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Real Estate Investing Should Not Be a Get-Rich-Quick Scheme

By Erik Folgate

I was listening to a radio show the other night where a guy was describing that he went out and bought three properties with zero money down.  Now, he has had some deadbeat renters and he is 3 months behind on the mortgage payments.  He is having a hard time selling the properties and is close to foreclosure on the properties. It had him very scared and confused about what to do next.  My assumption is that this guy listened to some get-rich-quick scam artist and now he is getting burned. 

I have heard way too many horror stories about real estate investing, so it is my personal advice to only invest in real estate when you know what you are doing and when you have a BIG cash reserve to put into the property.  Real estate is a great investment, but it HAS to be done properly or else you are playing with fire.  Only people with a good chunk of change should be buying investment properties, in fact, I would say do not buy an investment property unless you can pay cash for it.  Then, you will never have to worry about deadbeat renters or other murphy’s law type situations happening. 

My other piece of advice from talking with people is to never treat your primary residence like an investment property.  You should DEFINITELY maintain your home, and you should DEFINITELY make improvements and upgrades as necessary.  However, do not have the mentality of solely living in this house to make a big profit from.  Then, you’ll be thinking aboug uprooting you and your family every time the opportunity comes.  Your home is your home, and if you end up making $100,000 profit by the time you need to sell it, then that is great!  My philosophy is to always roll your positive equity from a house into another house.  If you walk away with a $100k, then use that whole amount towards the next house.  Do that a few times, and you’ll have a paid off home before retirement!

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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  • Young Finance Guy

    Obviously a lot of cash would be helpful when investing in real estate, but I do not you have to have it. I am only 24 and I own a house and an investment property. Since I work in the RE industry, I feel I am more educated than most peoeple on the topic. So I found a good opportunity and took it. Luckily I have great renters and this plan is really coming together.

  • http://www.moneycrashers.com Erik

    And I understand that there are people out there whom finance an investment property and end up successful by doing it. My point is that when you get too greedy and start financing 5 or 10 properties, you are asking for a disaster.

  • Young Finance Guy

    Agreed, as like any investment, you have to do your homework and not get in over your head.

  • http://lordingtheland.blogspot.com The Landlord

    I agree with you in principle, but not nessecarily in fact. My partner and I have now bought two investment houses and both are financed (we put money down, of course). The thing that makes us different from your desperate caller is that we’ve carefully planned our business, including setting aside a large cash reserve to cover any problems from major repairs to deadbeat renters.

    We’ve also been very careful to only invest if we had the disposable income to cover the mortgage payments if our renters couldn’t.

    But I feel horrible for the guy. Not only did that “guru” take a very large amount of money from him (most likely in the $thousands), but the “guru” also put him on a disasterous path.

    DO YOUR HOMEWORK PEOPLE!

  • http://www.investwithpassion.com Freddie @ Real Estate Investing

    Wow, that does sound like a horror story and someone that was up late night that got wrapped in that mess watching flip that house or something.

    As a former real estate appraiser, I have seen it all. People have gotten themselves into some terrible deals chasing a fast buck…then they expect me to bail them out of jams by fudging the numbers a bit. NO WAY!! NOT UP IN HERE!! That is the quickest way to get a law suit.

    Anyway, the investors that I know that have earned them some cash and stayed in it for the long haul have been the slow and steady investors. They were in no rush.

    There is something to be learned form this approach…I have noticed.

  • http://www.manhattancalumet.com/ Penny Stock Blog

    I am just curious about commercial real estate in retail. Whenever I drive around I always see small stripe shopping malls totally vacant or mostly vacant I live in a fairly affluent are in the suburbs of chicago. What is the problem with these properties small stripe shopping malls. I mean not big box retails these are usually buildings of at the very most 200 feet long and maybe fifty or sixty feet wide.

  • http://www.forestcotton.blogspot.com/ Jim

    The real estae business is not an easy business. Sure theirs folks out their that made their money in real estate but at what price. Shoveling snow ploughing snow. Asking renters to leave putting someone out on the street for not paying their rent. Getting up in the middle of the night because a water pipe in your apartment building has burst. The glamour and glory portrayed by real estate guru’s on get rich quick infomational shows would never bring up such topics because than almost nobody would ever show up for their get rich quick seminars.

  • abbies

    real estate investing is risky. we need to study the future prospects when dealing with it

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