Why You SHOULDN’T Invest In Real Estate

Everyone knows that I love investing in real estate and that I think it’s one of the best ways to achieve financial freedom. But is real estate investing good for everyone? Here, I’ll be going over some of the reasons why you SHOULDN’T invest in real estate. Read on below or you can also watch the video I made on the topic.

Video

Reasons Not To Invest In Real Estate

Reason #1: Too much control

One of the main reasons why people love investing in real estate is also one of the main reasons why you shouldn’t invest in it. Unlike investing in stocks and bonds, your investment’s performance is highly dependent on how good you are as an investor.

The properties you buy, how you rent them out, and who you work with, will all determine your performance. That means that no two investments are the same and no two investors are the same either. One investor can take a hunk of rock and create an enormous profit, while another investor can buy a “sure thing” and lose all of his money.

The thing about investing and running a business is that people generally like to have control over the outcome. So it’s easy to stomach a loss if it’s something that you did. But when they lose money because they put it in the care of someone else, they tend to go crazy.

But when you look at the stock market, don’t forget that some of these CEOs are the best in their field and are really good at running their businesses. So if you want a more passive investment and don’t want to make all of the big decisions, then real estate investing isn’t for you.

Reason #2: Illiquid investment

Real estate is also an extremely illiquid investment. When you buy and sell real estate, there are HUGE closing costs that you need to pay. When you purchase a property, you’ll likely pay around 2% of the purchase price in closing fees. These costs will be to pay the processing fees and any origination fees for your lender and to the title and escrow company.

When you sell a property, expect to pay around 7% of the sales price in closing fees. A majority of those fees will go towards the REALTOR’s commissions.

It also takes a while to actually get your money. If you wanted to sell your house today, it might take a few weeks to get it ready to go on the market. You’ll need to find an agent to work with, a handyman to make any small repairs, and a stager to make your home look great for the new buyers. Then it might take a few weeks for it to get an offer.

Some of the hottest houses in the Bay Area go pending after 2 weeks, while some properties in other parts of the country stay on the market for 120 days. Once you accept an offer, the escrow process might take another 30 days or so until you close! So if you want to sell your property today, it might take a total of 2-4 months before you get your money.

This is a huge difference compared to other investments like stocks, where you can easily sell your stocks within the day and have the funds wired into your bank account within a few days.

Reason #3: Can’t do it alone

Real estate investing is a team sport. Your life gets easier if you have a solid team, but your life will be absolutely miserable if your team sucks.

Case in point, if your lender is good, you’ll be able to get the best rates and they’ll work hard to make sure your file will close on time. If you have a bad lender, then your file will sit in a giant pile and your loan won’t get processed until the very last minute, which will cause a lot of stress.

Having a solid contractor will mean that your projects will complete on time and on budget, and they might even help you with the design. But if you have a bad contractor, then they’ll ruin your profitability by going over budget with poor craftsmanship. They’ll ultimately cause more problems for you down the line.

The same goes for your property management team. A great one will make your life as a landlord so much easier because they’ll take care of all the common issues that come up with your property. A bad property manager will delay deferred maintenance requests, won’t put their full effort into renting out your property, will do a huge markup on any repairs, and in the worst case, steal from you.

So if you’re the type of person that likes to do everything themselves, then real estate investing isn’t for you.

Conclusion

So those are my reasons why you shouldn’t invest in real estate. Let me know what other reasons why you shouldn’t invest in real estate down in the comments section below.