Why I Refuse to Invest in Real Estate
I need to come clean about something.
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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.