Success Rate in Real Estate...Shockingly Low
Real Estate Professional · Atlanta GA · Member since 2015 · 615 posts · 225 votes
If you had to guess, what is the success rate in real estate investing? Success being defined by someone being able to live above average lifestyle strictly based upon their earnings in real estate.
I bet its below 5%.
What do you think?
Good real estate investing should be boring. You're not constantly dealing with problem tenants, talking about high COC returns, doing stupidly risky and time consuming flips, etc.
Buy in a good area, make sure it cash flows, put solid tenants in there, then sit and wait for 10+ years.
Sadly I think people overcomplicate or over glamorize real estate investing. Any time I see those or hear those folks, I assume they'll be one of the ones who fail.
I learned this lesson after chasing high COC returns in Akron OH. I got burnt, but I learned and pivoted at a young age. Now I buy locally in good areas, and I've seen my net worth go from 200k -> 1mil in a few years by the time I hit 30, w/ a portfolio of 8 solid cash flowing units. I just wish I listened to the successful real estate investors sooner, and didn't chase solely cash flow right out of the gate.
I would guess timing in the market plays a much bigger role than time in the market in the context of real estate. I don't think I could start now with my preferred strategy and be terribly profitable due to the inflated rates and prices (i know technically rates are still on the lowish side). I'm sure there are still strong strategies out there though.
I was just talking to an architect about this. The vast majority of people that talk about getting into investing never pull the trigger. It's been that way for my entire career. I think your probably right about the 5%...but that's because few actually act...most just talk about doing it.
If you had to guess, what is the success rate in real estate investing? Success being defined by someone being able to live above average lifestyle strictly based upon their earnings in real estate.
I bet its below 5%.
What do you think?
I hadn't thought of it that way. Tho, I've read that 80% of real estate agents make it one year. Some make it two years.
Currently there are about 48,165 active agents in Maricopa
County, AZ. Redfin says only 1,347 homes were sold in the last 30 days. That isn't very many homes. Some real estate agents aren't eating, just are not enough sales.
Let's assume there are two agents for each sale, one selling agent and one buying agent, that means 0.05593% or that's about 5 1/2 % of agents participated in a sale last month. That doesn't mean they will participate in a sale this month or next month.
One Facebook group of “would be” Creative Finance "investors" has about 115,000 people signed up. They do about a dozen deals a month all told. That's about 0.000104 % Some of those people purportedly pay $8,800 or more to be part of a "special group" where other people who also aren't doing deals are telling them how to do deals and making them "feel like part of a community".
So, your comment: "I bet its below 5%." I think that's very overly optimistic.
The thing about it, the right personality with the right one on one training, makes a fortune.
Good real estate investing should be boring. You're not constantly dealing with problem tenants, talking about high COC returns, doing stupidly risky and time consuming flips, etc.
Buy in a good area, make sure it cash flows, put solid tenants in there, then sit and wait for 10+ years.
Sadly I think people overcomplicate or over glamorize real estate investing. Any time I see those or hear those folks, I assume they'll be one of the ones who fail.
I learned this lesson after chasing high COC returns in Akron OH. I got burnt, but I learned and pivoted at a young age. Now I buy locally in good areas, and I've seen my net worth go from 200k -> 1mil in a few years by the time I hit 30, w/ a portfolio of 8 solid cash flowing units. I just wish I listened to the successful real estate investors sooner, and didn't chase solely cash flow right out of the gate.
I would guess timing in the market plays a much bigger role than time in the market in the context of real estate. I don't think I could start now with my preferred strategy and be terribly profitable due to the inflated rates and prices (i know technically rates are still on the lowish side). I'm sure there are still strong strategies out there though.
I agree. Timing of market and conjunction with the right strategies matters. But, I do not think thats what drives people out of this industry. Its the stuff that is not affected by either timing or strategies.
Its the grind, rejection, dashed hopes, uncertainty, wrong people, etc.... Those are the typical things that drive people out of this industry and keep the success rates at the low numbers...
I was just talking to an architect about this. The vast majority of people that talk about getting into investing never pull the trigger. It's been that way for my entire career. I think your probably right about the 5%...but that's because few actually act...most just talk about doing it.
@Doug Smith no argument from me on this point. like i can see people getting addicted to many things in life, but to simply hang around real estate and take no action has puzzled me for ever. there are just much more interesting things in life then real estate...
If you had to guess, what is the success rate in real estate investing? Success being defined by someone being able to live above average lifestyle strictly based upon their earnings in real estate.
I bet its below 5%.
What do you think?
I hadn't thought of it that way. Tho, I've read that 80% of real estate agents make it one year. Some make it two years.
Currently there are about 48,165 active agents in Maricopa
County, AZ. Redfin says only 1,347 homes were sold in the last 30 days. That isn't very many homes. Some real estate agents aren't eating, just are not enough sales.
Let's assume there are two agents for each sale, one selling agent and one buying agent, that means 0.05593% or that's about 5 1/2 % of agents participated in a sale last month. That doesn't mean they will participate in a sale this month or next month.
One Facebook group of “would be” Creative Finance "investors" has about 115,000 people signed up. They do about a dozen deals a month all told. That's about 0.000104 % Some of those people purportedly pay $8,800 or more to be part of a "special group" where other people who also aren't doing deals are telling them how to do deals and making them "feel like part of a community".
So, your comment: "I bet its below 5%." I think that's very overly optimistic.
The thing about it, the right personality with the right one on one training, makes a fortune.
@Account Closed great point all the way around. i bet basically zero barriers to entry also contributes to these stats.
Also, your last point is very valid. In so many other industries hand holding is part of the process and excepted. and so many of these industries the gurus are revered and very respected. yet in real estate for some reason, most of the gurus are smeared and looked down on. even the good ones...
big difference between yourself and the ones that dont make it, is you hung around long enough to figure out your model. sad how many people give up so early on.
and by the way, I grew up in Akron also...Akron Firestone....
Won't be quantifiable I don't think because nobody comes on here or anywhere to say they failed. They just give up quietly.
If success could also be defined as a normal career person with a rental or 3 on the side, the numbers are higher. Most I know like that also inherited property or have an accidental rental they couldn't sell the way they wanted.
I went full time in 2002 and haven't had an earned income since July of that year. I think I am 6% of 6% according to a personality/ disc test.
I don't know personally anyone else that's done this, been fire long before it was called that, but I am just a bad handyman in a minivan that keeps to myself.
Most of the 20 or so power posters on here also had/have careers in addition to their portfolio. They should be counted in the 'success' pool👍
I think there is a very low success rate overall (going strictly off your definition I'd say 1% - maybe less) BUT I also think...
You have (1) gurus selling a dream - this sets the expectations ridiculously high - "Wow, I can buy 3 houses with FHA loans 3.5% down and cashflow $1000 per door in 3 months and be financially free!" So the idea of "success" is what? Financial freedom in 2 years? Give me a break.
(2) Real Estate takes money 99% of the time. I don't care what anyone says - you need money to buy, to get loans, to market, to partner etc
(3) You need to have some financial sense - you need to be able to analyze properties, come up with an ARV, run your expected rent/income, run your expenses and ensure you have a good return
(4) RE "success" is VERY location dependent - success in the midwest is probably much easier than NYC or San Francisco. Someone can be made a millionaire in a couple years just by regularly investing in their local area and getting lucky with population growth/appreciation. While another may invest for 20 years in their local area and make moderate cashflow
(5) RE success is/was very timing based - look at the STR industry. Had you gotten in 5-10 years ago you'd have insane appreciation, cashflow etc and likely be able to retire. Try doing the same thing today...
(6) There is a good bit to learn - how to pick the best local area to invest in, understanding loan types, having a decent credit score, getting competent contractors, having the time to check properties, picking a property management team, learning what material to use in flips/rehabs etc
(7) Lots of "successful" - people have a degree of "luck" - now what do I mean by this? I mean they are not starting out square one by themselves learning everything and starting a company. They have family that have been in the business, friends, partners, people who can help fast track them through their natural network. They knew these people, outside of, and prior to getting into, the RE world.
So I think for one - there are varying definitions of success. For me, RE is simply PART of my portfolio. I have a W2 job, 401k, Roth IRA, HSA, regular taxable index funds, I work outside of the country for many days out of the year...initially I wanted to be the one to buy properties left and right and turn into a "flipper" and retire in 5 years. Now I'm more realistic - I want more time with my family, I get great returns through the stock market and my RE portfolio, and I plan to buy and rehab a few rentals a year. My definition of success would be using my RE income to retire in 15-20 years, then passing on everything else (and my houses) eventually when that time comes.
But I am not trying to fake it here and act like I'm driving million dollar cars, living in a 10k sqft house and traveling around the world every week. I guess I would say I am on my way to being successful. Are my monthly expenses covered by my RE income - sure. Do I live "above average" - sure. But I'm not comfortable enough with that, and I enjoy the challenge as well as just getting more. I want more if that makes sense. Success just moves farther away the closer you get
@Ryan Randall who are some good sources for information? I see a lot of a REI content is very glamorous and over the top with drawn out success stories. I prefer the purely the educational platforms do you have any you could suggest?
If you had to guess, what is the success rate in real estate investing? Success being defined by someone being able to live above average lifestyle strictly based upon their earnings in real estate.
I bet its below 5%.
What do you think?
IMO it's because so many read books, watch tapes and think they are ready, when books and tapes are not reality So many try and go it alone and get crushed. All they need to do is connect with those doing deals and learn from them its not rocket science. I knew zero 10 years or so ago. Well, my 1st month I flipped a contract for 19k, well 500, yes about 500 deals later nothing I have not done. All while never reading one book on RE. So many make it more complicated, it's just numbers. Not really sure about the %. However, all my colleagues are hugely successful.
All the best
I would guess fairly low too. The majority of people know real estate investing is a vehicle for wealth but most are afraid to take the leap. Those who do usually don't reach Brandon Turner level but I think success isn't black/white enough to measure across the board. Some people may buy an investment property just to be able to subsidize their parent's living expenses, take a great vacation every year, or retire early. Success is different to everyone.
I think the success rate has a lot to do with the time frame you are measuring against and the strategy you are using. For example, fix and slippers are greatly affected by shifting interest rates and are often targeting short term profits per project so success rate is likely lower due to this short time window. On the opposite side, a buy and hold strategy is more likely to have a higher success rate since the target time window is much larger and due to appreciation, real estate and rent prices have historically gone up consistently. If you buy a property, and hold it for ten years while keeping it consistently rented, the success rate of that project is likely to be high. Most likely, if you are in a financial position to acquire investment properties; you likely are already enjoying an above average lifestyle; so the additional cash flow from real estate investing is likely just going to add onto that. I believe that both time frame and financial education is the key to achieve success in real estate. The more of both you have, the higher the success rate.
Whatever it is, it is much lower than one would expect. It takes owning tens and tens of properties before being able to cash flow and sustain a living.
To answer the question in a intellectually honest way requires you break down the success rate by investment strategy. if you plan on building a portfolio and using the rental income as your primary income the overall success rate is probably 5 percent or less. I am a flipper. I know from actual statistics that 54 percent of all flips result in a loss. There are various reasons that people lose money in the fix and flip business. I list them in order of priority: Unknown repairs not accounted for in the financial analysis. Poor preparation of scope of work and estimate of costs. Poor location of the target property. Problems with contractors who fail to perform or complete work.
The key to success is research, experience and good team building. We employ the rehab and sell strategy. Our ownership team consists of lender and contractor. Everyone has skin in the game and is experienced. If you are just starting up combining with more experienced investors is a must. Good luck and keep moving forward.
If you had to guess, what is the success rate in real estate investing? Success being defined by someone being able to live above average lifestyle strictly based upon their earnings in real estate.
I bet its below 5%.
What do you think?
I am also wondering the same.
Here in BP long time ago they said they have XX amount of door , XX amount of OPM money with no downpayment , no W2 job and thinking of retirement while still 28, that's recipe of failure.
You need active income to generate passive income.
"Success being defined by someone being able to live above average lifestyle strictly based upon their earnings in real estate."
With respect and having read your profile, I really don't think that's the right working definition of success in REI. I wish this industry would move away from that sort of definition. It implies a transition from a job as an employee to a life of ease as an investor.
How many times in these forums do we get people who state they hate their jobs and they want to get into real estate as a way to quit and do something else? Then these same people put some kind of timeline on their success, two years, three years to quitting, etc. The more we encourage this mindset, the more we tend to market REI as a form of get-rich-quick alternative investing, right up there with pyramid confidence schemes like MLM and cryptocurrency.
@Scott Trench has the numbers on this, but I think the majority of private rental property investors max out at three properties, with only a few having five or more, and a vanishingly small minority in the more-than-twenty range.
I remember this one kid, a few years ago, insisting here in the forums that he was ready to run multiple strings of BRRRRs in different cities right after graduating college. He'd never done a single renovation in his life, but oh yeah, he was READY. Give him a few hundred thou and he'd give it all back to you plus 10% in three years or less.
Then there's the other part of it: what's an above-average lifestyle? Being able to live in a suburban McMansion and drive a Lambo, middle-class heaven in America? Looking for love in the club with bottle service or making it rain on strippers every Friday and Saturday night? The second you use the phrase "above-average lifestyle" you're trawling for takers with a below-average IQ.
Why do we never define REI success in any sort of terms that are meaningful to people of any substance and intelligence? Financial security for your retirement. A nest egg to pass on to your children. The basis of a philanthropic grant to make the world better as you see fit. Oh no, it's always an Instagram-ready lifestyle and a car that practically has your prescription for boner pills writ large fender-to-fender on both sides.
Flipping is hard: it's a lot more work than people think, most will loose money on their first one and never try a second. I blame HGTV for the hype, the numbers are sometimes laughable and the process over simplified. I have seen many come and go, only a hand full sustain success.
Agents have a 85% drop out rate in year one and from who's left another 80% quit after year two.
Wholesale is the biggest trap. That's where people with no skills start, yet it requires a whole suite of skills from marketing, valuations, dealing with stressed out people, negotations, estimating repairs, understanding rents, understanding legal and contracts... I'd be surprised it 5% make it!
Buy & hold is the easiest from all, but most will stop after one, two or three properties and never scale to the point where they have an income from rentals. Mom & pops provide the majority of rental inventory, only a small percentage is from large investors (except in markets where high rise buildings dominate).
The definition of success matters: many don't want to quit their W2. We have a lot of duplxes in Milwaukee and they are of course super popular with small investors. And frankly, if you retire with only 3 nice duplxes free and clear that will make a world of a difference to your retirement. I would call that a success!
"Success being defined by someone being able to live above average lifestyle strictly based upon their earnings in real estate."
With respect and having read your profile, I really don't think that's the right working definition of success in REI. I wish this industry would move away from that sort of definition. It implies a transition from a job as an employee to a life of ease as an investor.
How many times in these forums do we get people who state they hate their jobs and they want to get into real estate as a way to quit and do something else? Then these same people put some kind of timeline on their success, two years, three years to quitting, etc. The more we encourage this mindset, the more we tend to market REI as a form of get-rich-quick alternative investing, right up there with pyramid confidence schemes like MLM and cryptocurrency.
@Scott Trench has the numbers on this, but I think the majority of private rental property investors max out at three properties, with only a few having five or more, and a vanishingly small minority in the more-than-twenty range.
I remember this one kid, a few years ago, insisting here in the forums that he was ready to run multiple strings of BRRRRs in different cities right after graduating college. He'd never done a single renovation in his life, but oh yeah, he was READY. Give him a few hundred thou and he'd give it all back to you plus 10% in three years or less.
Then there's the other part of it: what's an above-average lifestyle? Being able to live in a suburban McMansion and drive a Lambo, middle-class heaven in America? Looking for love in the club with bottle service or making it rain on strippers every Friday and Saturday night? The second you use the phrase "above-average lifestyle" you're trawling for takers with a below-average IQ.
Why do we never define REI success in any sort of terms that are meaningful to people of any substance and intelligence? Financial security for your retirement. A nest egg to pass on to your children. The basis of a philanthropic grant to make the world better as you see fit. Oh no, it's always an Instagram-ready lifestyle and a car that practically has your prescription for boner pills writ large fender-to-fender on both sides.
1000% correct. BP is full of fantasy folks that wanna do get-rich-quick if we've to follow them, it's disaster maker.
If you had to guess, what is the success rate in real estate investing? Success being defined by someone being able to live above average lifestyle strictly based upon their earnings in real estate.
I bet its below 5%.
What do you think?
We need a more defined perimeter than just this, for example on what time scale?
Because if it's just a generalized of how many can live off REI income "POW" right off the bat, were talking 0.0001%.
As time scale goes on the rate of "success" goes up. Although I think many would be shocked at just how many years, or better said decades, it takes to arrive at any % of size.
For one to live an "above average lifestyle strictly based upon REI earnings" in the vast majority of cases requires many years of many steps, many evolutions.
It's a bit of a chicken & the egg conundrum because one needs a sizable enough portfolio to achieve revenue to cover operations and provide income, but taking profits out for personal use restricts portfolio growth.
I see for most people the "magic-mark" being around 24 properties (SFR's). Generally right around 24 is where that threshold is meet of it being self-sustaining and providing the FT income that meet's the upper-middle class levels.
So, we can reverse engineer this and say "How many get too 24 properties?".
If you had to guess, what is the success rate in real estate investing? Success being defined by someone being able to live above average lifestyle strictly based upon their earnings in real estate.
I bet its below 5%.
What do you think?
the biggest and most successful real estate investor that I know is either they are coming from tech/medical (like doctor) industry that heavily put their saving into real estate meaning they have extremely succesful w2 career active jobs , some of them are CEO or founder level
OR
someone that's very heavy on building/construction and re-invest into real estate with precise calculation.
It's an interesting question that is posed here. Of course hard to quantify and align on what the definition is, but as displayed above... it gets us all thinking!
Personally, I think the next 10 years will be really interesting. The "Youtube" culture of gurus were able to really ride the wave of what was 2010's where you could get lucky pretty easily. I see the 'success rate' going down over the next 10 years because the market will require more nuance, more fundamentals, and get rich quick will not be as much of a thing.
@Ryan Randall who are some good sources for information? I see a lot of a REI content is very glamorous and over the top with drawn out success stories. I prefer the purely the educational platforms do you have any you could suggest?
After a certain point, accumulating more education/knowledge isn't really beneficial. You need to start taking action.
My recommendation would be to find a few folks on here who are successful but not trying to sell you something. Listen to them.
I've found it typically boils down to a few simple rules:
1. Buy in a good location. Think a location where you could see yourself/your family living.
2. Buy local. People will argue otherwise, but this will greatly simplify your life. I'd say a 20 mile radius.
3. Make sure it cash flows at least 10% COC. I typically shoot for 15%+ COC. Take all expenses into account, and don't under-estimate them to make a deal work.
4. Use leverage. When you're younger, the more the better. Use an FHA, VA, or conventional loan.
Do that, and the other pieces will start to fall into place. Eventually you'll start to branch off and learn more about the tenant vetting process, the legal process, how to find good contractors, etc. Don't become someone who has paralysis by analysis. You eat an elephant one bite at a time. Follow some simple guidelines, and take action.
If you had to guess, what is the success rate in real estate investing? Success being defined by someone being able to live above average lifestyle strictly based upon their earnings in real estate.
I bet its below 5%.
What do you think?
the biggest and most successful real estate investor that I know is either they are coming from tech/medical (like doctor) industry that heavily put their saving into real estate meaning they have extremely succesful w2 career active jobs , some of them are CEO or founder level
OR
someone that's very heavy on building/construction and re-invest into real estate with precise calculation.
Truth be told, the most successful in REI, are those selling hopeium to the masses, selling the "dream" of finding a pot of gold under the rainbow.
And for them, the lion's share of revenue is not coming from actual real estate deals, it's from memberships, mentor packages, access to the "secrets" and various tonics.
I know a person in organizational position at arguably the #1 hotest "group" being sold today, and yes BP promoted, so I won't name names. We talk on this very point, as he sees about 1% who buy into it all ever doing ANYTHING. Now that's not being successful, it's just of people who ever do ANY real estate ANYTHING, about 1%. And, the successful, he said he could name them all off, it's that few, out of the hundreds of thousands of buying members.
And those selling it, making literally millions....
So the ugly truth is the most successful approach in REI today is either the get-rich-slow program, or start selling the "secrets to success" and aparently it doesn't have to actually result in any real success to sell.