This might warrant some raised eyebrows but I always asked myself the same question:
If real estate is a great way to become wealthy, why isn't everyone doing it?
Now I'm not saying investing in real estate is easy, because I know that it's not easy. I know that it requires a lot of hustle and grinding. However, I know a lot of people who work 3-4 jobs and easily work 60 hours a week. They obviously are determined to make money, and whether they are living paycheck to paycheck or not, why don't these people working so many shifts save up money to buy a house and slowly progress their way towards passive income?
Is it because of fear of going further in debt? Is it because they don't know real estate investing exist?
I always ask this question on Google but there's not an answer that answers it.
When I think about the people I have encountered in my lifetime... family, friends, colleagues, acquaintances, etc. Most are not investors in any capacity whether it be RE or stocks/bonds. Most people are just W2 people, living normal lives, or just paycheck to paycheck. They'd rather just go to work, spend their free time on weekends going out, eating out, traveling, play around with snapchat filters, try different restaurants, posting it to instagram, buy new cars or toys, etc.
There's no drive, no motivation to learn or grow. Learning about RE or personal finance in general takes work/drive/interest/desire to better yourself. "It's too hard. It's too much work. It's too confusing. It's too risky." Everyone wants to be wealthy and free, yet most aren't willing to take the steps to get there.
@Austin Fruechting said it well... like people know they should eat healthy and exercise, yet how many people really place it as a high priority in their daily lifestyle?
The reason for this question is complex and the answer is equally complex.
First, as entreprenuers, we are weird. It is not normal to work for yourself. It is not normal to spend the money that we do on practical (rather than fomal) education. It is not normal to focus on peronal growth and development.
Second, we are in "sales." Sales and marketing scares alot of people. it creats images of the slick talking salesman or the crafty marketing specialist that gets people to do thing that are not in their best interest.
Third, they listen to alot of naysayers and always ask what if it goes wrong
Fourth, they are resistant to change. Getting into this business is a big change for anyone.
Fifth, they are unwilling to learn. To get good at something, you must first suck at it. People dont like doing things that they suck at.
Sixth, We need to realize that not everyone thinks like we do. One of the most common assumptions that we have is that other think like we do. That is why people can get so heated in debating religion, politics or sports. What seems obvious to us just isnt in their paradigm of the world
So hang out with weird people and when an outsider looks in with curriosity, welcome them in and help them out. Because to court this group takes courage. and that spark must be nurtured.
"Now if you buy stocks or bonds (leaving options out of it) you can only lose your original investment. With real estate you could (fairly easily) lose more. "
This is true...and not so true. What you are talking about here is also why many REI are not successful...lack of knowledge of three very important knowledge bases...I refer to them as my "3 Pillars of REI Success". They are all equally critical to their success. None of the three is more important than the other and they are intertwined to the point where you can't tell where one begins and ends. They each have very specific reasons for being:
1 - Market Analysis (not property...market) tells us where to invest
2 - How Money Works tells us How to invest
3 - Our REI/Business Plan tells us when & what to invest in.
I posted here of folks having great success investing in NYC, and San Francisco, where with a few properties, buy and hold it, you're set for life. Yes, it's partly true. But you still have to be able to watch out for the ebbs and flows of the market.
I watched the real estate markets since I was a teenager, and I mentioned my dad bought a property for $25K in 1963, and it was sold after his passing for $1.1 million. I also mentioned duplexes rose from $100K in 1979, reaching $250K by 1982, then $350K by 1986. My mother in law bought a duplex in 1981 for $110K, when she was over 60 years of age, and sold it in 2003 for $850K. Absolutely unbelievable.
But here in NYC, there is a reverse, people caught in real estate drops, borrowed heavily, and lost everything. An investment I made is a good example. I did OK though.
I was searching for duplexes and triplexes in the early 80;s, and by 1982, after a year or 2 of searching for one, a fluke, found one for $150K. Meanwhile, 2, 3 families rose from $100K to $250K between 1979 and 1982. Many people at the time paid the asking, even over asking, thinking the market always goes up. I didn't.
The triplex I bought for $150k, the exact same house next door sold for $360K in 1986, as it turned out, to a flipper who promptly put in in the market for $399K. Unfortunately the market stalled a few months later, then started dropping. He took out a $300K mortgage, and gave up and sold it in 1990 for $300K. He had negative cash flow throughout, besides taking a $60K loss, so he lost about $100K.
He sold it to an investor, for $300K, who had his son living rent free managing the place in 1990. The market continued to drop, and by 1993, he gave up, and sold it for $275K, to another investor. Also loss close to $100K.
Now, I thought I wasted my time looking for a triplex in 1982 for $150K. Glad I stuck to my guns, and during the crash that started in 1987, that hit bottom in 1993, I never lost any money. In fact, I was living rent free.
As I was watching this, by 1992, the newspapers had a pages of foreclosure auctions advertised. That's when I thought the markets hit rock bottom, and started going to auctions every week. That's how I finally found the home I lived in, bought in for $200K that is now valued at $1.275 million.
The irony was this house that I bought was built in 1986, completed at the market peak, and the builder lost his shirt, on my property, and another 3 next to it. And also, someone bought the one down the street, an REO from a bank all cash for $150K in 1993, flipped it 3 months later for $230K, and a buyer finally bought it a few months after that for $310K. This buyer rang my doorbell to say he just offered $310K for the house, is it the right price. He did OK, sold it in 2005 for $850K.
Now, think about this. There's plenty of other people that loss their shirts besides the investors who bought the triplex next to me. I went to public auctions where over 100 properties were auctioned, all in the NYC vicinity. Think of how many other people there loss their shirts. Many of us in 2017 forgot about all this that occurred not too long age.
I hired an exterminator at one of my rentals, that was 1990, and I told him I don't live there, so please wait for me. When he met me, asked me how I'm doing. Turns out he invested in 1986, the top of the market, paid too much, loss money for 4 years, and finally ditched his property it by 1990, exactly what the guy next to me did. Loss all his savings, and will take him years to recover. Swears he'll stay away from real estate speculation.
Of course, there's also a litany of landlord tenant horror stories which caused people to stay away from REI. That's another big long post that I'll leave for another day.
Most people don't want to do any work to have their money working. They want to give it to a money manager and hope for the best in the markets. Most people also aren't able to put the amount of work into learning their market properly in order to successfully invest in real estate.
Agreed with the responses here, lack of knowledge, fear, lack of drive, and various deterring factors.
I'll add a small nuance to the "lack of knowledge" argument. It's not only that the majority of people don't know how to invest in RE, but also that they don't even know they can do it.
As far as my entourage is concerned, for a majority of folks, investing in RE is synonymous to stock speculation. Given that the difference between investing in the paper exchange market and investing in RE is of orders of magnitude, such speculation based investing is exponentially perceived as more risky. If we add to the fact that the majority of big players in the industry appear to be long standing multi-billion shops who "apparently" scoop up the competition without a breath, then this entire industry appears totally out of reach.
It is very common for me to have a conversations with non-real estate professionals who never heard of basic concepts such as "cashflow" or "leverage" specially applied to real estate. Let alone "no money down", "house hacking", etc. Hence, although this falls under the "lack of knowledge" bucket, the related element is the "lack of drive" that would eventually lead to that knowledge, which a few posters already dissected in the posts above.
In the beginning it started with the "why", crystallized by some flavor of a life changing paradigm shift, fueled by the drive. one needs that to act into knowing what one can and cannot do.
I think the biggest reason most people don't invest in real estate is....most people don't invest in anything. Look at the number of people who live paycheck to paycheck, who are caught in the rat race and spend all their money each month. Most have very little savings let alone enough for a down payment for an investment.
There's also a huge demographic of the population who have a mindset that prevents them from stepping outside of what they've known as "normal". The majority of "us" are subliminally taught to get a job. Some opportunities presented openly to some are not always so openly presented to others.
I feel a great deal of it comes from lack of knowledge, effort, and being content.
Knowledge
Most likely, if a person doesn't know someone or isn't purely interested in all things investing, they don't seek out the information on how to do it, how easy it can be, and the different levels it has. This lack of knowledge drives a lot of people to maintain the system that is taught early, save your money, put it in a 401k, work until you are at the retirement age, and downsize...
Effort
Let's be honest though, they most likely DO know someone that invests in real estate. They just don't care enough to exert the perceived effort that they believe they have to, which is probably exasperated by my first point. It's easier to take every weekend and weeknight to sit and watch TV.
Being Content
A lot of REI, at least for me, is to be financially free, this goes for any investing really... But some people are perfectly content with what they have and don't care for more or think that the effort isn't worth the benefit. These people may be perfectly happy, or simply complacent.
I wouldn't worry about other people. Why they do or don't do something. If BP could answer that, we'd probably stop all wars.
You are here, learning, and driving toward your financial freedom. Help people out along the way by educating them with what you pick up and let them decide whether they want more than they could imagine. Cheers.
The number one driver in my opinion is lack of investing knowledge and finance.
By the way, if everyone was investing in real estate, then the majority of available returns in the market would evaporate.
You make money in any asset class by thinking in a way that is nonlinear. People move markets because they see the world in a linear way. Great investors find ways to tease out the inefficiencies in markets in a way that makes money.
There's also a huge demographic of the population who have a mindset that prevents them from stepping outside of what they've known as "normal". The majority of "us" are subliminally taught to get a job. Some opportunities presented openly to some are not always so openly presented to others.
What you are referring to as to "stepping out of" is our box. You here all the time the phrase, "you're thinking outside the box". What those that say that don't understand is we don't "act" outside that box....we just grow the box so our thoughts are no longer outside of it.
What is that box being referred to? It's our knowledge...and it's the only thing in life that has not limits on its size...unless it's self imposed.
"The average person does not understand. Dream, and he thinks you're crazy. Succeed, and he thinks you're lucky. Acquire wealth, and he thinks you're greedy. Pay no attention. He simply doesn't understand."
My parents were buying new cars in the 60's and 70's. Mustangs, Vic's, Crosly's. The cars new equalled about half a year's salary. They don't remember how much they later sold the cars for or where they are now.
They also bought houses in '69, '74 and '81. Each time they sold, the house price doubled. They remembered that fondly.
Me- "So, you bought new cars on payments that essentially dropped to zero. You bought 3 houses that doubled in value. Did it cross your mind ever to buy more houses?"
Parents, with a look like I'm from Mars- "More than one house? We couldn't afford that."
Pay no attention. The masses of sheeple simply do not understand. And that's a good thing for us!
"The average person does not understand. Dream, and he thinks you're crazy. Succeed, and he thinks you're lucky. Acquire wealth, and he thinks you're greedy. Pay no attention. He simply doesn't understand."
My parents were buying new cars in the 60's and 70's. Mustangs, Vic's, Crosly's. The cars new equalled about half a year's salary. They don't remember how much they later sold the cars for or where they are now.
They also bought houses in '69, '74 and '81. Each time they sold, the house price doubled. They remembered that fondly.
Me- "So, you bought new cars on payments that essentially dropped to zero. You bought 3 houses that doubled in value. Did it cross your mind ever to buy more houses?"
Parents, with a look like I'm from Mars- "More than one house? We couldn't afford that."
Pay no attention. The masses of sheeple simply do not understand. And that's a good thing for us!
Love it! I had a 69 Mustang and a 74 Camero
@Ryan D. this is actually happening at a deeper level in our psychological programming.
From the time we are little, we go to school and are taught to follow the rules, get good grades, go to college and you will get a good job. Nobody (accept me and a few others) tells their small child to grow up and start a business. How many kids dress up like a landlord on career day?
We are told starting a business is risky. Fifty percent fail within the first five years! This comes from the SBA, an organization that is there to promote small businesses!
We are told by "financial planners" to invest in the stock market. They say if you do invest in real estate, buy a fund that holds real estate. The people giving advice are nothing more than sales people, who have limited net worth themselves. They are trained to sell what gets them the highest commission.
The media and public perception of landlords is that they are greedy, mean and uncaring. Who would want that job?
We are taught to believe wealthy people are greedy through their portrayal in the media. Even when someone wealthy donates money, they still get attacked. People say they got wealthy on the backs of others. We play this message in our subconscious and it holds us back from attaining wealth. The truth is that the most wealthy people in the world provide the majority of charitable giving. Wealthy people pay the majority of taxes. That is not what you hear.
The media says real estate is risky. Who needs more evidence than the last crash? People lost everything, why would anyone want to get into that business?
The biggest problem is most people have the employee mentality. They want to leave all the big decisions to someone else. They want to go to sleep at night thinking everything is ok. When you own rental property, you need to be prepared to make big decisions, manage risk and prevail. I cannot count the number of people I have seen exit this business because they just don't have the stomach to handle it. In this business sh#t happens and some really bad sh#t at times. Some of it is in your control and some is just part of the business.
I don't think information or education is the problem. In fact there has never been an easier time in history to get a free education on anything. It is peoples own limiting beliefs that hold them back.
Going to school to become an anesthesiologist, surgeon or pedodontist are great ways to become much more wealthy than the average median wage earner investing in 200/door cashflow, why doesn't everyone do it? Desire.
I would say a lack of emotional intelligence is the culprit in this scenario. Instead of confronting their fears, they allow their fears to hold them back.
Fear of failure, fear of losing money, fear of embarrassment, fear of starting over, fear of rejection etc.
A lack of knowledge regarding real estate will intensify these fears, making it more difficult to manage.
Often enough, many people take advice from people who failed in real estate or who have never had a successful career in real estate. They get negative impressions from these people and then their fears get even worse. It increases to the point of paralyzes them.
It's like seeing a viscous dog and freezing up and loosing your train of thought. Real estate can be that viscous dog to some people.
Also, Real estate isn't for everyone. Some people are meant to start up tech companies or buy existing companies.
The list goes on. A better question to ask yourself is "is real estate for me?" Then honestly write down why or why not. This will keep you focused and on the right track. Hope this helps.
Good Luck!
It helps to have people around you that are working to achieve the same goals or be around people that have you want to become.
Franklin
While I cant disagree with what anyone has said, I think the answer is much simpler.
Most people don't invest in real estate because most people don't invest or understand even basic finance.
So if you exclude the 60% of the country described above, why do the remaining 40% mostly not invest
So take the 40% that invest in anything (average from above). Subtract the people that want liquid investments, the ones with no knowledge and the ones with little to no opportunity and you are left with the people that have the possibility of investing. THEN you can apply the factors like fear and such.
PS: I have no stats on this but I would imagine the US has a higher percentage of real estate investors (compared to the population) than other parts of the world. Those problems are even more prevalent in other parts of the world + you have things like real estate ownership laws and political instability.
The reasons:
1. They haven't found BP so they're not educated
2. They know a friend or family member who got burned in real estate
3. They're content with "sitting at home watching Dancing With The Stars" <--- that one is for Brandon Turner.
4. They invest in something else
5. They think they can't start investing in real estate because they have little to no money.
Of course, we've all seen the light and know the truth, but the above reasons are most of the popular ones.
This might warrant some raised eyebrows but I always asked myself the same question:
If real estate is a great way to become wealthy, why isn't everyone doing it?
Now I'm not saying investing in real estate is easy, because I know that it's not easy. I know that it requires a lot of hustle and grinding. However, I know a lot of people who work 3-4 jobs and easily work 60 hours a week. They obviously are determined to make money, and whether they are living paycheck to paycheck or not, why don't these people working so many shifts save up money to buy a house and slowly progress their way towards passive income?
Is it because of fear of going further in debt? Is it because they don't know real estate investing exist?
I always ask this question on Google but there's not an answer that answers it.
I think It is the way people are brought up, we were always told to work for the american dream, which is to work 40 hours a week until we are 65 and hopefully have enough saved up for retirement. In my case, I have a very well paying job but REI to me is a better strategy moving forward in life. Like Robert Kiyosaki says "Don't work for the money, let the money work for you", and REI is just that.