Real estate is a crappy investment

16 Replies

It's always a good idea to follow the investment advice of a reality TV star. They're known for having accurate and expert opinions. :)

I think it's just like any other time in the history of money. Invest in what you know or get to know what you plan to invest in. Sure, stocks and bonds could generate higher returns cash on cash, but not in a mutual fund and not by an amateur just picking something off of e-trade. Plus, if his idea of investing in RE is buying a home and hoping to bank on a certain percentage of appreciation, then he's probably doing it wrong.

I think it depends on your situation, your level of involvement with your investments, your tolerance for risk, and a thousand other factors. This just sounds like a sound-byte from a talking head looking to bolster ratings.

Originally posted by @Jon Deavers :

It's always a good idea to follow the investment advice of a reality TV star. They're known for having accurate and expert opinions. :)

The fact that he's worth $300-400M gives him a bit more credibility in my mind...  :-)

That said, he manages a billion dollar mutual fund, so recommending the market may be a bit self-serving on his part...

I have a real hard time understanding why anyone would be recommending buying bonds after a 30 year bull market,  but as @J Scott said this guy has a lot of money under his management.

to most people buying a real estate "investment" is buying a home to live in and cash out on appreciation. That's not investing. What we talk about here is cash flow, roi etc. Which is investing. Of course interest rates will rise eventually and put pressure on housing prices. But that will also lower bond prices and dividend stock prices as well

monthly cash flow is brutal. 

In the article he actually seems to be saying not to rely on appreciation of your housing as an investment strategy. I agree with that. He also says in the article that you should rent your house. I agree with that as well. 

I was not impressed with the argument. It seemed pointed at the home owner not the investor. There was no logic given or facts disclosed that suggested to me that this guy is credible.

@J Scott 

You took the words out of my mouth.  He is right - RE is indeed a bad investment for a variety of reasons.  The thing is, though - it is better than everything else :)

I love watching Shark Tank and have the utmost respect for all the investors on the show. With the enormous wealth they have they must be doing something right. However, if your going to talk real estate the "Shark" I would talk to is Barbara Corcoran...she is a real estate mogul that turned $1000 into a multi-million dollar real estate firm before venturing into other business investments.

Having said that...I think it is always a good time to invest in real estate. If you are finding good deals and can pay cash or use a form of creative financing that allows you to generate cash flow every month without relying on future apprieciation then the risk is lowered and you shouldn't fall victim to high interest rates etc... I'm sure there are a few investors here who wholesale or buy for something other then buy and hold that would agree a deal is a deal in any market. And most investors find the 'worst' times in real estate can be the most profitable as an investor. Just my humble opinion

@Anthony G. you hit the nail on the head.. the headline will catch everyone's attention but I thought his suggestion to rent bodes well for the BP REI audience.

Realestate is a terrible investment. Just god awful. Everyone stay away from it. Better yet give me your money and I'll get you a 1% ROI guarenteed! (see fine print below)

*fine print* Guarentees are only avaliable through the first 12 days after that returns will be dictated by market forces and processing fees charged soley at the descrition of me.

By god I just created the best marketing strategy ever I could be a bank or something now. Intresting article but it dosn't meet the smell test.

As mentioned by some this is directed at home owners.

His point if you want to rush in now "While you can" and rates are low you might lock yourself into something that will cost you money to own without gaining any value.

This is an issue if you plan on selling within a few years.

If you find your dream home and plan on staying there for decades it doesn't really matter as much.

This whole don't buy a house just rent and invest in the market is always a stupid argument since very few people would EVER do this.  If they actually have the capital to do that they are more likely to buy a house because most people do in fact still like the idea of owning their own home.  Most renters can't afford to invest in the market after buying the new 50" TV every 2-3 years.

I hope a lot of people read this and believe it.  Maybe it will take some of the "stupid" money out of the market and make it easier to buy properties at reasonable prices again.

Originally posted by @Ben Leybovich

You took the words out of my mouth.  He is right - RE is indeed a bad investment for a variety of reasons.  The thing is, though - it is better than everything else :)

 Sir Winston would likely agree with you, Ben.  ;-)

While Kevin Leary the investor has done well for himself since the days of his software startup in a TO basement.  Kevin Leary the {public} person is a little less admirable.

I think the point is that investors in real estate now (the next 5-10 years) will face different macroeconomic conditions than those who invested in the 5 years previous.  It has been pretty easy for a while to make money   You should be sure you know what you are doing.  

Plenty of people had experienced great runs up to 2006-2007.  Those that jumped in in 07 probably got hurt.   Timing isn't everything, but it sure is a lot....

Where is your local market?  

What impact might rising interest rates have on your portfolio?  Is it dominated by cash buyers or are prices supported by people borrowing at their max debt service ratios?

Try to answer those questions before your put your dollars in.  

If you have a game plan and a niche and understand what you are doing, you will be in much better shape.  

This is quite similiar to Robert Shiller's recent statements about a home being a poor investment. I believe both of these guys are correct. Robert Shiller did state as well though that investment properties can have tremendous returns. I would not make any money on my personal residence that I bought a year ago and have been fixing and improving steadily if i sold soon. However the extra grand on this or that project is for my enjoyment not to make a profit.

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