Real Estate Investing Basics

Top 3 Reasons You Should Never Invest in Real Estate

Expertise: Real Estate Investing Basics, Personal Development, Landlording & Rental Properties, Real Estate News & Commentary, Business Management, Flipping Houses, Real Estate Deal Analysis & Advice, Personal Finance, Real Estate Marketing
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A handsome young businessman tries to call the boss over the phone while sitting with his colleague in front of a laptop.

Today I’m talking about the top three reasons why you should never invest in real estate. Let’s get it started.

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I know all of you out there love my blanket statements. This one is a bit of an oxymoron.

Why You Should Never Invest in Real Estate

1. First thing, it’s very hard work.

The first one is it’s just too much hard work. I come from a construction background and worked as a laborer on dirty construction sites for five years. That work, which was 10-hour days, six days a week, was much easier than running various real estate companies and fixing and flipping homes. There's a lot of hard work that goes into it. Research, acquisitions, rehabs, project management, sales, marketing, finding a real estate agent, negotiating with the buyer, dealing with building inspectors, appraisers, and title companies. If you're buying and holding, then property management is going to be an important part.

You’re going to have to evaluate all these people; you’re going to have to make sure that they’re doing a good job. It’s not easy guys. Everyone can do it, but I don’t recommend it to everyone. You’re pretty much going to have a full-time job for a very long time. There are only a few investors out there that can master the art of real estate investing to make it truly passive.

So if you’re thinking you’re going to start investing in real estate because you got sold on some B.S. financial freedom crap, it doesn’t work like that. It is hard work. It is excruciating, and it takes years to get to where you need to be. And even then, it’s not passive. You’ll make a ton of money but not enough to be passive. As I said, there are only a few investors that have mastered that art of making it truly passive where they don’t get bothered at all.

Related: The No. 1 Reason New Real Estate Investors Lose Money

2. Second thing, people in the industry suck.

There are a lot of people in the industry who are shady and going to screw you. Turnkey providers are the worst of the worst. Property managers are a freaking joke and nickel and dime you on everything. They make up non-existent maintenance charges just to charge you money. It’s ridiculous. Junk fees, hidden fees, it’s absolutely ridiculous. Let me go back to the turnkey providers—selling you properties for more than they’re worth, selling you properties in crappy C-class areas in war zones, and then passing you on to third-party property management companies that nickel and dime you to death.

Let’s talk about real estate agents. Do you think they really care about you? No, they don’t. All they care about is their commission. So if the property sells for $100,000 or $190,000, there is only a couple hundred dollar difference in their commission, while it’s a $10,000 difference for you. So they don’t care. They’re going to be in your ear, telling you to take an offer, and you’re going to lose $10,000. They suck.

Contractors, I don’t even want to get started with these guys. Over the last five years, I’ve lost $2 million to contractors. They took my money to buy meth, they took my money to buy a car, they took my money to take their wife on a holiday, they took my money and used it to buy materials for another job, and they took my money and disappeared. I’ve seen it all and heard it all. Guys, it’s a disaster.

Related: The Top 3 People Most Likely to Rip You Off in Real Estate Investing

3. Last, but not least, the numbers are always wrong.

It’s all smoke and mirrors. Whatever you think it’s going to be, it never really happens like that. If you’re buying a turnkey property everyone pumps up their pro formas, and whatever you’re promised on paper is never achieved in real life. Property managers with their fee structures—that’s all B.S., too. They’ve got so many hidden fees you’re never going to know what they are.

Another thing, the folks out there who are inexperienced or have the experience, you don’t know how to calculate a return on investment. You all use weird pro formas, weird calculations, weird rules, and I don’t even know what percents you’re using. There’s too much information out there, and it’s confusing. You’re not doing it right. You’re overestimating your income and underestimating your expenses, and the numbers just aren’t what you need them to be. Then, you lose money.

So those are the three reasons why you should absolutely never invest in real estate. That’s pretty much it. I have nothing more to say.

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Still planning to invest? Why or why not?

Please leave your comments below!

Engelo Rumora, a.k.a.”the Real Estate Dingo,” quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. He now owns real estate all over the world and has bought, renovated, and sold over 500 properties. He runs runs Ohio Cashflow, a turnkey real estate investment company in the country (Inc 5000 2017 & 2018) and is currently in the process of launching a real estate brokerage called List’n Sell Realty. He is also known for giving houses away to people in need and his crazy videos on YouTube. His mission in life is to be remembered as someone that gave it his all and gave it all away.

    Katie Rogers from Santa Barbara, California
    Replied 2 months ago
    Too bad that this post is not actually snark.
    Ronald J Parks from Pittsburgh
    Replied 2 months ago
    As a newbie the real estate investing game I have to believe that this post was written tongue-in-check. One of the things I have hopefully learned while perusing the BP forums and blogs is that other people will always tell you that real estate investing is a bad idea or it can't be done. They give you the reasons from an uneducated point of view. This is just a seasoned vet giving others a homework assignment in critical thinking for investing. I still plan on investing!
    Lee Johnson Rental Property Investor from Sterling, VA
    Replied 2 months ago
    There's an old say, "A fool and his money is soon parted". I agree! While real estate is definitely hard work, I've searched and found no better vehicle to grow wealth & we haven't even begun to discuss the tax benefits.
    Adam Baltuska Investor from Shawnee Mission, Kansas
    Replied 2 months ago
    Epic meltdown. <3
    Sai Kopacek Real Estate Agent from Martinez, CA
    Replied 2 months ago
    Seriously. I thought it was going to be a joke post.
    Joe Palmer Rental Property Investor from Delmont, PA
    Replied 2 months ago
    Hmmmm, really kind of makes you think. I haven't started yet, still in the learning phase. I guess I'll just take this as another point of view to consider.
    Brandon Moore from Central Arkanas
    Replied 2 months ago
    Well, I suggest just looking at it as just that, a different perceptive. Real Estate and investing are always there when you hear people talking about growing wealth.
    Nick Coons
    Replied 2 months ago
    "So if the property sells for $100,000 or $190,000, there is only a couple hundred dollar difference in their commission, while it’s a $10,000 difference for you." The difference between $100,000 and $190,000 is $90,000, not $10,000. I'm guessing the first number is a typo at half of what you intended. :-)
    Michael Fagan Investor from Muskego, Wisconsin
    Replied 2 months ago
    He's right on all points, but if you are careful, and work hard you can avoid those mistakes. Dealing with contractors is the toughest part, the trick is to never pay them before they do the work.
    Tanya Smith
    Replied 2 months ago
    I disagree about the Realtor comment or even contractors and other professionals. While there are bad eggs in every field, making a blanket statement that they are all out for themselves is just wrong. There are many agents who bend over backwards to do what’s right for their clients. They are held to a ethical standard higher than many other professions as a member of the national Association of Realtors. If you have worked with an agent that has been unethical or dishonest in any way, I encourage you to report them. This is the only way we are going to weed out the bad ones and ensure the public is being served at the highest standards.
    Jen Rubinowitz Real Estate Broker from Port Townsend, WA
    Replied 2 months ago
    Bless you, Tanya. I work hard for my clients and was really disenchanted by his comments. Every industry has bad eggs, but overall, I know 99.5% of my peers work so hard to help clients buy or sell their homes.
    Kevin M Strong from Lake Tapps, WA
    Replied 2 months ago
    I think the point of his message was to be realistic and manage your expectations. If you approach this industry with a slow growth, cautious mindset, you will succeed and create passive wealth.
    Todd Rubinstein Attorney from Encino, CA
    Replied 2 months ago
    OMG LMAO. How spot on is that Engelo? A little extra drama and overkill, but not by much. Holy mackerel do contractors suck and the agents who sell income properties. There are some good ones, but the numbers and opportunities are ALWAYS overstated. When evaluating a potential deal, there are soooo many factors to take into account; macro: demographics, economics, municipal, legal, and political realities of the locale, etc. - micro: cap rate, yield, ROI, IRR, replacement cost (price sf), land value, condition (read maintenance or lack thereof), rents (REALISTIC not pro forma junk), and holding time (i.e., short, medium, or long), and co-investor appetite and tolerance, etc. You can do real estate right, but the due diligence has to be extraordinarily thorough. And ALWAYS anticipate the unexpected.
    Phillip Hunt Investor from Tucson, Arizona
    Replied 2 months ago
    All these things you mention certainly can be true. I have found the realtors, and contractors to be expensive however I have never been ripped off as my experience in construction helps greatly with that. I have found investing in real estate a good sound way to invest, however, you must have the money to invest.
    Aaron DeLong Investor from Beachwood, Ohio
    Replied 2 months ago
    The points aren’t wrong at the surface level, but there are solutions to each of the issues. Hard work, due diligence, and an understanding of the fundamentals are essential to success. None of these things happen on their own or overnight.
    Frank Mooradian
    Replied 2 months ago
    You have no idea how much I love hearing nakedly how ugly things can be. Rip that bandaid off already.
    Matthew Adair Rental Property Investor from Chicago, IL
    Replied 2 months ago
    Engelo has written 229 articles on BP about investing in real estate. He runs a turnkey company. He's done over 500 deals. I'm thinking he's just having some fun with us...
    Frank Kocher Investor from Monterey, California
    Replied 2 months ago
    Trust and verify. In reverse order works best.
    Solomon Greene Broker from DeLand, FLORIDA
    Replied 2 months ago
    "So if the property sells for $100,000 or $190,000, there is only a couple hundred dollar difference in their commission, while it’s a $10,000 difference for you." As a Realtor who has given up large chunks of commission on many occasions to make a deal work for my buyer and/or seller, this is a gross misstatement. I am assuming the generalizing tone of this blog is for the purpose of maximizing clicks, so I will give the author the benefit of the doubt. I would have expected some sort of qualifiers ("some, but not all") in the comments slamming turnkeys, real estate agents and property managers, however, since the author's bio states he is a turnkey provider who is working on starting a real estate company! FYI, the Realtor code of ethics prohibits denigrating your fellow practitioners, so hopefully we will see more discretion used in future articles when his brokerage is up and running.
    Allen Nida from Boise, ID
    Replied 2 months ago
    1. Build better systems. What are those investors doing that are making the process easier? 2. Give your employees/team members performance incentives. Vet better. Pay once services are delivered. 3. Educate yourself. Take a class in real estate investment financial modeling (Udemy has a great one). Have peers review your numbers. Overestimate expenses and underestimate income. So what were you saying about never investing in real estate?
    Ed Gamble Realtor from Ocala, FL
    Replied 2 months ago
    “Top 3 reasons to never invest in real estate “ written by a guy who’s business is investing in real estate. Yes, I do see the sarcasm and humor in this. You should find a realtor you can trust. My philosophy is that if I take care of my customers my commission will take care of itself. There are definitely a lot of crooked contractors out there. Don’t pay them up front. Get a contract in writing. Always run your own numbers and always estimate conservatively. So yes I am going to invest in real estate, but with eyes wide open and willingness to put the due diligence into it.
    Scott Huber
    Replied 2 months ago
    Supposed to be tongue in cheek. Too much truth mixed in for it to be. I discourage newbies from getting in the business because I don't want competition from people who suck.
    Rachel Deering from Dallas, Texas
    Replied 2 months ago
    😂😂😂 Point taken! So, basically, Expect the worst and plan for the worst! And maybe, just maybe, you’ll make some money in the process. 😂👍
    Mark Stedman Investor from Nashua, NH
    Replied 2 months ago
    This article is pretty accurate from my years of experience. I’m a semi-retired Optometrist who sold his practice and now own (outright with no mortgages) some income properties that are providing me with about 50% of what I used to earn as the owner of my eyecare practice. When I was younger I did some spec house building with some success. About 5-6 years ago I bought 17 rental units in 4 buildings ( all in same town, purchased following the death of a large multi-family owner). I manage them myself because I agree that property managers are not worth what they charge, and I want to be in charge and know what’s going on at my properties. Contractors ARE largely idiots...however there are some decent ones out there that you can eventually find after hiring 10 bad ones. And of course, Real Estate agents just want to sell properties...don’t ever expect them to be in your corner or provide you with valid numbers or other information. Be skeptical and don’t trust them because their motivation is simply to make the sale happen. This article might be a little overly dramatic in terms of pessimism or painting an overly bleak picture of the landlord business. You can make good money in this business, but it requires that make money require YOU, the owner, President and CEO, to work hard, to have a sharp mind, be good with numbers, be skeptical, be bold and confident, over estimate your expenses, and dont be afraid to get their hands dirty. If tenants don’t pay, pay late, or try to intimidate or control you, you need to know how to handle them. So, If you’re timid, unfamiliar with some basic aspects of property maintenance and repair ( basic wiring, plumbing, framing, heating, etc), and you are looking for a business that you can just make phone calls or just hire others to run for you, I agree with the author that you should steer clear of investing in residential income properties. I’ve seen people sell properties in frustration because they thought being a landlord was going to be a lot easier. I spend about 5-10 days per month on my properties, a few days working as an eye doctor, and take lots of vacations in between. It’s a good balance, and I think in life finding your BALANCE is what it’s all about.
    Wenda Kennedy JD from Nikiski, Alaska
    Replied 2 months ago
    You're right. Having real estate investments is not a picnic. It's hard work and putting up with a lot of BS. But, after working it every day for 43 years, it's still the best business on earth. I can't control the stock market, but I can control most of what goes on with my rentals and investments. At the end of the day, it's my name on the deeds. And I've figured out how to get returns that I can't get elsewhere -- even though it's not glamorous to do the daily dirty, hard work.
    Claudia Jurado Investor from Tuckahoe, New York
    Replied 2 months ago
    You talk about b.s and you kind of doing it yourself. Hard work? Why would I fear hard work? Everybody sucks? I don't suck. Do you? Use your intelligence, your experience and malice and you can create a goid team. Numbers don't add? Do your own homework and you will know if they are adding or not. All hour reasons are manageable and doable. No one said it would be easy. But then what is easy on life?
    Warren Anderson
    Replied 2 months ago
    I agree with the gist of what he said. My son was just buying a home to live in. It is somewhat of a sellers market in our area. The asking price was $399,900, the buyers agent filled out the offer for my son at $430,000, as he said it was a seller's market and he needed to be competitive and offer above asking and also have an escalation clause up to $450,000, my son called me confused about the offer he was going to sign. I said (WTH)! and told my son to offer $360,000, it was the only offer. The seller countered to $395,000, I told my son to move on. The next week the price was lowered to $389,900, the week after $379,900 and then it went under agreement ( I am waiting for it to sell so I can check the sold price). The broker would have made an extra $750.00 and my son would have paid over $50,000 more, and this broker is considered good and well known in the area. Point is many buyers agents and sellers agents are bad, many rental agents are bad. I only buy investment properties in areas I find a good rental agent first, I have had one for 25 years another for 10 ,because they are so good I don't get ripped off by them or contractors as they have certain contractors that they have worked with for decades. I do visit the properties every few years, I only buy in A areas, I don't make as much as many but this works for me. Having said that, I minimized headaches but still get a few on the smaller scale.
    William Yates Associate Broker Snyder Strategy Realty from Carmel, Indiana
    Replied 2 months ago
    I bought a house because my landlord at the last minute revealed to me (I) MUST PAY ALL CLOSING COST MINUS TAXES!!!!. And decided to sell to a developer .Agent found a house, same area, we put in an offer. House needed work and we asked for credit for repairs and cash from owner.owner agreed .Come to find out the listing agent is best friends with my agent and seller was selling "moms:"estate so he would have given more cash to fix property than agreed upon.My agent did not do their best to get a good deal .The agent was poised, charming , she is beautiful,and she still SUCKED!!!! BAD APPLE.You better know a lot about real estate.You never know when someone is not being straight with you ,that is a fact !!!!!
    Andrew Cochran
    Replied 2 months ago
    I guess it’s just a matter of how you set things up. I’m killing it investing. I’m doing so well that I’m borrowing to buy two more properties. One single family home is broken up into 15 separate units and I make $20,000 a month off of it. If 20,000 a month is good, 60,000 is better correct? It’s all about setting up correctly and apparently there are a lot of people out there that don’t know what they’re doing.
    Peter Nash from North Brunswick, New Jersey
    Replied 2 months ago
    lol. you’re too funny Engelo. if someone is discouraged by your post, then that someone should stay away from REI.
    Robert A. Hastings Jr.
    Replied 2 months ago
    Oh my gosh, amazing, you said almost verbatim what I have been thinking. Been R/E investing for a long time and have to say you are spot on in your assessment of industry players. When easy verifications like checking tax records and utility bills turn up major discrepencies, realtors and sellers alike give the 'huminah', 'huminah' response and attempt to change the subject and often never actually provide an answer to your question(s). Some of the "expected rent" in listings is so out of the ball park it's ridiculous. Recently communicated with a seller that I would consider the asking price if tenants were in place with a lease at or above the expected rent amount(s) shown in the listing...... never heard back.
    Cedric Bland
    Replied 2 months ago
    This article is to deter all newbies thinking about RE to decide not to invest in it because the RE market is flooded with investors. Less competition for the Engelo.
    Jhon Restrepo
    Replied 2 months ago
    I only own a condo, two years since i bought it, he is saying the truth, the only thing i want to add is , where can you make easy money with no risk? But his opinions are more o less real. No doubt about it.
    Michael Bedtelyon
    Replied 2 months ago
    Great article! There are a ton of "hidden" expenses when dealing with real estate transactions. It's funny you used $10k as an example, as I've just lost $10k in profits on a sale, and to make matters worse, I threw in $5500 for closing costs. You live and learn! I've owned homes for years now, but have only been investing in real estate since March of 2019, and have learned a lot in a short time. I sold our primary residence, bought a fixer upper to live in, and bought a rental for income. So far, so good (other then bringing in $10,000 less than I thought I would on the sale). I cant wait for Jan. 1, 2020 to purchase our 2nd rental, and continue chipping away at our fixer upper. My family and I are so excited and can already see the light at the end of the tunnel. Thanks for the article.
    Jay Stephenson from Terryville, CT
    Replied 2 months ago
    It's very hard work which isn't a bad thing, nothing worth anything is easy.
    Jason Oberweis from Atlanta
    Replied 2 months ago
    This might be snarky, tongue-in-cheek, or even ironic, but it's not an oxymoron
    James Lester from Columbus GA
    Replied 2 months ago
    Go figure... His profile says he owns 500 homes so ... go figure... don't think he practices what he preaches.
    Roy Palmeri
    Replied 2 months ago
    Still waiting for the pitch...
    Johnder Saint louis
    Replied 2 months ago
    I respect your position, but i still want to feel the fire to see if it s really hot. And plus the post was a bit emotional. If you do your homework and research you will achieve your goal slowly and surely my freind #realestate4ever
    Jaik Webster Realtor from Anchorage, AK
    Replied about 2 months ago
    Definitely seems like a vast blanket statement, but I love the "devil's advocate approach". It's very easy to see all benefits and loose site of risk. RE investing isn't a get rich scheme and the professionals that push that mentality are doing a great disservice to our industry. RE is an extremely beneficial vehicle with an innumerable number of applications and strategies. Educate yourself and take a step forward, progress over perfection!
    Jordan Blake from Earth 🌍
    Replied about 2 months ago
    This is just a rant in a text message format of “professional”. It’s a little busch league but he knows the game. Maybe his emotional intelligence is smaller and this could be used as an example of it. Nothing against him. In fact, I’ve been a victim of my own level of intelligence. I’m not a writer. I don’t use email like many professionals. What I mean by that is, I don’t believe in being a “professional speech” and punctually correct. It’s dull, it’s fake, and it’s 2019. I don’t care if you have a business degree. I respect it, and it does add value no doubt. But ultimately it’s your own talent and ideology and vision and level head that holds every key to your success. In real estate, there are far too many circumstances from one persons portfolio to another and which are better, both in return and (time-because time is money). This guy should have saved his rant, created a video, be happy and excited, and say hey guys its (so n so) and I’m going to show you the most common mistakes (whether it truly was a mistake or just a problem that you couldn’t avoid) made in real estate investing, and how to get out of them, and how to get ahead. This would be viable value and vulnerable value. Maybe he is reading this. If he is, hey buddy. Right topic, all fact, maybe just impulsive in presenting it. Think it through and don’t use negativity towards anyone who are making those mistakes (simply lack the ability and talent is usually the case rather than an...oops, I made a mistake). Showing anger over it is only hurting you and your day. Don’t waste your time being mad. And to anyone who says “yah don’t invest in real estate, more room/opportunity for me” —that’s also weak. The numbers just aren’t there to have any effect on your ability to roi from properties. If anything, there is probably a market for a “Real Estate Investor Rescue” tv show, same concept as Bar Rescue. Oops did I just give that idea away? I don’t care. Take it. Or maybe there already is a platform out there doing this on TV. Talent in location, leverage, strategy, and execution are winning in real estate.
    Bryan Danger Specialist from Nomadic
    Replied about 2 months ago
    Wow! Either someone had a very bad day... or this was a long joke setup without the punchline. Or maybe just an attempt to keep everyone else out of an already competitive market?? Still waiting on a response from Engelo to know...
    Aaron Lawson Investor from La Mesa, California
    Replied about 2 months ago
    This is a great list of the ways that reality can punch you in the face in REI, and will continue to do so if you do not learn from the face punching. So many posts and videos are positive thinking cupcakes and rainbows to get people motivated. This is a refreshing reality check and description of the dangerous waters that we need to learn how to navigate. Thanks Engelo!
    David Mincey Flipper/Rehabber from Randallstown, MD
    Replied about 2 months ago
    I often tell people that you have to love the business because it comes with a lot of pain. He's spot on, but it doesn't stop him from investing and it shouldn't stop us as well. His points are truthful and well taken.