Real Estate investing has only risen in popularity over the last few decades—but is it all it’s cracked up to be? Is it worth it to invest in real estate?
The answer depends entirely on you.
It’s no secret that I love real estate, or that there’s a list of impressive benefits to real estate. But it also has the potential to be one of the biggest nightmare investments you could own. It’s important before making any decision that you examine every angle, so I’m going to pull back the curtain on real estate investments.
Why Real Estate is a Nightmare
1. It’s Determined by the Market
Before investing in a new asset class, research should be your best friend. That includes knowing:
- Where properties are located—town and state can play an important role in your investment
- The trends of that location
- Current politics in that state, and even town or county
- Whether the area is landlord-friendly
- How the economy is performing
- If the population is aging
…and many things besides. Real Estate is not simply about finding a neat house and flipping it—if you don’t have a full knowledge of the area, your investment could be a complete nightmare.
You could have the most beautiful property in the world, but if you don’t understand the market you could have difficulty finding suitable renters or buyers.
2. You Don’t Understand Asset Cycles
This is crucial, because without an understanding of the real estate cycles, you could be overpaying for your properties.
Consider how hot real estate was from 2001 to 2007. Everyone wanted in, but towards 2006 or 2007 some investors began to notice how overvalued the market was. It was right at the top of the market cycle—and those who jumped in during those last few years were clobbered. They didn’t understand the real estate market, and paid the price in 2008.
3. Tenants Don’t Pay Rent
In real estate, you could have everything right, and still have tenants who don’t pay rent. You may have the perfect location, with a great economy and a lot of jobs, and still have tenants who don’t pay rent.
If you ask any real estate investor, and I mean any, they’ll tell you that not only is this a possibility, but it’s a reality. And it’s difficult to predict. It may not happen to you right away, but sooner or later you’ll have a tenant who can’t make rent.
…you have to deal with eviction. It’s never a fun thing to be the “bad guy,” but you’ll have to be on some occasions. And not only does the news have to be delivered, but you have to ensure that they’re out on time, which can be tricky.
5. Damages to the Property
Eviction isn’t a fun process, but it’s not the worst thing, either. Sometimes, you’ll have renters who damage the property. In one of my first properties, my tenants literally destroyed a porcelain toilet. To this day I’m unsure how it happened, but sometimes things do just happen.
As the owner, it’s up to you to deal with those situations. And the sky’s truly the limit when it comes to crazy scenarios. I just spent some time with a property manager, who had to send professionals to capture reptiles. Another has stories of an investor hiring a SWAT team to stakeout a tenant who was selling drugs from their apartment. (And discovered, by the way, that it’s not terribly expensive to hire a SWAT team.)
Crazy things happen all the time, and you’ll have to deal with them as they arise.
6. Negative Cashflow
There’s also a possibility that you’ll have some months of negative cashflow. It happens for any number of reasons—something breaks (like a toilet), tenants don’t make rent, you have a vacant property, or something else. Operating at a loss is a reality in real estate.
7. It’s Hard Work
Beyond all of the other reasons that real estate can be a nightmare, it’s also just hard work. As an active investor, you’re not just finding properties and buying them. You’re, more than likely, rehabbing these properties (at least a little), which requires a team.
Then, of course, you have to manage that team, and guide the rehab process along. You’ve got to market your property, screen possible tenants, and then manage those tenants. You’ll collect rent, file court documents, and more.
It’s an ongoing process that demands organization and your continued attention.
And yet, despite the work that goes into real estate investing, people continue to do it. And that’s because it’s a business, and a good one. And if you stay on top of things, it can be one of the most fruitful businesses of your life.
The above points are directed at active investors, but don’t think it’s all rainbows and butterflies for passive investors. There are plenty of nightmare scenarios for passive investors, too.
There are some bad characters in every industry, and as a passive investor you have to do your due diligence when it comes to turnkey operators. Don’t fall prey to a scam because you didn’t thoroughly vet your options. I’ve seen people buy properties that don’t even exist because of a scam.
Don’t be afraid to look up the properties, do background checks, and more. You can never be too safe—after all, you’re the one investing.
There’s No Shortcut
Hopefully, this has opened your eyes to some of the lesser-spoken-of aspects to real estate. It’s a fantastic opportunity, but it’s not without it’s pitfalls. There’s no shortcut to success, no matter the asset class. However, by staying educated, and understanding fully what your obligations are, you can be prepared for real estate success.
As with anything in life, real estate investing is hard work. And yet it draws so many people because it is rewarding.
Live your Freedom, Live Your Legacy, On Your Own Terms,
M.C. Laubscher is a husband, dad, podcaster & Cashflow Specialist. He helps business owners and investors create, recover, warehouse & multiply cashflow. You can learn more about exclusive cash flow strategies in M.C.’s new video series at https://www.yourownbankingsystem.com/
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