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This review originally appeared in Real Estate investor’s Monthly.

A number of readers asked for my opinion on Value Investing in Real Estate by Gary Eldred, so I bought a copy at my local book store.

Ph.D.

He has the letters “Ph. D.” after his name. That’s always scary and although this book is more down-to-earth than you would expect of a college professor, it’s still too ivory tower. If I had a Ph.D., I would not mention it unless I was speaking at a college. You lose too much credibility—and rightly so in most cases.

What is value investing?

I am not a stock market guy. Eldred apparently is to a large extent. He says value investing in the stock market is the approach advocated by Warren Buffet and Ben Graham. Graham wrote the books The Intelligent Investor and Security Analysis (1934—co-authored by David Dodd). Do these books have any value for real estate investors? Based on what Eldred says they say, I would say, “Yes. They offer some interesting insights into investing in general.” But Eldred’s book spends far too much time proving why stock market books that he does not like, e.g., Jeremy Siegel’s Stocks for the Long Run, are wrong and why income properties are better investments than stocks.

Definition?

The main problem with the book is that it urges you to become a real estate value investor, but never defines that precisely enough to be useful. He’s like the people who tell you to rent only to “good” tenants and to get a “good” attorney and all that, but neither define “good” nor tell you how to find such people.

Useful insights

Here are a bunch of useful insights I found in the book:

Bogus insights

Eldred’s book also has many statements I think are dead wrong:

In South Jersey when I was there, Brooklawn had the highest taxes and was a crappy little town. Collingswood had normal taxes, but insisted on hiring only experienced—and therefore more costly—teachers for its schools. In CA, property taxes are the same statewide because of 1978’s Proposition 13, but the quality of the towns and services varies widely.

Familiar

Much of what Eldred said sounded like it came from my writings. Indeed, he end-noted me twice in the back of the book. Problem is he paraphrased me a lot more than he end-noted me. Isn’t that a no-no for a Ph.D.? My books are a better source of my approach than Eldred’s paraphrases.

‘Watch everything’

An NFL blooper film shows coaches yelling from the sidelines during games to their defenses, “Watch the waggle! Watch the counter! Watch the draw!” Finally, one exasperated coach yells, “Watch everything!” And that is one of the great problems with Eldred’s book. He tells you to check stuff like housing starts, permits, market rents, employment, etc., etc. But there comes a point where you realize he is telling you to check everything. You can’t do that because you don’t have time and even if you did, it would be the old drinking-from-a-fire-hose problem.

Real real estate investors like the late foreclosure investor Paul Thompson checked title, neighborhood, and called the auctioneer the day before to make sure the auction was still on. The number of variables he checked was finite because the time available is finite. He also generally knew his local market like all good investors, but he did not endlessly “drink” from the “fire hose” of all the real estate data that could be gathered.

This “check-everything” advice is characteristic of ivory tower analysis paralysis. Eldred would no doubt say he is a real investor with properties and real world experience. Fine, now how about bringing your writing in line with your real world experience. Reduce the number of steps down to a realistic number.

Speaking of realistic

Speaking of realistic, Eldred also commits the crime of telling you to seek safety in various impractical ways. For example, he says you can safely borrow if you maintain cash reserves of three months’ gross rents. You do need to be able to absorb the shock of unexpected expenses, but three months’ gross rents is a bit much.

Back in the late eighties when I owned 58 units, that would have been about $60,000. I cannot think of anything that could have happened to my buildings that would have cost $60,000. And if it did, I would use some cash and borrow the rest. Reserves do not all have to be in cash.

There are occasional gems of insight in this book, more from the classic stock market authors he quotes than from Eldred himself. In general, his value-investing concept is extremely muddled and vague. Basically, he thinks you can time the market if you have a monstrous volume of trend data. He is also too bureaucratic and ivory tower, telling you to have an “investment plan, a market strategy, a legal strategy,” etc. One of my graduate business professors called this “managing from the 50th floor when you only have a two-story building.”