A big part of me loves investing in real estate and it’s a big part of my plan for the future. Yet, for some reason this was still one of the easiest posts I’ve ever written…because the truth is, I lose soooo much sleep over some of the worries that come with this type of investing (at least for buy and hold real estate investing). It is not an easy thing to do and it is TOUGH work. And not just the getting-your-hands-dirty kind of work (though it certainly can be that), but the dreadful how-the-heck-am-I-going-to-fix-this kind of work. The kind of thing you think about all day and lose tons of sleep over. And until you’ve really hit it big, it’s hard to tell if you’re even doing things right.
So before you jump head first into your first property (which I still hope you will consider!), make sure to read this carefully because real estate investing is not as glamorous as you think and it’s definitely not for everyone!
It Is Very, Very Long Term
Like, decades and decades long-term. You will be making money along the way, but all of that really needs to go back into your investment so you won’t actually see it for a very long time. And when you’re working with 20 or 30-year mortgages, depressed housing markets, and general speculation you need to let your investment be long-term…otherwise you could end up getting really burned.
It Is Sloooow
Since real estate investing is such a long-term game, it should come as no shock that the process is extremely slow, but once you’re involved it’s nearly impossible to remind yourself of that. Buying, selling, and finding tenants can take months and even years. Contractors will always take twice as long as they tell you, and acquiring financing will drag on forever. So much money is involved in these transactions that you will feel like every matter is extremely urgent, but the reality is that nothing is going to work quickly for you.
Your Money is Not Liquid
Even if you own your properties outright, you still don’t have easy access to that money. Even a really quick sale on a house will take weeks and that is assuming you can find a buyer immediately (which nowadays is rare). So while the assets themselves act as a security, there’s really not too much they can do for you if you find yourself in a bind and need cash quick.
There Are So Many Different Components
Like, so so so many. In some ways, this is really exciting. You’re always learning new things and you can jump around to different projects. But there is just no possible way that you can be an expert in everything, so you are forced to depend on different people and that can be really stressful. Over time you will hopefully build a good team of people around you, but in the mean time you are left juggling different priorities, personalities, and problems.
There Are Tons of Hidden and Unexpected Costs
Just like with your own home, big expenses can pop out of nowhere and it usually comes with horrible timing. The furnace will stop working in the wee hours of a January Sunday morning, the roof will leak during a torrential downpour, and the oven will stop working on a holiday afternoon. When you’re dealing with an investment property all of those things will happen…but then there’s more – the toilet will clog and instead of using a plunger, Roto Rooter will be called. Your contractor will tell you last minute that the paint job will cost double and an HVAC specialist will be dispatched to the home just to teach your tenant how to use the thermostat properly. Even the best tenants in the world aren’t going to spend their own money maintaining your property, so you need to be prepared for even more unexpected and hidden costs that come with home ownership.
There is A Lot That is Unknown
The reason that real estate investing can reap such rewards is because there’s a lot of risk involved – and most of that is due to the fact that almost every single aspect is unknown. The more educated you are the better, but even then you still are dealing with factors that are totally out of your control. You can speculate all you want (and that’s a huge part of being successful), but you can never guarantee that you will sell your house for what you think it’s worth or that you will find tenants for the rent you think is reasonable. It’s also hard to predict the things that will break or go wrong with the house. You never know what kind of neighbors you’ll be getting or if your area’s real estate market will sink in two years. There are just so many factors that you can’t predict, so you need to be comfortable, secure, and prepared for things to not go your way.
There is a Lot of Liability Attached
If somebody trips on your sidewalk, they can sue you for getting hurt. This is true even for your primary home. But with investment properties, there’s even more liability attached because you are legally obligated to provide your tenants with a specific standard of living. On top of that, in some circumstances you could be liable for anything your tenants do while on your property. There are certainly ways to protect yourself against this, but as with most things it comes at a high cost.
You Do Not Have an Endless Pool of Options
When you’re investing in the stock market, you have thousands and thousands of options. On top of those options, you can decide exactly how much money you want to use, how much to sell, and how much to buy. The options seem endless. With real estate, that couldn’t be farther from the truth. There are only so many homes available at any given time and any work you need done to the home has to be done by someone within proximity to your property. There are always options, but with real estate they are limited.
You Can’t Get Out of it Whenever You Want
Nowadays this shouldn’t be a shock to anyone. We all saw how many people were totally screwed by the real estate market and essentially stuck in homes they didn’t want to be in (or forced to claim bankruptcy). When you’re investing in real estate, you can only sell if someone wants to buy – and there is absolutely no guarantee to that….nor is there a guarantee you’ll get what you want.
It Takes a Ton of Money
Duh, right? But seriously, it takes a ton, ton, ton of money. So it’s a big commitment to get into. And the bigger the home, the more expensive the maintenance. The more you invest, the more you have to lose. It’s a lot of money, so you need to choose wisely.
Here’s the honest truth – if someone had told me all of these things before I ever invested in real estate, I STILL would have done it. And I STILL will continue to do so. But as I said before, I lose sleep over this stuff and I doubt that will end. But that’s the life of an entrepreneur and real estate investor. 🙂 If you’re meant to do it, even the best advice won’t stop you.
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