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.
@Peter Vekselman I think it depends on the timeframe. So many people think that REI is a get rich quick scheme, and it can be sometimes. But for most, it's playing the long game and building on small successes.
Most people do it for a short time, realize it’s hard work, and quit. So you are probably right that it is a low percentage, but for those that stick it out for the long haul much better success rate.
I can only assume your profession is in real estate so you're not speaking to the 9-5 guy who casually buys real estate at 8% with 1099 income. We aren't making 100 low ball offers a day in the ghetto with creative financing and no down. And It's clear that success is low for those that own properties when comparing to other investment vehicles as far as achieving retirement goals because of the risks, debt and time consumed by real estate. Comparing real estate to other investment vehicles today makes little sense considering you have guaranteed 5% treasury bonds and the fact that the stock market has gained something like 13% over the last decade and 401k matching is around 6k a year in free money alone. My house in Texas accounting for appreciaton gained about as much as the stock market over the last 15 years so I'd call it a wash but considering the amount of headache with that house and one might want to consider other investment vehicles.
You don't sell anything, time, consulting, seminars?
@Peter Vekselman if you have been on it for less than 10 years, I bet you are right
thats a good point. those that have stood the test of time and still standing are the ones that tend to have the most success.
@Peter Vekselman
I would agree it’s very low. But it has nothing to do with the investment vehicle and everything to do with the guru type approach. People wake up one morning, decide to be a real estate investor. They quit their job and go full time. No income , no experience, no chance of success. All of the “successful investors” I know ( yes I know several) started buying real estate to supplement their retirement. Their goal wasn’t to buy a private jet and Mcmansion in 2 years. They bought decent deals , self managed , and did most of the maintenance themselves. I think the newbies are shocked with how slow and boring real estate is, as well as how much work it takes.
Real estate investing is the best thing I did for my family. We started 15 years ago. We only purchased in our backyard. We did all of our maintenance for 10 years. We self manage to this day. We have No investors, We only used our money that we saved from our W2s. I was a auto repair technician, my wife was a medical coder. This is all wrong according to the gurus. We needed to chase the fast markets , raise millions of dollars, and never ever grab a paint brush or hammer. And OMG, repair a toilet ??! Only peasants fix toilets ! We gave up every weekend for 10 years and even worked until midnight turning units while we had our W2. Until this day , we have never sold a single property.
15 years later my wife and I live off of our rental
Portfolio. We still work everyday day on our rental business. Only now are we looking to hire a full time office person, and full time maintenance person. My wife and I easily handled the maintenance, renovations, and management until our portfolio grew north of 100 units. As our portfolio is closing in on 200 units, We could still do most things ourselves but at this point it is hectic, and I value our time more than the savings. So that’s why we are looking to replace ourselves in the business.
How does this answer your question. I think real estate is the best , safest tool to build wealth when used wisely. Buy in an area that you know well. Buy and HOLD for the long term. Don’t go into it with 100% financing. Do the work , only use the proceeds to grow your business for 10 years !! Try and buy a small multi 5-10 units every other year or so. When you finally look up after 10 years of grinding , and sacrificing, You will be shocked as to the wealth and cashflow your portfolio will produce. After seeing our life 15 years later , I would absolutely do it all over again.
Cheers. Off to hop in my “Lambo” and do some renovations. “ my lambo is my Ford Transit HD dually” . Love that thing!!
@Peter Vekselman
I would agree it’s very low. But it has nothing to do with the investment vehicle and everything to do with the guru type approach. People wake up one morning, decide to be a real estate investor. They quit their job and go full time. No income , no experience, no chance of success. All of the “successful investors” I know ( yes I know several) started buying real estate to supplement their retirement. Their goal wasn’t to buy a private jet and Mcmansion in 2 years. They bought decent deals , self managed , and did most of the maintenance themselves. I think the newbies are shocked with how slow and boring real estate is, as well as how much work it takes.
Real estate investing is the best thing I did for my family. We started 15 years ago. We only purchased in our backyard. We did all of our maintenance for 10 years. We self manage to this day. We have No investors, We only used our money that we saved from our W2s. I was a auto repair technician, my wife was a medical coder. This is all wrong according to the gurus. We needed to chase the fast markets , raise millions of dollars, and never ever grab a paint brush or hammer. And OMG, repair a toilet ??! Only peasants fix toilets ! We gave up every weekend for 10 years and even worked until midnight turning units while we had our W2. Until this day , we have never sold a single property.
15 years later my wife and I live off of our rental
Portfolio. We still work everyday day on our rental business. Only now are we looking to hire a full time office person, and full time maintenance person. My wife and I easily handled the maintenance, renovations, and management until our portfolio grew north of 100 units. As our portfolio is closing in on 200 units, We could still do most things ourselves but at this point it is hectic, and I value our time more than the savings. So that’s why we are looking to replace ourselves in the business.
How does this answer your question. I think real estate is the best , safest tool to build wealth when used wisely. Buy in an area that you know well. Buy and HOLD for the long term. Don’t go into it with 100% financing. Do the work , only use the proceeds to grow your business for 10 years !! Try and buy a small multi 5-10 units every other year or so. When you finally look up after 10 years of grinding , and sacrificing, You will be shocked as to the wealth and cashflow your portfolio will produce. After seeing our life 15 years later , I would absolutely do it all over again.
Cheers. Off to hop in my “Lambo” and do some renovations. “ my lambo is my Ford Transit HD dually” . Love that thing!!
amazing story. not something most people would be willing to do or have the patience for. but thats what makes success stories like yours so great! Congratulations!!!
I can only assume your profession is in real estate so you're not speaking to the 9-5 guy who casually buys real estate at 8% with 1099 income. We aren't making 100 low ball offers a day in the ghetto with creative financing and no down. And It's clear that success is low for those that own properties when comparing to other investment vehicles as far as achieving retirement goals because of the risks, debt and time consumed by real estate. Comparing real estate to other investment vehicles today makes little sense considering you have guaranteed 5% treasury bonds and the fact that the stock market has gained something like 13% over the last decade and 401k matching is around 6k a year in free money alone. My house in Texas accounting for appreciaton gained about as much as the stock market over the last 15 years so I'd call it a wash but considering the amount of headache with that house and one might want to consider other investment vehicles.
You don't sell anything, time, consulting, seminars?
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.
Quite the opposite. Even if you buy an objectively bad deal, hold it long enough, and history shows you will come out on top.
Like others have mentioned, I think it's hard to define success since everyone has a different answer to what an average lifestyle is.
My goal is to have the LEAST amount of properties that will get me between $200-$250k cashflow. I have taken a scalpel approach to meet this goal and it hasn't been extremely fast. The first property was a BRRRR that we left no money in and cashflows around $500 a month. I quickly understood that I would need about 10 properties like that completely paid off to get close to my goal. I pivoted and decided to build a STR in a premium location which came with its own challenges (interest rates, timeline, budget, etc...) This year that property will cashflow 6 figures after expenses.
I'm now hunting for the next deal, but not in a hurry with the market uncertainty. I may only do 1 more deal and then focus on paying everything off which I know goes against all the guru's strategy of "LEVERAGE."
You don't sell anything, time, consulting, seminars?
Ok so they (protege/apprentice) raise the capital via personal or business loan to you correct or do they put up their own financing and you partner for 50% of the business profits assuming you're flipping. What are you providing exactly? The last business partner I had was split between construction and finance.
@Peter Vekselman
Exactly. Most people aren’t sold the truth about real estate. They aren’t told about the 10 years of hard work because no one would buy their course. Instead they are sold the Grant Cardone lifestyle. “Buy my course and you too could be living on your mega yacht or flying on your private Jet in 3 years”.
If you buy and hold long term the success rate has to be greater than 90%, as long as it's positive cash flow. What the market is doing is irrelevant.
For flippers the success rate was very good as the market was rising for 10+ years. A lot of bad flips turned into good flips given enough time. Now that the market isn't steadily rising probably less than 25% are going to have success.
For wholesalers the success rate has to be less than 5%, maybe less than 1%.
I’d say 50% if someone is willing to give themselves 10 years slowly buying and holding. Most people need to hit home runs with no work. Those who are willing to do the work and slowly grow over time will crush it if they give themselves 10 years.
@Ryan Randall very well said, Ryan! The thing I enjoy the most about investing in long-term rentals is that it is boring (at least most of the time).
If you buy and hold long term the success rate has to be greater than 90%, as long as it's positive cash flow. What the market is doing is irrelevant.
What does success look like to you? Your returns won't change in 10 years as your maintenance, taxes and hoa will wipe out any increase in rent over time. If you're investing for appreciation only, then realize that housing has only appreciated around the rate of inflation of ~3%.
As long as it's positive cashflow? You'll need over 50% down just to break even at these interest rates. You have to be a high earner with lots of capital to just break even.
Statements like these are a bit simplistic to be a realistic strategy for the casual investor.
I’d say 50% if someone is willing to give themselves 10 years slowly buying and holding. Most people need to hit home runs with no work. Those who are willing to do the work and slowly grow over time will crush it if they give themselves 10 years.
I have been slowly buying and holding for 15 years and for the most part, the theory doesn't hold up. Sure a few properties doubled in value but at about the same pace as inflation which is less than the stock market plus, the cash they return has not changed in 15 years as the increase in rent is negated by the increase in property taxes, hoa and maintenance on an aging house. I just sold a condo because the HOA has increased faster than rents can keep up and I'm selling a home because its age is becoming a liabilbity despite being paid off. They don't teach you that in the books. I'm beginning to think nobody making these comments has owned a house for 15 years or really crunched the numbers and compared it to the stock market or 20 years of maxing out a 401k with employer matching.
I know someone who go a late start in his 401k and also purchased a house during the lowest point in the recession. His house has tripled but his 401k has around the same amount as his house has equity. Tell me you can do that today at these prices and rates?
If you buy and hold long term the success rate has to be greater than 90%, as long as it's positive cash flow. What the market is doing is irrelevant.
What does success look like to you? Your returns won't change in 10 years as your maintenance, taxes and hoa will wipe out any increase in rent over time. If you're investing for appreciation only, then realize that housing has only appreciated around the rate of inflation of ~3%.
As long as it's positive cashflow? You'll need over 50% down just to break even at these interest rates. You have to be a high earner with lots of capital to just break even.
Statements like these are a bit simplistic to be a realistic strategy for the casual investor.
Sorry for the simplicity but it's one sentence. I'm not trying to write a dissertation on the topic. There's plenty of nuance that can be argued, but ultimately if you keep a cash flowing piece of RE for 10+ years and sell it for more than you bought it for, you're doing alright, and that's a very realistic strategy, especially for the casual investor.
It sort of depends on what we mean by "success." I suspect that 5% figure is true regarding wholesalers. I suspect flippers and buy and hold types are a decent amount higher. But those who do house hacking and slowly but surely build up a portfolio probably have a success rate much, much higher. I would bet over 50%.
The problem in many cases is that people want to make a quick buck with real estate but it doesn't work that way. It's a long game but a very lucrative one.
If you buy and hold long term the success rate has to be greater than 90%, as long as it's positive cash flow. What the market is doing is irrelevant.
What does success look like to you? Your returns won't change in 10 years as your maintenance, taxes and hoa will wipe out any increase in rent over time. If you're investing for appreciation only, then realize that housing has only appreciated around the rate of inflation of ~3%.
As long as it's positive cashflow? You'll need over 50% down just to break even at these interest rates. You have to be a high earner with lots of capital to just break even.
Statements like these are a bit simplistic to be a realistic strategy for the casual investor.
Sorry for the simplicity but it's one sentence. I'm not trying to write a dissertation on the topic. There's plenty of nuance that can be argued, but ultimately if you keep a cash flowing piece of RE for 10+ years and sell it for more than you bought it for, you're doing alright, and that's a very realistic strategy, especially for the casual investor.
Ain't that the truth. A monkey could have made money in Pittsburgh if it bought in 2012. I knew next to nothing and I certainly did.
Another piece of the truth is that some people are simply eminently unsuited to investing in mutual funds. We got to six figures in VTSAX before we realized we would go mental with the total lack of control over our investments. I just don't think it's possible for me to got to a website and check my net worth every day or week for the next thirty years, and voting for (to pick a hypothetical example out of the blue) any spray-tanned clown with an improbable bouffant coiffure who promised to make the stock market go up.
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.
Selling homes isn't the only reason people get a real estate license. I worked on it just to see what kind of training agents did. I never took the test because I didn't want to have to introduce myself as an agent during opening negotiations (a legal requirement in my state), but it was eye-opening to see what is emphasized and what isn't. I've known property managers to get licensed as agents instead of just managers as well for the extra perspective. My attorney did it just for the fun. My accountant did it just to get a little more perspective as well. My wife did it just to say she did. It is not a large time commitment and extremely low costs for the exam and classes. I don't the majority of people who get licensed are doing it with the intent of actually getting in the business of buying and selling homes as an agent. It's as easy as getting a PMP, EMT-B, SEC+, SFPC, etc except this requires no technical prerequisites of knowledge.
If you buy and hold long term the success rate has to be greater than 90%, as long as it's positive cash flow. What the market is doing is irrelevant.
What does success look like to you? Your returns won't change in 10 years as your maintenance, taxes and hoa will wipe out any increase in rent over time. If you're investing for appreciation only, then realize that housing has only appreciated around the rate of inflation of ~3%.
As long as it's positive cashflow? You'll need over 50% down just to break even at these interest rates. You have to be a high earner with lots of capital to just break even.
Statements like these are a bit simplistic to be a realistic strategy for the casual investor.
Sorry for the simplicity but it's one sentence. I'm not trying to write a dissertation on the topic. There's plenty of nuance that can be argued, but ultimately if you keep a cash flowing piece of RE for 10+ years and sell it for more than you bought it for, you're doing alright, and that's a very realistic strategy, especially for the casual investor.
Are you implying that real estate doesn't go up in value, unless you purchased it in 2012?