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Why I Refuse to Invest in Real Estate

by Ken Corsini on January 23, 2013 · 35 comments

  
Investing in Real Estate

I need to come clean about something.

I realize that I’m a regular blogger for a website developed almost exclusively around the education and promotion of real estate investing, but the truth of the matter is, I simply can’t understand why anybody would invest in real estate.  If you really analyze things closely, it becomes clear that the argument for real estate investing just doesn’t make sense.

I’d Rather Not Get Paid For Investing

For one, real estate is one of the only investment vehicles that has the ability to produce cash flow while simultaneously appreciating in value. Why in the world would I want both? I would much rather invest in something like commodities. I mean, look at what gold and silver have done over the last several years. Surely these types of commodities will continue to increase in value at the same rate for an indefinite period of time. Why wouldn’t I just invest my money in something that is guaranteed to increase in value … rather than having to worry about collecting rent checks every month?

I’d Rather Have A Low Return On My Money

Or perhaps instead of commodities, I might put my money in the S&P 500 and enjoy a healthy 2% yearly dividend yield. I know this doesn’t quite keep up with inflation, but it just feels safer to me. And let’s be honest – how likely is it that the stock market would ever lose value?  It’s been so consistent over the last few years, that I’m fairly certain we can bank on growing stock portfolios for years to come.

Yes, I’ve heard that real estate investors are getting yearly returns in the 10-15% range on rental properties, but who has time to figure that all out? I mean, what if I bought a rental property and then had to replace the water heater or something? Wouldn’t that sink my entire investment? It just seems way too risky to me.

The other thing that makes me nervous about real estate is the fact that you can leverage somebody else’s money to buy it. With all I’ve hear about mortgage scandals and what have you, I think I’ll choose to steer clear of any type of loans.  I’ll concede that a leveraged investment has the potential to multiply cash on cash returns, but do I really want to have to make a monthly payment?  And what about locking in at these current interest rates? What if they were to drop some more – I sure would feel silly for locking in at 4%.

Prices Are Too Low – I’d Rather Pay More

Lastly, who wants to invest in an asset that has dropped in value so significantly over the last few years? I don’t know about you, but I’ve always heard that you should buy high and sell low. I would much rather wait until prices recover to their pre-recession values before even considering an investment in real estate.  I wouldn’t want to jump the gun and mistakenly buy an underpriced property.

I know it’s been said that 90% of all millionaires made their money in real estate, but I’m guessing this was just dumb luck. Perhaps these were the people who were able to buy at the top of the market, before prices crashed.  With prices and interest rates at historic lows, now just doesn’t seem like a good time to get into real estate.

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{ 35 comments… read them below or add one }

Frank L. DeFazio January 23, 2013 at 1:39 pm

This should get A LOT of comments!

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Travis Daggett January 23, 2013 at 1:59 pm

Very clever . . . you got me to read!
Preaching to the choir, man!

Good post-thanks.

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Ken Corsini January 23, 2013 at 2:55 pm

Thanks Travis

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Joshua Dorkin January 23, 2013 at 2:27 pm

A simply brilliant commentary, Ken. Nicely done!

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Ken Corsini January 23, 2013 at 2:29 pm

Thanks Josh … thought a good tongue-in-cheek piece would be good to mix things up.

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Brian Gibbons January 23, 2013 at 2:32 pm

Wow I love this article, Ken!

Invest means buy and hold? That is your definition? Like the stock market? Buy low and sell high? That’s it?

REI to me means using real estate to make money, but NOT necc buying and holding,

I would rather:
Lease Option from a Seller
Assign the deal or do a Sandwich LO or do a Master Lease LO.
Make money and don’t own anything.

Wow, what a concept!

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Brian Gibbons January 23, 2013 at 3:26 pm

OMG this was a tongue and cheek article!

Nicely done!

Brian

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Jose Gonzalez January 23, 2013 at 2:44 pm

Hi Ken,
Your article has been the funniest for me. Great way of describe how people contradict themselves haha. Loved that line of buy high and sell low… well thats the way to go!
You know… somewhere I read a comment that Wall Street was the only part where people who drove a Ferraris went to seek advice from people who went to work by bus. There are too many who preffer to go with the flow and give the money to someone to “invest” it as they will.
Great post!

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Ken Corsini January 23, 2013 at 2:54 pm

Thanks Jose – great point about wall street investors so often being out of touch.

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Brandon Turner January 23, 2013 at 3:10 pm

I also hate the fact that I made more money than most of my friends last year – but paid far less taxes than anyone I know. I’d rather just give the government their 30-50% and not deal with these pesky “deductions.”

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Ken Corsini January 23, 2013 at 3:20 pm

You know you’re right, tax deductions are such a pain … I’d rather than just keep it simple and pay my “fair share”

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Karen Rittenhouse January 23, 2013 at 3:12 pm

Right, Ken.

And what about pets?

What if they have pets?

I’m just afraid they might have pets.

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Ken Corsini January 23, 2013 at 3:21 pm

LOL – so true.

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Josh Stevens January 23, 2013 at 3:25 pm

Brilliant!

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Jeff Brown January 23, 2013 at 3:37 pm

Thanks Ken — I needed that. :)

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Danny Ng January 23, 2013 at 9:01 pm

And why should I ever own a real estate property? I’d rather rent and make other landlords rich and happy rather than ever having to become a “slumlord” myself.

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Ken Corsini January 28, 2013 at 8:49 am

Good point. ;)

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Travis January 24, 2013 at 11:39 am

Funny post. If you consider the whole thing to be sarcastic

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george January 24, 2013 at 12:21 pm

i love getting a “healthy” return of 2% on my stock investments.

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Ken Corsini January 28, 2013 at 8:49 am

“it just feels safer for some reason”

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Mike McKinzie January 24, 2013 at 12:36 pm

Investing in real estate just makes your tenants into your “slaves.” And as such, you have to babysit them, unclog the toilet with the pampers in it and change the light bulbs out for them. What a hassle!

You need to be a “good” person and redistribute, thus paying stock brokers, fund managers and hedge investors to find you the worst derivatives, made up mostly of “D” paper.

And when you own real estate, you HAVE to drive by it EVERY DAY to make sure it is ok, another HASSLE! I think I will stick with my Enron, World Com and Yugo stock!

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Ken Corsini January 24, 2013 at 12:40 pm

Thanks for post Mike …. so true about having to drive by your properties everyday … such a hassle.

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Ben Leybovich January 24, 2013 at 1:15 pm

Nice article Ken. Preaching to the choir. There are trillions of dollars of investment capital spread out among all sorts of investment vehicles, but only a small sliver is in RE.

Back in the day, real in real estate stood for Royal – the domain of nobility as established by monarchy. Times have changed. Today real estate is still the domain of few and select, but what sets us apart is no longer bloodline or titles, it is EDUCATION.

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Ken Corsini January 24, 2013 at 1:19 pm

great comment Ben – thanks!

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Karen Rittenhouse January 24, 2013 at 1:36 pm

Let’s hear it for education!

Great comment, Ben.

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Uwe January 24, 2013 at 2:22 pm

Ken, great posting.
Ben, good comment about the education. But I would add that probably 5-10 years ago, it wasn’t quite the education yet (or anymore) that set RE investors apart:
It was more the ability to dupe lenders into believing you could make those monthly payments of $1500 with a $1600 rental income, and the lenders duping the “investors” into believing the same thing. Now that those idiots are all flushed away, it is the education (again)…

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Tim Watts January 24, 2013 at 3:36 pm

Very fun… love the picture too. I needed that at the end of today.

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Paul Francis January 24, 2013 at 6:16 pm

And paying rent for more then what a mortgage payment would be is SO MUCH better.. Lol

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Tim Czarkowski January 24, 2013 at 8:02 pm

Lol that was great. I think I’ll invest in long term bonds so I can get guaranteed, return free, risk.

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Travis Daggett January 25, 2013 at 11:23 am

Sweet, Tim!
I had to read it twice . . .
Especially now that some bonds are showing a net LOSS over their term!

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Ken Corsini January 28, 2013 at 8:54 am

LOL – return free investments – sounds attractive doesn’t it.

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Daniel Livingston January 25, 2013 at 12:24 pm

I just LOVE sarcasm!! RE is awesome!

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Daniel Livingston January 25, 2013 at 12:34 pm

Ya, What about a person that smashes holes in the wall and then wants to sell it, that’s horrible because I would not want to discount the property and not pay the owner what it’s worth!

I especially hate houses with high grass and out dated color schemes, who would want to buy that junker!

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Mike January 28, 2013 at 7:43 am

Its a great linkbait article for sure, especially considering the audience here on Bigger Pockets.

I couldn’t disagree more, but enjoyed reading!

I think I bought my first flip from the guy in the picture…..:-)

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Charles morgan March 24, 2014 at 3:44 pm

I prefer having my money in liquid assets on my brokers server than in some physical property that I can touch.

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