situation where you CAN invest, and how to do so. In fact, it’s told as a fable, with more scenery, plot development, and enough interesting content it can be read to a child at bedtime while instilling a perhaps unconscious understanding about the way money works. This book was written almost 100 years ago, & long past copyright; it’s available for free all over the internet just Google search the title, free download. You don’t hear about it in school, though again you wonder why after reading it. This is another one I’d recommend as required reading. “The Richest Man In Babylon” by George S. Clason, is one of the easiest reads that also imparts one of the biggest impacts. If you don’t want to dive into intense financial calculations and verbiage at this point, but want an enjoyable way to educate yourself, this would be my recommendation.
I hope you find some of what we’ve shared useful and happy reading!