Data And Real Estate: Analyzing Your Investments With Frank Gallinelli 

MCFA 24 | Real Estate Data


The real estate industry can be quite overwhelming, especially when you’re presented with data and numbers. If that’s your problem, Frank Gallinelli is here for you. Frank is the Founder of Real Data, a real estate software products company for investors who are looking to grow their wealth. In this episode, he talks with Athena Paquette Cormier about how he got into real estate. Going through the history of his company and how they started their analysis software, he also runs through the products available on his website for both amateur and tenured real estate professionals.

Listen to the podcast here:

Data And Real Estate: Analyzing Your Investments With Frank Gallinelli

I have the immense pleasure of introducing you to Frank Gallinelli, investor, professor and Founder of RealData, a real estate software products company and now provider of educational videos and much more for investors looking to grow their wealth. Welcome, Frank. Thanks for joining me.

Thank you for having me.

First, I want to tell people my little story, my Frank Gallinelli story. I have been reading your books for probably at least fifteen years and reading through them again and discovered there’s another book and so on. I thought, “I love this author.” They go on the bookshelf. One time, I was rereading one of the books and it said, “To make things easier go to this website, RealData, this product might help you.” I thought, “If he says I should go there, maybe I should check it out.”

I go to this RealData and I’m not the brightest sometimes. I kid you not, it took ten years into rereading your books, I go, “This is a helpful product,” and so on so forth, and then I go, “He’s the Founder of RealData.” Here, I’m following an author with only 4 or 5 books and discover it’s a whole history, professor. You are something for sure. I’m excited to be able to interview you. Thank you for taking your time and sharing with us who you are and how RealData came about. I’m sure you’ve helped many people. Me telling people about your book in this class that I do at Torrance Unified School District, you’re the first book I recommend. I’m sure your help has been spread throughout the world, I’m sure. Now we get to hear directly from you. Welcome.

Thank you. I’ll have to tell my sales guy to expect a ten-year sales cycle for any of our software.

I’m building my own spreadsheets. I’m doing the regular guide, putting my own spreadsheets together, and there you were to help me. I’m not good at it either.

We probably have a couple of thousand hours into developing these things.

Frank, can you tell us who you are? Where’d you grow up? What education did you get? Were your parents’ brilliant mathematicians so you have it in your genes? Where do you come from exactly?

My parents were not mathematicians. In fact, they were Italian immigrants and my father was a bricklayer. There was no finance or math in my background. I’m not exactly sure how that crept into my consciousness but that seems to be something that I had an affinity for as I was growing up. I was born in New Jersey but grew up in Connecticut. After a couple of years, maybe I was a little toddler in short pants when we moved to Connecticut and have been in Connecticut ever since then. I had the good fortune to get a scholarship to Yale. That’s where I got the bulk of my education. It wasn’t part of the deal. I started off with the intention of being an engineer, but I didn’t carry through with that. I end up majoring in Psychology, of all things. My first serious real paying job was as a public school teacher. I was a teacher of both math and English. Now that I think about it, and I hadn’t thought about it until you asked this question, but that’s almost a foreshadowing. I would end up writing Math and English. I would end up writing books and the books would have a lot of numbers. That probably foreshadowed that.

Your books are talky and explanatory. I feel like you’re talking to me, but walking me through numbers. I can see that.

I’ll tell you a story about the books in a moment. Let me finish the short history of Frank Gallinelli. I also ended up getting a degree in teaching, which probably also foreshadows 40, 50 years later my decision to go into teaching real estate and real estate investment. This was back in the ‘60s and early ‘70s, and back then the teachers barely made a living wage. I certainly hope they do now, but back then they certainly didn’t. I was looking for a little second income and I decided to try getting into selling real estate. That’s how I got into real estate.

I found that I was doing better financially, at least with my part-time job than with my full-time job and got recruited to be the sales manager of a local real estate company. It turned out that the owner of a company was a fellow Yelly, he thought that I might be a good fit. He was also one of the originators, one of the founding fathers of the CCIM program. Everything about commercial real estate and real estate analysis, I learned at his knee. We were probably the only real estate company back in the ‘70s that had our own computer division. We had a full-time computer guy and staff in this room full of blinking lights. To give you a sense of how far back this was, all of the data and all the software were on tape. There were no such things as disks, floppy or hard or any other kind.

Do you mean a tape that looks like a reel-to-reel tape?

Right, I didn’t get into the hardware too much myself, but whatever this guy was using, it was definitely primitive. We were in commercial real estate with computer stuff going back to the ‘70s. One thing led to another and I got recruited out of my real estate business by my sister who owned a retail business and her partner who was the financial guy who had unexpectedly passed away. She says, “Do you mind dropping everything, quit your current career and come down and help me run this thing?” “Why not? No problem.” When I was doing that, I got involved with a piece of property that the retail business was leasing that we had an option to purchase. I wanted to see if I could analyze this piece of property to see how I structure the deal to make any sense out of it.

Right about that time, which was about 1980, there were these funny contraptions that were starting to come out that people were talking about. They called it Personal Computers. I said, “That looks interesting. Maybe I can get one of those things. Since I don’t know anything about back-office management business anyway, I might as well start learning everything at once. Let’s learn a little bit about computers.” While I was doing that, I also stumbled across something called a spreadsheet program. This was well before Excel. This was before even the IBM PC was out. This thing used floppy disks that looked like medium-sized pizzas.

MCFA 24 | Real Estate Data
Real Estate Data: As an income property investor, you have to internalize the idea that what you’re buying is the income stream, not the physical asset.


I took what I had learned from my mentor in the real estate business and decided to see if I could put that into some kind of an actionable, usable device in a spreadsheet and analyze the property. Long story getting longer is that we did acquire the property. I still even own that property. It has been an enormous success for me. An accountant friend of mine took a look at the analysis. I did eighteen variations of how I would structure this deal. He looked at this thing and he says, “How’d you do that?” I said, “If he’s asking me how I did that, maybe somebody else might be interested in how I did that.” I decided to form a little company to see if anybody would want to buy this spreadsheet model. We’ve been in business ever since. That was RealData. The programs have both grown in number and in sophistication. We ended up being the first people out with stuff like this on the Macintosh. We were a beta test site for Excel when it came out first on the Mac. The software has evolved over the years to the point where it’s far too complicated for me to take apart anymore. We’ve got people who know how to use a serious programming language that’s lurking in the background that nobody can see even though they’re running these models in Excel. That’s the surface of it. In the background, you have all the other stuff. That’s how the software company came to pass.

Do you call it a spreadsheet?

It was a spreadsheet back then.

I remember in the early days of my career, there were these big books. My father-in-law was an engineer, so his spreadsheets were on a big block of quadrant paper.

This was a computer spreadsheet, something called SuperCalc. That was the whole point of my little exercise there. I had been teaching the commercial salespeople in our office how to do this sort of stuff on paper. My mentor taught me. I was a sales manager, so I taught them. That was all on with paper and pencils and little financial calculators and books of Ellwood tables and stuff like that. I said, “Let me see if I can’t make this in an automated process.” Now, we’ve got a number of programs and the flagship product which is our real estate investment analysis. It is quite sophisticated. People have used it for everything from analyzing a condo that they might want to buy to rent out up to a regional shopping center. It covers the territory.

I was reading on your website that not only you’re online teaching, but you teach at a university too. Do you still teach in universities?

At Columbia Grad School, I’ve taken the year off. I told them, “I need a year off for good behavior.”

How long have you been teaching there at Columbia?

I started back in the early 2000s. It was around 2003, 2004, and taught one course. I’m a one-trick pony. They asked me to teach something else, but I’d have to go read the book and then teach it to somebody. I’ve been teaching real estate investment analysis, which is the one and the only thing that I know to think about. I did that. This was a graduate program in a Master of Science in Real Estate Development. I was their first exposure for a lot of these people to serious financial analysis of an income property investment. It was a lot of fun.

It seems like your teaching was development focused. After you helped your sister buy the property she was occupying there for her business, did you buy real estate for yourself? Did you help her more? Where did that take you after your first property?

We’ve owned a number of properties. I bought a number of properties with a friend of mine in partnership. We’ve had a couple of others besides, but I got more and more interested in the technical aspects of it. I spent more and more of my time focused on the software business. I’m trying to help other people figure out how to make their deals and how to understand these deals would play out. We segued serendipitously in an unplanned way into the whole book thing.

You mentioned being a slow learner, you got nothing on me. We’ve been in this software business for 30-some years. We’ve probably been in it for 10 to 15 years before it occurred to us that maybe it would be a good idea, besides just selling the analysis software to people. If maybe we provided some guidance to people in how they should analyze a property and what these numbers meant, it’s an internal rate of return.

Before there was anything called a blog, I would write articles and put them on our website. If I do that now, I call it my blog. Back then it was an article. I was doing this happily moving along and doing my thing. Out of the clear blue, one day, the phone rings from an editor at McGraw-Hill who had read some of this stuff. This was during one of the up parts of the real estate cycles. At that point, he said, “We can use another real estate book. What do you think?” I knew nothing about the publishing industry. An editor from McGraw-Hill, have you ever seen their building on 6th Avenue in Manhattan? You can’t see the top of it from the street. If somebody calls you from there, you’re supposed to be impressed and flattered, and I knew none of this. I gave the guy a hard time. I said, “Whatever. I’ll get to it. I got this. Not a problem.” He says, “I’ll tell you what, to get us on track here and focused, I’m going to send you a book that we published once before. We like something along these lines.”

He’s sending you a book, not vice versa.

He’s going to send me a book to take a look at and say, “Can you write something along these lines?” It’s one of the books that they published. Having absolutely no respect and having no appreciation.

If you've got a good grip on income property analysis, that's it. You mostly forget what you know about real estate. Click To Tweet

The opportunity he was handing you.

Thank you. You’re good with words. I called him back and I said, “I’ve been dealing with real estate investors and developers for these many years, and probably have talked to thousands of them with our software company. I can think of three people who could understand the book you sent me. By the way, I’m not one of them. How about a book for the guy in the next barstool? Something an intelligent, normal human being who happens not to know about this subject, who could understand and find it interesting?” He says, “Maybe.” He wrote me a couple of chapters and sent it and I did. That was years ago. Go figure. If I had intended to write something that was successful. Maybe it was because taking this quite seriously enough that it ended up being a success. It’s in its third edition. I’ve added on to it. It goes into the category of go figure how exactly did that happen. I didn’t understand the opportunity when it was staring me right in the face. It smacked me on the side of the head with a 2×4.

What else is it going to take? McGraw-Hill calls you.

That’s how we got from point A to point B in the publishing industry. I wrote a couple more after that. My subsequent editor, I can recall, saying, “You’re only as good as your last book.” That was prescient because I never wrote one that was quite as successful as the first one. It was going to be as good as my first book. I’ll still take the first one.

You know you’re a geek when you’ve got Frank Gallinelli’s books right next to your thing here. This one is my favorite.

That’s the first edition. You got to get the third.

I’m behind the time. It’s all marked up. I tell people the only place that I had ever seen a clear explanation of the internal rate of return was your book. Everything else is convoluted, not even right.

A dirty little secret is none of this stuff is that complicated, not even internal rate of return. If you’re not wrapped up, you could explain it in plain English. It’s not all that difficult.

That’s why I think your books are gems because they’re plain language and understandable. The math is easy to follow. The only other math type thing I saw was the mobile home guy. He explains the math of real estate investing, note business the best.

Based on some of the feedback from readers of the book who enjoyed it, I said, “Not everybody apprehends things.” What may have been the only time in my life where that degree I got in Education made a light go off in my head. That degree has probably never gotten any use. Not everybody learns the same way. How about if I take this material and I take the same curriculum that’s both the book and my Columbia teaching and I put them into video lessons? That’s why I developed a video course. It covers a lot of the same territory but does it in a different way. It’s more easily apprehended by people who learn better that way.

That’s me. I have to listen to it. I have to hear it sink in. Reading takes me four times as long.

Mine is presentations on screen with my voiceover. Somebody told me I had the perfect face for radio. You don’t have to watch me talking to you. I have maybe 2 or 3 lectures in there, which are non-numeric where I do a video of me talking. The other whole bunch of lectures is going through the steps of learning from the simplest beginning and I’m just. “What is an investment?” I’ve got content in there that I don’t have in the books or in the Columbia stuff. I’ve got stuff on the development and rehab projects, that kind of thing. We’ve got what I think are some useful tools there for investors so that they can both learn how to do it and then we’ve got the software tools so that they can put it into practice.

Would you say your videos sound like they’re mostly for beginners?

It works the way up the ladder.

MCFA 24 | Real Estate Data
Real Estate Data: If you can analyze the income stream, then you can make an informed judgment as to whether or not an investment is going to play out as beneficial or not.


It gets more complicated or you handle the more complicated subject matter as you go through the video?

For example, on the financial analysis stuff, we went right up through the internal rate of return and modified the internal rate of return and explaining those and how they’re done and all the rest of it. We do some stuff or I do some stuff on partnership analysis and how to do that with waterfalls are all about. Even on development, which I don’t think I’ve got that in any of the books, talking about how to do the backdoor approach and the front door approach. It’s useful to people. You don’t have to be developing a regional shopping center. You can use the same logic for figuring out a rehab project because that project is a development project. You’re saying, “I’ve got it figured out.” A site was looking for a use or use looking for a site scenario and things people get into in real life.

Would you say that that would help someone who’s rehabbing a small duplex and trying to figure out, “If I put this much money into it, will it make sense in the end with the rent increase?”  Maybe you’re adding on. Is that helping someone like that?

That’s exactly the kind of thing that could be used in addition to bigger development projects. Since you happen to mention that, I’m working on another module for the course on value add projects. It’s the same thing. First of all, how do you add value? What are the different ways? There’s no one way to do it. How do you evaluate whether the value that you have added justified the cost of doing it? Before you spend all the money to do it, how about running the numbers? It’s only a value-added if it’s deep. In the end, it’s worth more than what you paid to acquire and to improve. Do the numbers first and let me show you how to do that.

Do you do it from an equity appreciation standpoint and a cashflow increase? Do you show both ways and the different ways that you might be getting that out?

I haven’t gotten all the way through yet, but that’s on the outline. What does it do to your cash flow? We added a feature to the software which I’m using in there to highlight where you can automatically say, “I’m going to decide what year I’m going to rehab three units in this apartment building and how many months will they be vacant. How will that impact my cashflow from a revenue point of view while I’m also spending money to do the rehab?” When the whole thing turns over and is once again up to full occupancy. What have been the cashflow implications from having done all that and what is the equity implication from having a higher operating income, which when capitalized means I have a greater value?”

What are the types of software that you do have to help people? Should I go to your website?

It’s The real estate investment analysis has always been the flagship product. We call it a professional level which includes more features and more capability. We have an express, less expensive.

If someone is a beginner investor, because also people get overwhelmed by the complication of software, would it be better to start with express if you’re a new investor? Is it user-friendly to do the professional?

The user-friendliness is equivalent between the two. It’s a question of the features that you might need. For example, if you’re contemplating doing a partnership, you only find that in the professional. We’ve got features in there that we bring it to another level. The expressive, certainly a robust program also. A beginning investor would find a lot that’s of value there. We’re always happy to upgrade people.

If you start on one side, you can operate midstream, so to speak?

You can call our office and we’ll be happy to do that. We have two development-oriented projects. One, we call commercial industrial development and as you can see there, it’s for ground-up development of single entity projects like apartments or strip centers or mixed-use, self-storage and it does a hard cost, soft costs, construction costs analysis, partnership analysis in there too. We can do two different modes where you can do the classic project cost analysis or you can do a detailed monthly analysis.

The other of the two development programs is called on schedule and that leans more toward what you might think of as unit sale projects. That could be housing subdivisions, building lots, condominiums. What’s different about that and unique about that, as a matter of fact, is that it can handle multi-phase developments. In other words, when you’re building and selling in stages like a subdivision, you don’t build all the houses then sell all the houses. This is a process that’s ongoing, where you’re building houses over here and when they’re ready to sell, you’re selling them over here when you’re building over there. You’ve got development loans that you’re drawing on it and your development loans while you’re waiting for construction.

Is this program built out to track all that stuff?

On a month-by-month basis. You can track, for example, how much you’re spending to do construction in a given month and compare that or net that off against how much you might be taking in on sales of units in a different part of the development like a condominium or whatever. You track your loan because, in a given month, you’re going to be drawing on the loan, cover your costs to do the development work but as you’re selling units, in a typical scenario, you have an obligation to repay some percentage of your proceeds back into the loan. You’re tracking all of what’s going on a month-by-month basis. You know what’s going on here. You can handle partnership scenarios within here because these projects get financed with partner equity. Your partner is going to want to know, “How much am I getting out of this in a given month?” It’s in the program.

So many investors make themselves look foolish with lenders or potential partners by using terminology that does not exist in nature. Click To Tweet

How many units could you have tracked in there?

I don’t think there’s a practical limit. The main practical limit with the last time that we tinkered with it on the month-by-month basis will go out 60 months.

It is a long time. No builder wants to be involved that long.

If you’re still in at month 61, you did something wrong.

The next one says, “For those who develop and hold income property.”

That’s a suggestion as to how to maybe combine some of these products. You might want to do the commercial-industrial to develop the income property and then once it’s developed take a look at it in the investment analysis program to see how it’s going to play out over the long haul. We’ve got a couple of other products that are on this page and we’ve got one that’s a lease analysis which is for landlords and tenants to take a look at comparative lease analysis. That’s for landlords and tenants to figure out the value of a lease and to give yourself a viewpoint for negotiating whether you’re on one side or the other. There might be a loan factor in there, there might be other considerations. For example, let’s say you’re the landlord. Does it make sense for you to say, “I’m going to go a little easier on the front end of this lease and try and ensure that on the back end that I’m not draining this tenant too hard at the front end. I can do better by a little less rent at the front end and a little greater rate of increase on the back end.”

Is this for a little tenant thinking, “I’ve got an offer of a nine-month lease versus a twelve-month lease versus locking in two years,” Is it that thing where they can compare or is it the deposit versus the rent or this is for commercial people?

It’s for commercial. You’re comparing the present value of the lease with these different scenarios. How you’re going to structure the lease and to figure out how it’s going to work for you. We got a couple of other little programs in there. We’ve got some calculators. We’ve got the courses.

I see that you have an income property video tutorial, then you’ve got the real estate investment analysis. The video courses, is that to help people understand how to use the analysis program?

The video course is my big course. We do have a smaller course that walks you through the analysis of a mixed-use property if you want to focus on that. We’ve also spun off out of the big course because we find that some people, with a laser focus, look at case studies. That’s how they learn. They’ve got the case studies in the bigger course, but we said okay, “We’ve had many requests for case studies, why don’t we spin those off and make it possible for people to buy the case study portion?”

What are the case studies on? Is it a variation of different property types?

It’s four different property types.

Apartment buildings, mixed-use, triple net lease, retail strip. This is a little bit commercial as well. Do you think the videos, even though they’re a little bit focused on commercial, do you find that the thinking process or the steps you take people through could apply to other things? My instinct is saying that even if you’re reading this and you’re buying may be a duplex, you might still get something out of that or no?

That’s true. One of the things I try to emphasize early on and one of the things I’ve emphasized too with my grad student classes is that if you’re going to get a good grip on income property analysis, mostly forget what you know about real estate. I’ll ask my class on the first day, “How many people here own a house?” An X number of other students will raise their hands.

Good for them if they’re in grad school and already own a home.

MCFA 24 | Real Estate Data
Real Estate Data: Appraisers want to know the most recent market value of a property is today. They aren’t as concerned about the overall return on investment.


Most of the students are not newly-minted grad students. Many of them have worked in the industry.

Are they professionals that come back for a degree?

A good number of them are.

The program here in California at the University of Southern California, I forgot the name of their real estate school, but it’s mostly professionals coming back for the laser-specific degree.

Some of these are graduates but a lot of them have backgrounds in architecture design, others in finance too. If you own a house, you’re the only ones who had a disadvantage here because you’ve got baked into your understanding of real estate that values rise because over time and that kind of thing. None of that is true. Not when it’s an income-producing property. The value is tied to the property’s income stream. I emphasize to them, as an income property investor, you have to internalize the idea that what you’re buying is the income stream. You are not buying a physical asset.

I use an example of two virtually identical properties that are next to each other in a central business district. Not even one on the corner, they’re in the middle of the block and they’re next to each other. They’re virtually identical. Designed by the same architect, built by the same builder, you couldn’t tell them apart in the dark. The difference between them is that one has current market leases and one is encumbered by leases that are out of date, out of touch. Everything about these two properties is identical except the potential income stream over the next 5 to 10 years.

If you were looking at these things as if they were homes as houses, their values would be equal. If you look at them as income properties, their values are not equal. They may be physically identical, but their values are different. That’s a wrenching experience for a lot of students to try to get rid of that baked-in understanding, if you will, that real estate behaves in a certain way, it’s driven by comparative market forces. It is to a certain extent. The location is not relevant.

The point I try to get through is that whatever factor that you can think of, that makes this property appealing to you. For example, its location or its physical appeal, architectural beauty, those things are irrelevant but their relevance is true to the extent that they affect the income stream. If it’s not the location of the property per se, one is in the downtown business district and the other one is next door to a nuclear waste dump. It’s the fact that the one that’s in the downtown business district, because it is there, will generate higher income. The one that’s beautiful might generate higher income than the one that’s ugly. You’ll get a class of tenants looking for beautiful office space rather than something that looks like an Eastern European prison camp. Everything boils down to how does it affect the income stream? The income stream is what an income property investor buys. If you can analyze the income stream, self-serving comment, that’s what you use the software for. If you can analyze the income stream, then you can make an informed judgment as to whether or not this investment is going to play out beneficially or not.

This is a little bit of an aside, but we see more and more of the impact of rent control. We see sellers that want to get the price of a property that’s not under rent control for their rent control building. What you were saying about the rents frozen in time versus someone else who raises rents. Do you have any opinion about how an investor approaches something like that? I don’t think I would want to wait that long to raise the rents. I do have a rent control building, but I’m wondering about your opinion on investing in rent control areas.

Fortunately, I don’t live near one. I never had to have that experience. The only way the seller is going to achieve a value if it were not rent control might be through hypnotism or ether. You’re going to have to simply pull the wool over somebody’s eyes.

Wait for the bigger fool.

The greater fool theory. From a buyer’s point of view, you’re buying an income stream, why would you buy something that is going to have a compromised return? Getting back to the self-serving comments about using software to do analysis, this is why it goes out 10 to 20 years because if you want to take a look at where it could go and you’re willing to hold it for that length of time, you can make an informed judgment. Having no personal experience with the mechanics of rent control, we know for a fact that the rent control burden will be lifted X number of years going out and you’re willing to own the property for X number plus 5 or 10. You can do a long term analysis and you might come to the conclusion that the upside after the rent control period is high enough to give you an overall rate of return for your entire holding period so that it’s worth getting into that scenario.

It makes me also think of another issue that I encounter an awful lot with beginning investors, that is their insistence on looking and making a decision based on a property’s current year performance. They’ll look at the income and expenses and they’ll vet those and they’ll confirm that those are true that they’re right, they’re real. I look at them and they’ll say, “I’m going to buy the property and make my decision based on what I see here.” That may sometimes work with a residential property which tends to get released on year by year basis and tends to have more of a smooth curve in terms of cashflow and whatnot. It works less well with commercial property.

The objection I hear when I tell these people, “You shouldn’t be looking at just the first year that you’re acquiring an investment. You’re looking at the performance of the investments at a point in time as opposed to looking at the performance of the investments over the investment holding period and add at it by the point in time is the proper work of an appraiser.” An appraiser wants to know what I think the market value of this property is now. The appraiser isn’t as concerned about the overall return on investment.

A point in time is different from a holding period, because especially with a commercial property where leases may have steps and escalations where it may be the sawtooth cashflow situation, looking at only the first year can sometimes conceal more than it reveals. If you look at the long-term, you have a better way of trying to assess whether or not your rate of return over the long-term meets your investment objectives. That’s an important distinction to make. The folks will say, “I don’t want to make long-term projections because that’s like you’re telling me I need to predict the future. We know that nobody can predict the future.”

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That’s what people tell me.

I have a retort to that, if you don’t mind, it’s in one of my blog posts and that is if you’re going to base it on the first year’s performance, you have already done exactly what you said you don’t believe in. What you’re saying is you expect that the future performance is going to be a whole lot like the current performance. You’re saying that this is the model, the template for how this property is going to perform each year going forward and that’s predicting the future also, but it’s ignoring what might happen in real lease situations. You might be looking at a commercial property, for example, where the commercial tenant has a fixed rent for five years and then a built-in escalation for the next five years, and then an option to renew with a built-in escalation even beyond that.

We added a feature to the program called lease renewal probability or assumptions that allow you to factor in a probability for a renewal option so you can make it a longer-term projection with your probability built into that analysis. I can understand that you don’t want to try to make a long-term projection where you think you can predict precisely what your property taxes are going to be ten years from now. It is why I tell the same folks what you have to do is do the best-case, worst-case, and in-between scenarios. You don’t make just one pro forma projection. Things are never as good as you hope or as bad as your fear.

The reality is going to be between your best-case and worst-case scenarios. If you do those and you do something in between, and you’ve got the boundaries, then you can ask yourself, In order to make an informed decision, would it be unacceptable in the worst case? If so, then maybe this is not such a great idea.” If I can live within those boundaries between the worst case and the best case, my investment will, in fact, perform somewhere in there so that at the worst, it’s not exactly something I want to tell my golf buddies about. In the best case, I’m going to be talking about it to everybody I’ve run into on the street. If it’s in that band, you can make at least an informed decision as to whether or not to go forward.

This software takes into account all the expenses. Does it help you calculate your depreciation? Maybe if you’re doing cost segregation, is there a section for that? Does it deal with tax stuff?

We do the depreciation. We’ve never gotten into cost segregation. It does tax calculations. We’ve always done the tax calculations, although, over the years we’ve had to put a little bit more of the burden on the user of the software to decide some of the inputs. Ever since about 2013 or so, it’s become more and more evident that you cannot truly project the tax implications of a particular piece of property in isolation because the tax implications get folded in with your other investment and other income. What you’re going to do is a complete personal financial audit. You can’t say, “This property absolutely, positively is going to cause me to have this much more in federal tax to pay.” Depending upon what else you might be doing, you’re going to be hitting thresholds that you may or may not be hitting if you didn’t have that other property that you decided to sell the same year or if you have a good year in your stock portfolio. These things are going to affect and change the thresholds. The net investment income tax, the so-called Obamacare tax, it’s going to kick in perhaps not because of this property but because of this property plus some other properties.

We do the tax calculations and we do them as well as they can be done, given that we have you make certain assumptions as to where your marginal tax bracket is going to end up and whether or not you’re going to be subject to the NIIT and so on. We can do the math. There’s probably more information than anybody wants to dredge up in order to do a precise calculation. At least it gives you an idea. Interestingly enough, even before the taxes have a tax structure started going in this direction, we found more and more of our users less and less interested in seeing the after-tax returns. They were more interested in seeing the before tax returns because they were being realistic. For example, let’s say I’m going to hold this property for ten years and I feel confident that the capital gains tax ten years from now is going to be what it is now, maybe not. We added a feature in there where you can turn off the tax calculations. If you do a presentation to somebody, you don’t have to put these things in front of that other person or you may don’t even have to look at them yourself. Perhaps there’s a lot there that you can’t be comfortable and feeling assured about.

What would be the best course you have for, let’s say, a real estate agent who wants to become somewhat fluent in investment speak? Where would you point them to start on your website? If you’re a realtor, you’ve been doing residential but now you want to shift over to either multifamily or even commercial. Commercial is a big mystery to most, where would you say they start on your website for that?

Why don’t you go ahead and type

Real Estate Investor Education came up.

That’s the name of the so-called school because it includes both this course and the case studies.

This looks fantastic reading the bullet points of what you teach here.

Here’s the late-breaking news. It used to be called, for the last several years, Introduction to Real Estate Investment Analysis. As this course has grown and grown and anybody who enrolls in the course, whenever we add new content, they get it for free. We add content to it. It’s no longer an introduction anymore. It covers bumper-to-bumper, end-to-end on this. Scroll down a bit.

It says Master Key Concepts.

These are the modules that are within after a basic introduction, I talk about four basic returns. Vocabulary is something enormously important for real estate. I can’t tell you how many beginning investors I’ve seen make themselves look foolish with lenders or potential partners by using terminology that does not exist in nature. They’ll make up words.

MCFA 24 | Real Estate Data
Real Estate Data: You cannot truly project the tax implications of a particular piece of property in isolation because it gets folded in with your other income.


I teach that too. You don’t have to speak like an investor or else you’ll also get had. If you don’t understand the words then these turnkey companies that sell these people these properties that they claim had been vetted and fixed and the tenants already in place and so an unsuspecting new investor comes along and they don’t realize that they don’t know what the language means. Knowing the lingo is important.

I’ve had students make up terminology, things like NOI after debt surface. The rest of the world calls that cashflow, thank you. You do that stuff when you get out of school. Save yourself a lot of trouble, wear a sandwich board that says, “I am a beginner. I want you to cheat me.”

That’s what I tell people, “You’ve got a big sign on your forehead that says, ‘Cheat me now.’”

We go through as I say, starting off from the basics. Those four basic returns, even before that, I talk about understanding what I mean talking about an investment. If you go to the APOD form, the Annual Property Operating Data, I talk about income capitalization, show them how that works. Time value of money, which is at the core of doing any rate of return analysis, performance, how are they structured. I have some nice, detailed graphics that will walk it through that. Talk about key real estate investment metrics, the debt service ratio and terms of rate of return, loan to value ratio and understanding what these things mean and how they’re used. How mortgage finance and underwriting work. We get into the case studies there.

Those are the ones that you have separated out as a separate standalone module video.

I’m glad you brought this window up because I forgot to add the new one about the strip shopping center there, they’re four. The things we’ve talked about. Within the course, in addition to the videos sprinkled throughout are sample problems about the metrics, sample problems that you can do on your own. There are quizzes sprinkled throughout to test whether or not you’ve learned anything,

Which is how your books are, you always give examples. You write to us, practice this and that’s helpful.

Also sprinkled throughout there are some useful spreadsheets, simple ones, not like our software. There’s a simple APOD form, a simple cashflow form, and so on, that you can use these things to get a feel for how this stuff works.

Frank, I love this, “Recognize the warning signs of a dicey investment.” People are probably going to skip right to that part of the lecture.

If you stick with it and complete most of the lessons and you get a passing grade on the quizzes, we’ll even give you an eCertificate that we do through an organization called Accredible so that you can link it to your LinkedIn account. You can even print to paper the certificate if you want. Essentially, it’s something that can be part of your social media and professional resume.

Do you know this company, Great Courses? Not that we’re in that meeting but I have to admit, I’m an addict of the Great Courses and your program reminds me of that. You’re getting a real professor from a highly regarded school, teaching you for way cheaper than going to that highly expensive regarded school. This is fabulous.

If it’s that good, I better raise the price.

Not until all my friends and family buy, and then you can raise it. As a way to wrap up, do you have some words of wisdom for beginner investors? This is a wealth of information. What do you think the character traits or personality traits are that make a great investor? They’re starting off what is going to carry them through to being a great Investor.

I could probably identify a couple of things. One is the willingness to pay attention to detail, to do your due diligence before you go racing off and saying, “I’ve decided I’m going to make my fortune in real estate.” You wouldn’t buy a car without taking it for a test drive. Do your due diligence, not just on a property that you’re considering, but on the market in which that property lives. Investment properties don’t live in a vacuum. That’s one of the things. You have to have the willingness to take your time and to do it right, to examine the property, examine the market. I don’t know if you remember the anvil salesman and the Music Man, but his line always was, “You got to know the territory.” You got to understand what you’re getting into this particular market and understand what the property is all about. I tell my students, “You’ve got to look for the story behind the story.”

They usually look at me as if I’m nuts when I tell them that, “When I teach you, this is the closest thing to a course in literature or art that you’re going to get in the finance curriculum.” If you were to read a Shakespearean sonnet, on the surface there are the words, but there’s also a meaning or a story that’s behind those words. If you look at a painting by a great master or even a Picasso in the more modern era, there is a story behind the visual image. Lots of cases, there is a story behind the story of the property. I’m a numbers guy, but in addition to running the numbers, you have to look at the whole integrated situation, the property, the market, and say, “What’s going on here?” An example, if I may, is that one of the case studies, and I included it in the course, spoiler alert. If you don’t want to know about this one in the course, don’t continue.

I give them a property where there is a commercial tenant. I used a different one in the course from the one I use at school. There’s a commercial tenant, the lease and the lease structure and the lease requirements and all the rest notwithstanding, if you think about it, this tenant is going to go bust. You have all the information about how much the rent they’re going to pay and how much the next increment is going to be and so on and so forth. You can run those numbers like a champ. If you look at it, you’re going to say, “No.” I’m looking for the story behind the story. In this case, the numbers don’t tell the whole story. I’m going to have to reconstruct my pro forma to take into account the fact that lease is notwithstanding, I’ve got a tenant here, who’s likely to pull grapes of wrath on me in the middle of the night, throw grandma on the back of the pickup and leave town. I’m going to have a situation that’s different from what the lease is described because I’ve taken the time to apprehend what might be going on here. That’s one thing.

I’ll give it one more though in terms of personality traits and that is a willingness to realize, to appreciate that all investment involves risk and that’s not a bad thing. Self-serving comment about the software, you do your performance. What you want to do is to try to control the risk, to understand the risk. There is no such thing as a risk-free investment. Being a successful investor means having the willingness to make an informed decision in a situation where you recognize that you may be dealing with information that is incomplete. Because of necessity, it has to be incomplete. You can’t be 100% sure what your property taxes are going to be two, three years from now.

Do you have the personality to understand that investing is a risk and that your success as an investor is going to be based on your willingness to make an informed decision in an environment of risk? Do you have the willingness and the ability to say, “Not every one of my investments is going to be successful,” and that’s okay because that’s how it is. That’s how things are. I’m going to have winners and I’m going to have some losers, but if I do my job well, I’m going to have a lot more winners than losers. To have the personality that is not going to go bonkers as soon as they have an investment that’s a dud. That’s important to understand.

I do have a lot of engineer clients and other people who are wired to do analysis over-analysis, they’ll probably love your program. What would you advise someone who crunches the numbers out of a deal? They keep crunching numbers and crunching numbers and they’re not doing the deal. I wonder if these programs help someone get to a bottom line faster, these analysis paralysis people.

I certainly think so. Going back into my checkered past before we had tools like this, we would never, as a practical matter, have enough time. For example, I wanted to test what the implications might be of 3 or 4 or 5 different prices, 3 or 4 or 5 different cap rates when I go to sell. To do that, without these tools, by the time I would have been done with the analysis, someone else would have bought the property and sold it to a third-party.

We added a little feature in the professional version called decision-maker, where you can take some of the key parameters and toggle them up and down. Watch how that fixes things like the internal rate of return. I can toggle the purchase price up and down by a little bit of toggle. Other items up and down by a little bit and say, “When do I finally get the IRR I was looking for?” You can take anything too far. You and can take anything to any history. You can spend forever.

One of the lectures that I have in the course is a lecture that became fairly popular in my Columbia thing. I would teach in this auditorium with this screen that looked like the jumbo vision at Yankee Stadium. I would make them stare at these couple of words that would sound like these would be your mantra. One of them was the perspective. The point of putting that up there was I would say that you have to have both the perspective of the buyer and the perspective of the seller, but you also have to have some perspective on what it is that you’re trying to accomplish as an investor. Are you looking for long term gain because you’re thinking about putting kids through college later or about your retirement? Are you looking for short-term cash flow?

I usually quote Yogi Berra, “If you don’t know where you’re going, you’ll wind up somewhere else.” You’d have to know where you’re going. If you have that focus, then maybe you won’t get into the analysis paralysis situation. You’ll have a goal in mind that you’re trying to reach. When you analyze it and get the parameters of the deal so that you have a reasonable anticipation of achieving that goal. You get to say, “Let’s try to pull the trigger.”

I do think this software would help someone move through that more quickly.

You don’t have to do the math.

Build your own spreadsheet or tweak it. Also, a newer investor who’s good with Excel spreadsheets is not necessarily thinking of all the things that they need to think of in real estate investment but the software’s built out already to think of things they’re not thinking of because they’re new.

Not only that, it is enormously simple to make a mistake in an Excel formula that would throw you way off. After a few years, I never let my students use our software. I insisted that they create their own. I wanted them not only to see the logic that they needed to convey to another person, to see how to notice when you must have made a mistake. The internal rate of return is 372% on a deal. Take another look at how you did that calculation because I don’t think you’re going to get a 372% rate of return on a deal, not a real one anyway. If your mortgage payment is $1 million mortgages, $215 a month.

Something went wrong.

Our stuff has been vetted over 30-some odd years. Not that we can’t make a mistake, but we’ve made most of them already. Hopefully, we have to go looking for some new ones to make.

This has been such a great chat. I was excited to meet you. This has been great. I encourage people to go to RealData or go to the My Cash Flow Academy and see what’s available. Thank you for joining me. It was a great pleasure to meet you and hear all about you and it’s a great website. Thanks for the story and the time you spent with me.

Thank you for having me. This was a real pleasure and I hope to be talking to you again.

I’m sure we will. Thanks, Frank. Thanks for joining us.

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About Frank Gallinelli

Founded RealData, Inc. ( in 1981 to provide analysis software for real estate investors and developers.

Author of “What Every Real Estate Investor Needs to Know About Cash Flow…” (McGraw-Hill, 2004; 2nd Edition, 2008, 3rd Edition, 2015), “Mastering Real Estate Investment – Examples, Metrics and Case Studies,” (RealData, 2008), “10 Commandment for Real Estate Investors,” (RealData, 2012) and “Insider Secrets To Financing Your Real Estate Investments” (Mc-Graw-Hill, 2004).

Instructor, online course: Introduction to Real Estate Investment Analysis —

Adjunct assistant professor, real estate finance, in Columbia University’s Master of Science in Real Estate Development program.

Specialties: real estate investing, real estate investment analysis, finance, teaching, writing, software development, public speaking

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