I was reading a post by Free Money Finance and it discussed a question that was posed to him about whether he thinks personal financial bloggers have a bias against real estate as a sound financial investment. I thought this was interesting, because I have seen a mixed bag between personal financial bloggers about the topic of investing in real estate. Here’s my take on it:
- I think one must understand the majority of the well-known personal financial bloggers to understand why they write the articles that they do about real estate. For the most part, the personal financial blogging community is a conservative one. We agree on investing for the long term, being frugal, making smart decisions about cars and houses, and being educated about insurance products and taxes. It’s not that we think real estate is a bad investment. You would have to be an idiot to think that. Many of us think that real estate investing is not something for the novice, or the average Joe without any money. We think real estate is a great investment when it’s done correctly.
- Get-Rich-Quick scheme artists have given real estate investing a bad name. They go on TV and they push people with NO money to buy real estate with NO money down. They treat real estate investing like it’s a game, but it’s not a game. Investing in real estate is one of the few things that I believe can make someone go truly bankrupt. I believe that most people can avoid bankruptcy, especially those with only credit card and health care debt. However, if you go $1.5 million dollars in a whole from a couple of real estate deals that went very sour, you are bankrupt. End of game. Do not Pass GO. Do not collect $200 dollars.
- Real estate investing is very different from investing in stocks, because far fewer people take out a loan to invest it in the stock market. I know there are idiots out there that say you should take out as much of a low interest loan as someone will give you and then invest it to make more interest than you are paying on it, but those people do not factor RISK in the equation. When risk is calculated into the equation, it lessens the net rate of interest. However, VERY many people that invest in real estate, take out loans to do it. Plus, you must CONTINUE to put money into real estate in order to preserve the investment. The maintenance and renovations that go into making real estate lucrative is very expensive. How can you afford these things when you couldn’t even afford to put a down payment on it?
So, when readers read stuff like I just wrote, they may come away thinking that I am biased against investing in real estate. I think real estate is a great investment, and it is definitely a great way to become wealthy, but I think you must be wise about doing it, or it will make your finances crash HARD. If I were going to invest in real estate other than my personal residence, I would do it this way:
I’d start small, and wait until I could buy something small and pay cash, like a condo in a growing area. Pay Cash? Are you nuts? Look, if you’re buying a hundred thousand dollar property and you put down $60,000, no big deal. But, if you think you’re going to get rich off of buying five properties for no money down and rent them out to pay for the mortgages, you’ve got something else coming. You are now relying on someone else to pay for your “investment”. Renters don’t pay on time. Renters duck out on you when you least expect it. It’s not being negative, it’s just being real about it. You must always be realistic about your investments, or else you’ll find your money slipping away dollar by dollar. I would slowly work my way up one property at a time and build a portfolio of real estate over time just as I would with investing into the stock market. It’s incredibly hard and risky to invest in real estate and expect to become a millionaire from it in one year. I know, I’m sure there’s someone on at 2am on Sunday night that has done it, but do you personally KNOW anyone who has done it? I know more people who have gone to bankruptcy court or close to it that have “played” with real estate. It’s not a game, but it’s DEFINITELY a legitimate and wonderful investment….when done correctly.