If Real Estate is Such a Bad Investment Why Are We Talking?

J Philip Faranda May 29, 2010

Let me first say that I cut my teeth working for a broker who was a big investor and I still to this day work with investor clientèle. I am an investor myself.

However, I do not recruit real estate investors as I do those buying a home, and if you ever heard what I say to neophyte investors seeking my advice you might think I don't want to make a sale. You know what? I probably don't. The risks are significant, the headaches are considerable, and the stakes are high. Consider this: If you invest $40,000 in the stock market and the investment tanks, you are out $40,000. Bad enough. Pretty high "tuition in life." However, if you sink $40,000 into an investment property and it tanks, you can also be stuck with a $200,000 liability headache that dwarfs your initial investment with tenants, a lender, neighbors and the code officer on your tail until men land on Mars. 

There is not one blog post I have authored out of hundreds where I encourage newbies to become investors. It's not part of my acumen. There are no do-overs in real estate. Mistakes are life-alteringly expensive, and I have seen too many new investors get hurt or ruined to tread there lightly. So if I am working with an investor, you can bet they are either experienced or very, very forewarned.  

SO: all that said, I do find it more than a little ironic when I get a call or show an investment property to someone who seems more interested in telling me what a bad investment real estate is than gather facts about the property they contacted me about. It would be like calling a stock broker and preaching to him about the volatility of the market or the moral ramifications of selling short. Why waste each other's time? I have more respect for the losers who send anonymous emails knocking a place or leave wise ass voice mails than a slob who spends my time and gasoline. 

Real investors have little to no energy on Alan Greenspan, the European monetary crisis, TV cashflow infomercials, or other coffee talk when they evaluate property, and they also understand that they aren't going to live there.  Therefore, old kitchens, sloped driveways and other primary residence type concerns have less weight. And they value my time as much as they value their own. 

The almost universal common thread I see in smart real estate investing is that the investor loves the numbers more than the property. It is never highly leveraged, and either bought right, purchased with a strong down-payment, or both. The numbers have to work. Unless the would-be investor is cognizant of these rather rudimentary fundamentals, blabbing about what a crummy investment real estate is or how out of date a kitchen they'll never use happens to be, they are wasting everyone's time.


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