Real Estate Investing Should Not Be a Get-Rich-Quick Scheme
by Erik Folgate
Filed under Real Estate
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!
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.
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.
Agreed, as like any investment, you have to do your homework and not get in over your head.
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!