Why should you not get into REI?

18 Replies

Hi there, I'm a newbie in the research phase.  I'm considering this as a career change and trying to absorb as much as I possibly can while setting a deadline of March for buying a property.

I love numbers, spreadsheets, optimizing deals and am coming from the world of credit card churning/gaming. I've spent quite a bit of time on reddit reading on that subject. One of my favorite posts is why you should not get into the credit card game. It basically outlines what many of the risks are - screw up your payments and you're paying interest, who shouldn't do it - folks who aren't organized or disciplined, etc. I'd love to get a community view of the same thing here - who is this not for, why might you advise against REI.

Of course most on here would advise to do this but wondering what your thoughts are on this subject.

@Lindsay Ash

In REI, there are a lot of things outside your control. A lot of moving parts.

You can do your best to budget, plan, screen tenants etc, but sometimes stuff happens. And when they do, you need to figure out your best plan. 

Compared to a credit card game where the end user controls their results, you cannot control EVERYTHING in REI.

Ultimately, it is up to your risk tolerance, and how well you can adapt to different situations. 

Chris T.

    @Chris T.

    Thanks for the response.  I'm going to include the link and body of that post.  My intention of this discussion was to hopefully end up with a crowdsourced version of this.  I'm also thinking in the back of my head of the story about converts to Judaism - that three times prospective converts are tried to talk out of it before they are accepted.

    Why you should not start begin churning.

    What is churning? If you're asking this question, churning isn't for you just yet. Churning requires a lot of time, resources, studying, and attention to detail. Churning, in the basic sense, is the action of repeatedly signing up for the same credit card bonuses in return paying for, generally, one of three categories: airfare, hotel expenses, and cash back. I won't go into any more details here as to what exactly churning is and how you get started. That's a post for another day, or perhaps just read the wiki and sidebar that was set up just for this purpose.

    So why should you NOT start churning? Churning is not too good to be true; however, these banks offers these bonuses because people will screw up. It’s a fact. People will begin to pay interest, they will get behind on their cards, and they will have no way out. Those are the type of people who make churning possible for everybody else. Although it can be very profitable, it can be extremely dangerous. Signing up for a dozen credit cards is not a game; there are no reset buttons when it comes to your credit. Here are just a few reasons why churning may not be for you, in the order I see as the most important:

    1) You are not 100% positive you can pay off your cards on time or have never held credit cards prior

    Credit cards can be are monsters. The glorious U.S. of A does a lot of things right, but man, this government loves big banks. The APRs, strict penalties, and generous credit lines can really poison even the most financially sound minds. If you have a history of late payments, carrying a balance, or have just never held a credit card before and are unfamiliar with the temptations of having an easily accessible $5,000 sitting around can be, I would highly recommend you sit on the sidelines. If you have never had a card, get one. ONE. Decrease your credit line to $1000 or $2000. Carry it on you for a year or so, and you should get used to not putting money on it. That is the single best advice I can give anyone coming here. Just be careful.

    2) As /u/MissMonocle stated in my previous post, you must be meticulous with your personal finance.

    Almost all credit cards require you spend money to get the bonus. An example would be to spend $3000 in 3 months. Easy enough. But then you apply for 5 cards with all different minimums and different time lengths. Amex may want $5000 in 6 months while Citi requires $7500 in 3 months. Your first Chase card requires $1000 in 3 months and then your other Chase card requires $5000 in 3 months. 2 months into all this, you apply for the Barclay card that requires a $2000 spend in 3 months because you just can’t pass it up. It can easily get overwhelming. But it goes beyond minimal spends. You will have balances across all your cards with different due dates, charge cards which must be paid 100% in full, 5 or 7 websites to check balances across, and lots of other factors. You can’t make mistakes. 1 mistake can upset a bank and take away any chance at a future approval, mark up your credit report making it tough on all banks to get a card from, and you could end up leaving yourself in debt for a decade or more.

    3) You have no clear plan to meet your minimal spends? Ex: ($5000 / 3 months)

    As I stated in #2, the pressures of keeping track of your minimal spends can be difficult enough. But have you even put any thought into how you plan on spending all that money? Just in my example above, I was up to $20,000 you needed to spend total, in 3 months. Those minimal spends I listed… those are all real world examples. Hyatt is $1k/3mo, Executive AA is $7500/3mo, and the SPG is $5000/6m.

    You need to know you can spend that kind of money in that amount of time. There are other ways to do it, for instance, manufactured spending; however, if you haven’t taken the time to research those topics, you’ll be left with a bunch of hard credit pulls, no bonuses, and likely a balance on your credit cards.

    4) You have no clear goals set in regards to travel or cash back

    As I said somewhere above, credit cards typically fall into 3 categories. You have airline cards, hotel cards, and cash back cards. You need to know the bonuses of each type of card, point values, travel goals, and perks that each program comes with. For example, Hilton and SPG offer a 5th night for free when redeeming for rewards. It would make no sense to apply for 3 cards, all of which are for hotel stays. Yeah you have 2 nights in 3 different hotels, but you have no way to get there. You have no way to combine those stays. You have no fun.

    Let’s consider… Japan (just booked this exact trip). 2 Citi AA cards and 2 hotel cards will get you and your significant other 4 nights in a $1000+ a night hotel and cover the airfare. Not only that, but your drinks, WIFI, and other expenses on the plane can be covered to if you sign up for say… the Ritz Carlton cards. Since you and your SO both have 2 free Ritz nights, you can book all 4 back to back and then call the hotel to merge the free stays. Most all hotels are always considerate and will do this with a smile on their face.

    Even by not knowing what your immediate plans are, there are cards for that. SPG (Starwood), UR (Ultimate Rewards, Chase), and MR (Membership Rewards, Amex) points can all be transferred to airlines, hotels, or cash back (at least… to some extent). So maybe consider something like that if you don’t have any clear travel goals in mind.

    5) Credit unestablished or sub 725 credit score

    There are success stories out there with people in the 650s getting a lot of approvals but understand, each hard pull will lower your score for at least a year. Just because you CAN get approved, doesn’t mean you SHOULD. I occasionally take a beating for saying this, but I will stick by my guns here. If you don’t have an established credit history or you are below a 720, you should not be applying for a credit card every month. Your score will decrease, likely below 700, thus affecting your interest rates for cars, homes, or other expenses. Get a card or two, make on time payments, and establish a nice credit history with a couple banks.

    Honorable Mention: Home or car loan coming up in the next couple years

    Over the past 6 months, I have decided to remove this reason from the official list; however, it does need to be spoken about. Big time loans. When you apply for a car or home loan, banks will look into your credit score. Sometimes it stops there; sometimes it doesn't. Banks have asked people to shut down a number of credit cards before they would approve them for a loan. Also, depending on those hard pulls, you could be looking at a higher interest rate on your loans. Even a 0.5% APR increase on a home loan could cost you tens of thousands of dollars in the long run.

    My advice, if you have a home or car loan coming up within the next 2 years - settle down. You don’t have to quit entirely; however, you should be aware of the impacts your applications are having on your score and your total number of open revolving credit lines.

    In closing: I feel I have outlined a much more respectable list with this post. I have been here, posting daily, for about 9 months now. I feel like I learn more every single day. In saying that, I know I have a long way to go before considering myself an expert or guru by any means. This hobby is vast and it’s been a trip thus far (figuratively and literally speaking of course).

    Please study the sidebar here. There are a lot of fantastic tools and resources put together by the mods for your churning pleasure.

    Always use the referrals links if the referral and the best public offer match up. People always appreciate a free $50-$100.

    If anyone new ever has any questions, please feel free to message me! I very much enjoy this hobby, and I want to help as many people as I can. I honestly have zero reservations answering the most noobish of questions, I literally do it near daily here.

    https://www.reddit.com/r/churning/comments/3fxer8/why_you_should_not_begin_churning/

    If you are handy caped by emotions do not get into income investment properties. Owner/landlords that place tenants ahead of profits always struggle with operating a business of this type. Profits always suffer.

    @Thomas S.  that sounds like an awesome point. Thanks for sharing. I'm guessing being level headed and knowing how to keep a professional boundary probably goes a long way. My husband and I are considering this as a career change so I know those would be more his strengths! 

    Must have an appetite for risk and it is very much so a relationship business so if you would rather be in a cubicle looking at spreadsheets all day that is also a consideration. 

    @Rob Beardsley yes that seems to be very true. It's interesting to see the network of professions that intersect with REI and seeing where folks are coming over from. CPAs, real estate agents, etc. It's becoming very apparent to me it's not something you're able to accomplish on your own.

    Originally posted by @Lindsay Ash :

    Hi there, I'm a newbie in the research phase.  I'm considering this as a career change and trying to absorb as much as I possibly can while setting a deadline of March for buying a property.

    I love numbers, spreadsheets, optimizing deals and am coming from the world of credit card churning/gaming. I've spent quite a bit of time on reddit reading on that subject. One of my favorite posts is why you should not get into the credit card game. It basically outlines what many of the risks are - screw up your payments and you're paying interest, who shouldn't do it - folks who aren't organized or disciplined, etc. I'd love to get a community view of the same thing here - who is this not for, why might you advise against REI.

    Of course most on here would advise to do this but wondering what your thoughts are on this subject.

    If you don't want headache, don't get into real estate investment.

    Investment analysis and buying a property are easy.

    People are hard to predict, so dealing with tenants is a headache.

    Investing in something else that you can sit there, relax, get in and get out easily, and earn money without much headache.

    Good luck,

    John.

    To be successful in real estate, you have to have:

    1. Persistence
    2. Hustle
    3. Persistence
    4. Passion for REI
    5. and Persistence

    To find the definition of persistence, watch the movie "The Founder". The last 5 minutes sums it up nicely. Those without #1-5 above should not get into REI.

    Paul Choi

      @Paul Choi love it. Yeah. It also seems like focus is key. You have to know what you what, where to find it and how to go about it getting it. 

      @Lindsay Ash I agree!  For my first flip property, I made 10 offers on 10 different properties and got rejected or outbid for every single one.  Kept at it and landed the 11th one.  Can't give up or get demoralized...

      Paul Choi

        @Lindsay Ash I'm located in SF Bay Area and buy in mostly in California.  

        Paul Choi

          @Paul Choi that's awesome. I'm in LA and wish I could do something down here. It's just so expensive. 

          @Lindsay Ash Yeah I feel you.  SF Bay Area is very expensive.  For appreciation plays (which I don't really do) there are deals but for cash flow, need to venture out of the area.  Be willing to have a 2 hour drive search area if the numbers don't work in the immediate area.

          Paul Choi

            Instead of focusing on the "why not," try focusing on the "why." Yes, there are a lot of obstacles in real estate investing and it takes hard work and persistence. However, the benefits far outweigh the risks. Maybe you should make a list of pros and cons and see how it stacks up.

            Kerry Mertz

              @Kerry Mertz I appreciate what you're saying. The point of this as an exercise is a little different though. This place like many specialty fora can be a little rah rah. It's nice to hear from seasoned veterans what to consider. It's more balanced. I'm sure everyone here is for it but this is about building a resource. Hope that makes sense. Thanks for reading the thread. 

              I was actually thinking of writing about this exact topic in a blog (I'm one of the BP blog writers).

              I think there are people who definitely should not get into REI. I've seen some of them get into REI and really not be able to hang well with it.

              Some people will just be so nervous that they'll lose sleep over what they're doing. They shouldn't get in it. If someone can't put emotions aside about it, they shouldn't get in it. If they aren't proactive on their properties or proactive enough to step up when things need to be dealt with, they shouldn't get into it. 

              That's just off the top of my head.

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