Hi Everyone,
I hope you are doing well.
I thought that I would change things up a bit for today’s blog post and talk about some of the negatives of real estate investing.
By now, most of you know my writing style and my general philosophy. I am a positive person, I like to write motivating articles and I like to write about the benefits of investing in real estate.
However, today I thought that I would talk about all the reasons why a person should not become a real estate investor. Any experienced real estate investor will tell you that succeeding as a real estate investor is not easy. There are times when you feel on top of the world and there are times in which you want to ‘throw in the towel’ and quit real estate investing for good! My real estate buddies Julie Broad and Dave Peniuk chronicle their adventures as real estate investors at their blog Life As Real Estate Investors. This is a great blog to check out if you have not done so already. Their blog will give you a real sense of how it is to be a real estate investor.
In this post I chose to focus on some of the negative aspects of real estate real investing, so you will be able to see that there ACTUALLY are negative aspects about the business. It is important to be aware of these negative aspects. The more awareness we have of these downside of the business, the greater chance we have of finding solutions to these problems, and the greater chance we have of not letting these negative things effect us and get our spirits down.
Here we go. Here are the top ten reasons why you should NOT become a real estate investor.
10. You have to deal with tenant issues
Whether you chose to manage your properties on your own, or whether you have a property manager looking after your properties, you will have to deal with tenant issues as they arise. This can cause anxiety, as dealing with tenant conflict is never a fun thing. You can never sit back and be totally hands off when you own multiple properties, or even one property for that matter. Depending on the tenant profile that you have selected, you may be surprised as to how ‘hands on’ you need to be as a landlord. Be prepared that you are going to have to deal with difficult issues with tenants.
9. You have to worry about additional payments
If you own the home that you live in, you are making various payments in relation to your home each month. Payments such as mortgage, taxes, utilities and many others. If you own a rental property, you have a whole set of other payments that you have to worry about as well. You better be on top of things, as a few missed payments can spell disaster for you. Don’t fall behind on your mortgage payments on your rental properties, and don’t fall behind on your property tax payments. If you do, you are getting yourself into serious trouble.
8. You will never have enough money in your reserve fund
I have been around long enough to know that most investors are never happy with the amount of money they have in their reserve fund. Some investors keep a tremendous amount of funds in their reserve fund, in anticipation of the “end of the world”. However, most investors keep ‘just enough’ money in their reserve fund to get by. Investors always worry about their reserve fund, as they constantly wonder if they have enough money put aside in the event of major repairs or extended vacancies.
7. You will not fit in
Whether you like it or not, owning rental properties is not something that many people do. I have heard a number of different stats on this topic. Since I am Canadian, I will give you a Canadian stat. The last stat that I heard was that 5 % of Canadians owned a property in addition to their principal residence. That is not a large percentage as that equates to…5 out of 100 people.
Whenever you are the ‘five’ out of 100 people, you are clearly in the minority. When you are in the minority, generally, you don’t fit in with how the rest of society operates. For example, if you strike up a conversation with people and talk about the challenges that you face as a landlord, it is very possible that they will not relate to you, as they have no idea what you are talking about.
Plain and simple, as a real estate investor, you are weird, and you do not fit in. Get used to it.
6. You will have less disposable income
Experienced real estate investors will be the first to tell you that they are ‘house rich and cash poor’. As a real estate investor, owning a rental property is a big commitment. In reality, you are going to have to put in your own funds (from a job or other source) in order to replenish reserve funds or to pay for any repairs, maintenance, or vacancies from time to time. I know this last sentence has some of the aspiring real estate investors figitting in thier chairs as they read this. Some of the experience real estate investors might be thinking…”Neil, did you just say that?” Yes, I did.
I will say it again. You put in your own funds (from your job or from another source) in order to sustain your portfolio. This is the reality. Anyone who tells you differently is probably lying to you.
5. You will always regret selling a property
People who understand the value of real estate as an investment, understand that you benefit by holding real estate long term. As a real estate investor, if you sell a property at some point during your real estate investing career, there is a good chance that there will be a part of you that regrets selling the property at that period in time. This is because, if you held the property for another 5 or 10 years, you would benefit from additional cash flow, mortgage pay down and potential appreciation.
No matter what the circumstances are, when you sell a property, there will be a part of you that will second guess that decision. It is not fun to live with regrets.
4. People Judge You.
Further to point number 7, not only will you not fit in, people will judge you as well. People can often be hostile towards you if they find out that you own a rental property or two. They think that because you own a rental property, you must be a) rich, b) given money from a family member, c) involved in illegal activity, d) from a well off family, e) lucky, f) won the lottery, g) unfairly given money that you did not have to work for, etc. The list can go on and on. Plain and simple, people judge you and wonder where you got the money to invest in real estate. They tend to think that you were born with a silver spoon in your mouth.
3. You strive to obtain goals that are not your own
The more you surround yourself by other real estate investors, the more you learn. As you learn more, you also start to unknowingly compete with other real estate investors. You quickly find yourself in a position in which you are constantly comparing yourself with other real estate investors. One area of comparission, and also the most obvious one relates to ‘how many’ properties you own.
Believe it or not, but people get caught up in a frenzy where they try to buy as many properties as they possbilby can, trying to keep pace with other investors. People get so caught up in this activity, that they don’t take anytime to stop and think what they are doing. Soon enough, they find themselves in a position in which they have taken on too many properties, that they can’t manage. As a result, their stress level goes up, and their personal lives suffer.
2. Life is more important than just trying to make money
It is easy to get caught up in life focussing on activities that are worthless. Many people focuss exclusively on trying to make money. More often than not, people who pursue wealth creation exclusively are not happy. You have to have balance in your life, in order feel fullfilled. Some real estate investor pursue investing in real estate as their sole focus. This is not the right thing to do, as life is more than just about making money.
1. Real Estate investing is like the Mafia. Once you are in, you can’t get out.
True veteran real estate investors never give up investing in real estate. This may sound noble, however, sometimes it is something that is done against their will. Buying rental properties is a big undertaking. Once you have purchased a property, sunk your own money into the investment, looked after repairs, maintenance and fed the property with your own personal funds to cover vacancies, you want to make sure that you realize a good profit from this investment.
Since you have put so much money, time and effort into your rental property, it doesn’t make any sense to exit from the investment, even if you are burnt out and do not want to deal with the investment any longer. Once you are invested, you are stuck with it. You are stuck with it because you want to hold it long enough that you are able to profit from the investment in a major way.
Best Regards,
Neil Uttamsingh
PS: To keep up to date with my blog, enter your e-mail address on the LEFT hand side of the blog. To receive The First Rental Property Newsletter, enter your e-mail address on the RIGHT hand side of the blog. In the Newsletter, experienced real estate investors will share with you how they bought their first rental property. They will also share some tips and tricks to help you get started.
