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.
Advice from my own experience to the casual buyer with their own 9-5 job. Success is low because everyone listens to these books that say you just need to
1) Buy a house with near zero down
2) Cashflow.
This is not true especially at 8% rates. You need at least 50% down in states like CA, Austin or Tampa just to break even. These books don't tell you that they're investing in the ghetto and need to collect rent with a shotgun just to cash flow. Even if it appreciates and you sell, you're paying 10% off the top in fees, then another 28% federal and 13.3% state tax rate if you're in Cali. You can 1031 exchange but you're never realizing those gains and you can't draw from it in retirement unless you do a reverse mortgage which is reserved for elderly retirees that won't outlive their equity. Additionally, the casual buyer buying debt will not cash flow for 30 years and even then it may not cashflow because a turd doesn't get better with time because any rent appreciation is negated by the aging house maintenance and property taxes such as Texas or HOA fees like some condos which saw HOA fees go up faster than rents even 10 years later.
If you're not being biased, you will realize that only a small percentage of people will have enough properties paid off by retirement age to actually retire on its passive income alone and even then, you're constantly managing these properties, selling old troubled ones for new ones possibly taking on new higher rate mortgages in the process. Even 10 properties is a headache trying to streamline everything and reduce risk. A tree in a storm almost crushed my tenants cars and could have killed someone and taxes are a pain at the end of the year trying to find my deleted bookmarks and what the HOA changed their management company to or mortgage that was sold off without telling me thus nearly destroying my credit.
Put it this way, If the average person started in real estate 20 years ago, those properties may have tripled in value, but the S&P 500 has gone up like 1000%. I did the math and the S&P would have put me in retirement much faster with zero hasle. Just something to think about. The exception here is a huge salary that can afford the down payments that will allow them to at least break even which only the top 5% of the population has and if you're lucky, know the area and nothing changes over the decades.
What I always recommend is this, buy your own house to live if you're married and having kids, then later, buy just 1 low maintenance investment condo that you can eventually sell after retirement for play money and projects. My fathers house tripled and is paid off but he can't just rent it or sell it because he wouldn't have anywhere to live so the equity is forever unrealized and might as well be fake. You're much better off maxing out a401k employer matching + Roth ira for 20 years and retire early. My father started late, in his 50s and just over 10 years later has grown to around half a million. Imagine starting in your 20s instead of struggling to pay for that mortgage that will keep you in debt for 30 years.
I mean this is a good question. Is the juice worth the squeeze. I suspect a lot of people find the answer is no. I'm a new investor looking for my first property. I run the numbers and I'm looking at probably $0 to slightly negative cash flow initially accounting for capital expenses and vacancy rates at 200/month and 25/month (10% rent and 1.25% rent). At 3% rent and house appreciation, the returns are still pretty good probably 15% or so (thanks leverage). On the other hand, microsoft and google have return on equity in the 15-20% over the past 6 years (that's as far back as I looked). It's hard to imagine that real estate should be the primary investment vehicle and rather a diversification tool considering it's very hands on and my time is at premium. While, there is still significant upside on the properties with larger appreciation (I'm buying in the same place I live and the price has gone up about 50% in the 5 years I have lived here) and refinancing into lower rates, there is also pretty large downsides with problem tenants, problem governments and unexpected repairs.
I have one friend whose brother did it for a while got up to 17 properties and then called quits and sold them all because the time commitment and stress wasn't worth it (even if the returns were there). I have two other neighbors who do this pretty successfully full time, one is semiretired with a stay-at-home wife and 3 kids under 5, the other is still petal to the metal and runs a construction/rental company with 19 employees. I'm really only looking because I luckily managed to leverage the pandemic to make Denver wages while living in Rochester, NY so I have 20-30k a year I don't want to spend on lifestyle, and my retirement age is primarily determined by rate of return rather than savings rate. So, it's a good time to take risks.
I suspect the reason people don't make it are three fold.
1.) They find the work of managing the investment properties to be too stressful and time consuming compared to the returns.
2.) Bad luck--my in laws lost a lot of money in real estate due to expenses being much, much higher than expected (cheap houses and cheaper tenants) and investing right before the 2008 crash. As I mentioned earlier, I am going to need some luck to do better than investing in MSFT or GOOG. If things go awry (market rents go down, job loss, a busted furnace and/or roof early on), I could easily end up with negative returns on the first investment which would probably stop me from buying more.
3.) Insufficient cash flow from other sources to cover emergencies and buy a sufficient number of properties. I think people plan on everything go right on the first property and go near all in on the first property to get started. Where I am investing the single family homes are about 200,000. By the time you have a 20% down payment, closing and escrow costs and a 10k emergency fund per property, each property requires you to come up with 70k in cash. That's a lot of money and if you are buying slower than every other year you won't "make it" (which is probably 10-15 houses paid off or equivalent equity with mortgages).
I previously was an agent, helping OOS investors invest. However my endeavors have now led me to move to Indonesia full time to do relief work. I figured before I move over I would give as much knowledge away as I could to help others not waste the years and tens of thousands getting started like I did.
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?
This is why we need more resources around real estate, not just general resources, specific resources to help mentor people just getting in! For example im from Ohio, it took me 5 years to really understand what I was doing and start making serious money. The first 5 years was filled with a lot of wasted time, money and energy!
@Steven Foster Wilson your story sounds just like mine. it took me three years to get to zero. thats because I went backwards to a tune of almost $750k in the first several years. i think to do this business in a vacuum and all alone is nearly impossible and in the end may not be worth it. i dont think most people would put up with the hell I went through trying to build this myself...
Exactly, I spent countless nights working on properties until 2am, all with $50k on a credit card. Don't get me wrong, it was worth the hardworking. But now I know the better way. Get a construction loan, utilize other people, sure my margins are lower, but my volume is way up!
Almost all real estate investors do it on the side BY CHOICE as a little nest egg for retirement and nothing wrong with that. It is actually very rare for people to want to do this full time and to put the effort in towards that goal.
I think what he's implying is that we need fewer miserable charlatans shilling bovine scatological hyperbole about real estate investing.
....If you're investing for appreciation only, then realize that housing has only appreciated around the rate of inflation of ~3%.....
All I had to do was stop at 20% down to cripple this argument. This isn't 2005 when I bought my first 100k house/condo that rented for 1% of that and could break even with 20% down.
That same house/condo is 300/400k but the rent has only doubled while the price has nearly quadrupled making the rents only .5% of the price. This means because of the extra property tax, hoa, maitnance and 8% interest rate, you'll need well over 50% down payment just to break even, maybe 80%. Real life example here. That's why I'm saying you need to be high earner to make it work but there are better investment vehicles today for the average 9-5 investor type.
So your only going to read 20% of what I say, but your 100% your right on what your ASSUMING it says, and your response too the 80% assumption and 20% read.....
Do you do palm readings by day? Just curious, because apparently your psychic. I'd love to have a psychic resource to let me know things like PowerBall numbers or ya-know, better use of such psychic skill's than 80% of what a person says.
I think what he's implying is that we need fewer miserable charlatans shilling bovine scatological hyperbole about real estate investing.
More or less. It's the marketing that real estate has had through all these websites, books, dvds, clubs etc that has turned a single family home into a trillion dollar institutional marketplace crushing the ability for the middle class to own unless through generational wealth. Think of it like a pump and dump stock. You need the pump. The advertising market as previously mentioned is the pump. Case in point, just look at all the consultants on here looking for joint venture deals, mentorship and advertising lol. It's not that difficult to understand. And this was exacerbated by the low interest rates of course.
....If you're investing for appreciation only, then realize that housing has only appreciated around the rate of inflation of ~3%.....
All I had to do was stop at 20% down to cripple this argument. This isn't 2005 when I bought my first 100k house/condo that rented for 1% of that and could break even with 20% down.
That same house/condo is 300/400k but the rent has only doubled while the price has nearly quadrupled making the rents only .5% of the price. This means because of the extra property tax, hoa, maitnance and 8% interest rate, you'll need well over 50% down payment just to break even, maybe 80%. Real life example here. That's why I'm saying you need to be high earner to make it work but there are better investment vehicles today for the average 9-5 investor type.
So your only going to read 20% of what I say, but your 100% your right on what your ASSUMING it says, and your response too the 80% assumption and 20% read.....
Do you do palm readings by day? Just curious, because apparently your psychic. I'd love to have a psychic resource to let me know things like PowerBall numbers or ya-know, better use of such psychic skill's than 80% of what a person says.
I think what he's implying is that we need fewer miserable charlatans shilling bovine scatological hyperbole about real estate investing.
More or less. It's the marketing that real estate has had through all these websites, books, dvds, clubs etc that has turned a single family home into a trillion dollar institutional marketplace crushing the ability for the middle class to own unless through generational wealth. Think of it like a pump and dump stock. You need the pump. The advertising market as previously mentioned is the pump. Case in point, just look at all the consultants on here looking for joint venture deals, mentorship and advertising lol. It's not that difficult to understand. And this was exacerbated by the low interest rates of course.
I think you have a good point here, too.
Advice from my own experience to the casual buyer with their own 9-5 job. Success is low because everyone listens to these books that say you just need to
1) Buy a house with near zero down
2) Cashflow.
This is not true especially at 8% rates. You need at least 50% down in states like CA, Austin or Tampa just to break even. These books don't tell you that they're investing in the ghetto and need to collect rent with a shotgun just to cash flow. Even if it appreciates and you sell, you're paying 10% off the top in fees, then another 28% federal and 13.3% state tax rate if you're in Cali. You can 1031 exchange but you're never realizing those gains and you can't draw from it in retirement unless you do a reverse mortgage which is reserved for elderly retirees that won't outlive their equity. Additionally, the casual buyer buying debt will not cash flow for 30 years and even then it may not cashflow because a turd doesn't get better with time because any rent appreciation is negated by the aging house maintenance and property taxes such as Texas or HOA fees like some condos which saw HOA fees go up faster than rents even 10 years later.
If you're not being biased, you will realize that only a small percentage of people will have enough properties paid off by retirement age to actually retire on its passive income alone and even then, you're constantly managing these properties, selling old troubled ones for new ones possibly taking on new higher rate mortgages in the process. Even 10 properties is a headache trying to streamline everything and reduce risk. A tree in a storm almost crushed my tenants cars and could have killed someone and taxes are a pain at the end of the year trying to find my deleted bookmarks and what the HOA changed their management company to or mortgage that was sold off without telling me thus nearly destroying my credit.
Put it this way, If the average person started in real estate 20 years ago, those properties may have tripled in value, but the S&P 500 has gone up like 1000%. I did the math and the S&P would have put me in retirement much faster with zero hasle. Just something to think about. The exception here is a huge salary that can afford the down payments that will allow them to at least break even which only the top 5% of the population has and if you're lucky, know the area and nothing changes over the decades.
What I always recommend is this, buy your own house to live if you're married and having kids, then later, buy just 1 low maintenance investment condo that you can eventually sell after retirement for play money and projects. My fathers house tripled and is paid off but he can't just rent it or sell it because he wouldn't have anywhere to live so the equity is forever unrealized and might as well be fake. You're much better off maxing out a401k employer matching + Roth ira for 20 years and retire early. My father started late, in his 50s and just over 10 years later has grown to around half a million. Imagine starting in your 20s instead of struggling to pay for that mortgage that will keep you in debt for 30 years.
I mean this is a good question. Is the juice worth the squeeze. I suspect a lot of people find the answer is no. I'm a new investor looking for my first property. I run the numbers and I'm looking at probably $0 to slightly negative cash flow initially accounting for capital expenses and vacancy rates at 200/month and 25/month (10% rent and 1.25% rent). At 3% rent and house appreciation, the returns are still pretty good probably 15% or so (thanks leverage). On the other hand, microsoft and google have return on equity in the 15-20% over the past 6 years (that's as far back as I looked). It's hard to imagine that real estate should be the primary investment vehicle and rather a diversification tool considering it's very hands on and my time is at premium. While, there is still significant upside on the properties with larger appreciation (I'm buying in the same place I live and the price has gone up about 50% in the 5 years I have lived here) and refinancing into lower rates, there is also pretty large downsides with problem tenants, problem governments and unexpected repairs.
I have one friend whose brother did it for a while got up to 17 properties and then called quits and sold them all because the time commitment and stress wasn't worth it (even if the returns were there). I have two other neighbors who do this pretty successfully full time, one is semiretired with a stay-at-home wife and 3 kids under 5, the other is still petal to the metal and runs a construction/rental company with 19 employees. I'm really only looking because I luckily managed to leverage the pandemic to make Denver wages while living in Rochester, NY so I have 20-30k a year I don't want to spend on lifestyle, and my retirement age is primarily determined by rate of return rather than savings rate. So, it's a good time to take risks.
I suspect the reason people don't make it are three fold.
1.) They find the work of managing the investment properties to be too stressful and time consuming compared to the returns.
2.) Bad luck--my in laws lost a lot of money in real estate due to expenses being much, much higher than expected (cheap houses and cheaper tenants) and investing right before the 2008 crash. As I mentioned earlier, I am going to need some luck to do better than investing in MSFT or GOOG. If things go awry (market rents go down, job loss, a busted furnace and/or roof early on), I could easily end up with negative returns on the first investment which would probably stop me from buying more.
3.) Insufficient cash flow from other sources to cover emergencies and buy a sufficient number of properties. I think people plan on everything go right on the first property and go near all in on the first property to get started. Where I am investing the single family homes are about 200,000. By the time you have a 20% down payment, closing and escrow costs and a 10k emergency fund per property, each property requires you to come up with 70k in cash. That's a lot of money and if you are buying slower than every other year you won't "make it" (which is probably 10-15 houses paid off or equivalent equity with mortgages).
All the lines you hear in real estate today come from the echoes of 2006-2012 when you could actually do the 10 house thing you're talking about very easily. The only good advice I can give now is buy something you can afford so you can get an idea of all the expenses and management. You're the few realistic people on here willing to take on a risk while understanding the challenges. Good luck.
....If you're investing for appreciation only, then realize that housing has only appreciated around the rate of inflation of ~3%.....
All I had to do was stop at 20% down to cripple this argument. This isn't 2005 when I bought my first 100k house/condo that rented for 1% of that and could break even with 20% down.
That same house/condo is 300/400k but the rent has only doubled while the price has nearly quadrupled making the rents only .5% of the price. This means because of the extra property tax, hoa, maitnance and 8% interest rate, you'll need well over 50% down payment just to break even, maybe 80%. Real life example here. That's why I'm saying you need to be high earner to make it work but there are better investment vehicles today for the average 9-5 investor type.
So your only going to read 20% of what I say, but your 100% your right on what your ASSUMING it says, and your response too the 80% assumption and 20% read.....
Do you do palm readings by day? Just curious, because apparently your psychic. I'd love to have a psychic resource to let me know things like PowerBall numbers or ya-know, better use of such psychic skill's than 80% of what a person says.
Feel free to live life at 20%, your loss.
I imagine a whole lot of things seem rather impossible in a 20% life. And it's got nothing to do with life or the things, it's the 20% that's delivering such issues.
Your missing the math of things, doing just 20%, which now makes way more sense, your trying to live life at 20%. Give 100% a whirl for a day, may shock ya. Slow down a bit, it will serve you better to slowly be at 100% vs fast at 20%.
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.
Hi Mike,
I really appreciated your thoughtful analysis in approaching this question as well as ending on a positive note. Good job!I've heard that 80% of investor-owned properties are owned by people with 1-3 properties. I don't have any legit stats, but that sounds right. This business is not for everyone and can take a lot longer than originally thought to make meaningful progress.
But it is very easy to "fall into" a rental property out of necessity or convenience when one moves or upgrades their house.
What is the definition of success? If these people are adding some amount of positive net worth growth monthly (even if cashflow is neutral) are they not successful? Perhaps the problem is with the expectation that success means being able to advance your spending or live a life of leisure in short order.
Among persistent buy and hold investors? I would guess the success rate to be over 50%. For other strategies (wholesaling, agent, syndication) I agree that the success rate is <5%.
What is the definition of success? If these people are adding some amount of positive net worth growth monthly (even if cashflow is neutral) are they not successful? Perhaps the problem is with the expectation that success means being able to advance your spending or live a life of leisure in short order.
The thing i really wish I understood is how we ended up here. For at least the last 150 years, regular Americans with regular incomes have been investing in rental properties on the kind of scale you're describing with a reasonable amount of success. Some have done a bit better than others, some lost everything. I know, because I come from a family that used to do what I do two generations back and lost it all when my grandfather died and his widow and children lost it all.
Then about forty-some years ago, the rise of the infomercials brought a group of higher-income people to real estate who had no real business being in it. They were told, and they believed, that even with their largely-incompatible skillsets, high returns were possible. You could profitably get into rental property investing as an alternative investing strategy no matter who you were! The sky was the limit! I'm on a boat with T-Pain! I GOT MY SWIM TRUNKS AND MY FLIPPY-FLOPPIES!!!
The situation continues and develops to the present day.
@K S
if someone is on here looking for joint venture deals, mentorship and advertising... they're not really doing much of anything and therefore not having any impact on the market.
I think what he's implying is that we need fewer miserable charlatans shilling bovine scatological hyperbole about real estate investing.
@K S
if someone is on here looking for joint venture deals, mentorship and advertising... they're not really doing much of anything and therefore not having any impact on the market.
I think what he's implying is that we need fewer miserable charlatans shilling bovine scatological hyperbole about real estate investing.
Try reading my actual response to this comment instead of reading what someone else interpreted it as. IF, you have something to actually say and contribute to the conversation. Peter gets it, why don't you?
"The reason why bread has become unaffordable for the middle class is because we have too many nutritionists and life coaches espousing the ability of bread to improve your life. It'll defeat cancer (bread's intense healing powers give you the best chance to overcome cancer*), give you energy (you'll feel like tiger after eating a slice of bread*) and help you get laid (an elegant slice of bread with wine is the perfect way to a potential lover's heart*)."
*Results compare eating bread vs. eating nothing.
Unlike bread, real estate has limited supply (especially good real estate). So if you are creating more demand by convincing people it's the best investment vehicle, it'll drive prices higher.
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?
So here's the thing, I don't think the statement or question really fit's for a measure. I get where your coming from, and I agree with that sentiment, but most won't "get-it".
My Point:
In our brokerage portfolio of properties under management, we have many MANY thousands of units, so a big data-set to read from. And in that, ~74% of SFR owners are, today, just your run-of-the-mill "normal" people. With 1-4 properties.
They have regular FT incomes of various shapes and kinds. They have a focus on SFR making sense, being an intelligent profitable investment. But they don't have any kind of focus or effort to attain an "above average lifestyle STRICTLY based upon real estate investment earnings".
From my internal data, nearly 90% of these have a normal investment focus of their portfolio. For it performing fairly, growing, improving over time, and some day being a really great retirement fund of various kinds, or financing a kids future university expenses. These 2 action items I hear almost universally as focus.
I rarely, ever-so-rarely hear an actual focus of real estate investment income becoming primary income AND being of level to facilitate an "above average lifestyle".
So, if a big % of those in SFR, don't even have that focus, are they counted as failures for not achieving what they never sought to achieve?
I mean, sure everyone is happy to make more, happy for it to hit that goal, but there not attacking it with that focus, not in any immediacy. The vast majority are playing the long-game, which is the correct way to do it, 10/20yr vision of things vs 1/5yr vision.
So I think one has to really put it into the 2 different camp's, those chasing rainbow's to "hit it big" and be "rich" in a few short years, with what about 0.5% success rate thereof. And the "get-rich-slow" people, building an investment portfolio, over time, with strategy, positioning, patience, which I would say has closer to 90%+ success ratio.
Look, the "secret ingredient" to REI is the math; utilizing leverage for compounded returns. And for that math to really produce, it requires the factor of time. So, it's no surprise those ready to utilize the largest volume of this resource, time, vs those the least (get rich quick), yeah it makes perfect sense success rate strongly correlates to time utilization for the math to do it's thing. More = more, less = less.
What is the definition of success? If these people are adding some amount of positive net worth growth monthly (even if cashflow is neutral) are they not successful? Perhaps the problem is with the expectation that success means being able to advance your spending or live a life of leisure in short order.
The thing i really wish I understood is how we ended up here. For at least the last 150 years, regular Americans with regular incomes have been investing in rental properties on the kind of scale you're describing with a reasonable amount of success. Some have done a bit better than others, some lost everything. I know, because I come from a family that used to do what I do two generations back and lost it all when my grandfather died and his widow and children lost it all.
Then about forty-some years ago, the rise of the infomercials brought a group of higher-income people to real estate who had no real business being in it. They were told, and they believed, that even with their largely-incompatible skillsets, high returns were possible. You could profitably get into rental property investing as an alternative investing strategy no matter who you were! The sky was the limit! I'm on a boat with T-Pain! I GOT MY SWIM TRUNKS AND MY FLIPPY-FLOPPIES!!!
The situation continues and develops to the present day.
Side note, you have one of the best post/like ratios I've seen on here! You must know what you're talking about :-D
I also have family members who operate rental properties <10 units. A couple do well relative to scale, and a couple others have really struggled and spun their wheels for years. It's easy to see why both sides are where they are, especially the struggling ones which gives me optimism.
My personal opinion on "how we got here" is a confluence of decreasing economic opportunity (perceived or otherwise) for the middle class and the information age. There is a feeling that it is harder than ever to get ahead, and you can log onto the internet/social media/television and immediately see others living a better life. This creates a sense of "being behind" and desperation among individuals who then turn to progressively risky strategies to make up this perceived shortfall and "make it".
"The reason why bread has become unaffordable for the middle class is because we have too many nutritionists and life coaches espousing the ability of bread to improve your life. It'll defeat cancer (bread's intense healing powers give you the best chance to overcome cancer*), give you energy (you'll feel like tiger after eating a slice of bread*) and help you get laid (an elegant slice of bread with wine is the perfect way to a potential lover's heart*)."
*Results compare eating bread vs. eating nothing.
Unlike bread, real estate has limited supply (especially good real estate). So if you are creating more demand by convincing people it's the best investment vehicle, it'll drive prices higher.
No problem. It isn't the gurus that are driving up prices. 99.999% of the people who hire gurus never buy a property. One Facebook group of a "guru" has over 120,972 members of "real estate investors" and between them they do 10 to 12 deals a month. That’s pathetic and frankly embarrassing. But, they "feel good about being part of the community".
The prices are driven by uncertainty in the bond and stock markets. Money that normally would be used to speculate in stocks has fled to safety, like real estate.
Real estate works well in inflationary times. Interest rates have been driven by government giving everybody everything they've asked for, which causes inflation, which prompts the fed to raise rates to tamp down inflation. If inflation is too high, the current administration doesn't get a shot at a second term. It's all related.
The combination of inflation (house prices) and interest rates in the 7% to 8% range, causes the monthly payments to be too high for most monthly incomes. When interest rates go back down to 5%, which isn't going to happen anytime soon, people's affordability increases and they start buying houses again.
Currently, away from the coasts and in the midwest and in the south, housing prices are not a problem.
The problem is for those who want to live in the large cities on the coasts. No one was given a birth right to live in the city of their choice, owning a property of their choice, under the conditions of their choice.
It takes work and planning and time. Most people won't do the work, won't do the planning and won't take the time. It's like the little girl from "Willy Wonka and the Chocolate Factory" who says "I want it NOW!" Setting and Getting to goals takes time and energy. OK, and a little bit of brains.
"The reason why bread has become unaffordable for the middle class is because we have too many nutritionists and life coaches espousing the ability of bread to improve your life. It'll defeat cancer (bread's intense healing powers give you the best chance to overcome cancer*), give you energy (you'll feel like tiger after eating a slice of bread*) and help you get laid (an elegant slice of bread with wine is the perfect way to a potential lover's heart*)."
*Results compare eating bread vs. eating nothing.
Unlike bread, real estate has limited supply (especially good real estate). So if you are creating more demand by convincing people it's the best investment vehicle, it'll drive prices higher.
This argument that the promotion of Real Estate Investing is the "villain" in making, FORCING real estate prices UP, is just ridiculously infantile in it's nauseating reasoning.
Let's start with the simple obvious; your talking about INVESTMENT real estate actions. That means it holds an analysis basis of what it can monetize at. If there were some "PUMP" as declaring, that means NO TRUE DEMAND. If there were no demand, that monetization would NOT be there. That would be a SURPLUS of supply. Do we have a surplus of rental supply? Bueler.... Bueler.... Bueler....?
NO! We have a net-SHORTAGE. It is the net-SHORTAGE, and or the BALANCED supply-demand that is EMPOWERING the operational finances of, which is MONITIZATION, and that "profit" is what intones the VALUE for investors.
Saying home prices are too high for owner occupant buyers is childish, it just is. Any amount of actual data CLEARLY destroys that ridiculous notion, because it's simply NOT true. It's a Socialist talking point to say such and that's all that it is.
Fact is investors are MEETING demand.
You want villains for home prices, talk to your Comrade-in-Chief throwing out $ like it's confetti. Every dollar borrowed into existence, which is EXACTLY what happens when you spend more than you have and borrow it into existence better known as "The National Debt", cut's the "pie" into ever smaller and smaller pieces, because there is ONLY 1 pie! How do you get more slices? You make every slice a bit SMALLER. That's your purchasing power, getting SMALLER, which is reflected in items requiring MORE "slices of pie" to acquire them.
It's called inflation, maybe you heard of it?
Seriously kid's: "I can't buy the home I want because.... because.... because that nasty rich person is paying more than I have for it! Why can't everyone STOP buying what I want, it's MINE, I want it, make it LESS!", that's all I hear from this ridiculous argument. You blame everyone EXCEPT the actual people who are at fault for the way things are.
In "Rule Book For Radicals" they had a term for you: "useful idiots".
What is the definition of success? If these people are adding some amount of positive net worth growth monthly (even if cashflow is neutral) are they not successful? Perhaps the problem is with the expectation that success means being able to advance your spending or live a life of leisure in short order.
The thing i really wish I understood is how we ended up here. For at least the last 150 years, regular Americans with regular incomes have been investing in rental properties on the kind of scale you're describing with a reasonable amount of success. Some have done a bit better than others, some lost everything. I know, because I come from a family that used to do what I do two generations back and lost it all when my grandfather died and his widow and children lost it all.
Then about forty-some years ago, the rise of the infomercials brought a group of higher-income people to real estate who had no real business being in it. They were told, and they believed, that even with their largely-incompatible skillsets, high returns were possible. You could profitably get into rental property investing as an alternative investing strategy no matter who you were! The sky was the limit! I'm on a boat with T-Pain! I GOT MY SWIM TRUNKS AND MY FLIPPY-FLOPPIES!!!
The situation continues and develops to the present day.
Side note, you have one of the best post/like ratios I've seen on here! You must know what you're talking about :-D
I also have family members who operate rental properties <10 units. A couple do well relative to scale, and a couple others have really struggled and spun their wheels for years. It's easy to see why both sides are where they are, especially the struggling ones which gives me optimism.
My personal opinion on "how we got here" is a confluence of decreasing economic opportunity (perceived or otherwise) for the middle class and the information age. There is a feeling that it is harder than ever to get ahead, and you can log onto the internet/social media/television and immediately see others living a better life. This creates a sense of "being behind" and desperation among individuals who then turn to progressively risky strategies to make up this perceived shortfall and "make it".
It's without doubt several factors, but a major piece to it is the U.S. flipped from a production and export economy, too a almost purely consumption economy.
Every import we buy, exports wealth. The fairy-tale we were sold is that we would import that wealth back via exporting intellectual exports. Someone didn't take hacking into account on that measure. Or plagiarism, corporate espionage.
The easiest thing to hijack, is intellectual goods.
The U.S. is simultaneously inflating while experiencing a deflation, better known as the disparity gap. Domestically deflating in the median incomes vs inflating currency and cost of good's, making people with less and less affordability even though the numbers keep getting bigger and bigger.
It's the inevitability of a consumer economy consuming upon globalized imports. Consistent export of wealth, felt hardest in the middle classes because lower classes get off-set's via entitlements.
And the upper classes, well there the importers, lol.
Picture it this way, imagine if each state had it's own independent currency, and had to exchange currency for each state it trades with. Fl exporting oranges everywhere, CA vegetable's, MN minerals, WA timber etc etc. And SD.... not much for exports BUT it imports minerals, oranges, vegetables etc.. and with each trade deficit there is a bit less, and less and less currency to go around int he state. Less to go around means less that goes around. So they start borrowing, to inject more "liquidity" into the system, but now instead of having 1 billion SD dollars now they have 10 billion, and so all SD dollars are only worth 10% of what they were before vs the FL dollar.
Picture a few decades of this, how would the landscape of the US look? Yeah, those producing, net-exporting, thriving while net-importers living off borrowed $ and time, heavily segmented between the haves and have not's, mass poverty....
Well, there ya-go. It's math. Spend $10 a day and earn $7, there is only 1 way it end's. yes, one can get tricky in how they kick the can, but that's all it is, a can kick, the end is inevitable. Each kick just makes it more certain of eventual bankruptcy than digging out of the debt. And the disparity gap ever bigger.
The lie we have all been feed and delight upon in the U.S. is the debt doesn't matter because some-day we will earn more. I still have not seen "some-day" pop-up on my calendar even 1 time in my entire life-time. And the 2nd lie we roll around in like a complacent pig in our own sh#t; that it doesn't matter because were the U.S., were so awesome, were the greatest, so we will just take out more loans, we can just print and print and print $ away without end, la-di-daa-dah-da. Ignorant to a world every increasingly saluting us with a middle finger.
When there is no buyers of our debt, that will be an interesting day. When the world dumps their treasuries as worthless paper, that will be interesting indeed.