Am I the only one that have realized real estate is an awful investment?

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Am I the only one that have realized real estate is an awful investment?

Luka Jozic
New to Real Estate · Member since 2022 · 146 posts · 110 votes

After about 4 years of going all in on investing in real estate, I have tried regular buy and hold, BRRRR, and house hacking in multiple markets, and I can now say that they all SUCK. I started out getting hyped by all the BP books and went through any information I could get my hands on to make sure I was prepared. I figured okay to reach roughly $10K a month, I need about 40-50 doors, so I got to work and scaled to about 10 doors in 2 years. The problem was I wasn't making any money, if anything, I was losing money. Despite having a PM, the headaches of just 10 doors was insane, always someone late on rent or not paying, something breaking every other week (despite being mostly renovated houses), some license, permit, lead ordinance, or whatever else would constantly come up to take mental capacity from me.. I own in OH and FL (no war zones) and despite at least one of them being a "cash flow market", on paper a property would cash flow roughly $200/mo, but in reality they would always be negative due to issues mentioned above. And i really did take care of them and repaired promptly but still it just didn't work.

Now Im seeing more and more bigger investors (including Graham Stephan) who even bought YEARS ago and they are still barely breaking even. So imagine if you buy today. Sure you get future appreciation I can buy that somewhat but is it really worth all the hassle? Paying off the loan is a weak argument because you barely pay the principal until like year 20. Its pretty evident to me that REI is just not what it used to be. Brandon Turner started out by saying 50% of rent should be put aside for expenses, then that didn't work so someone invented the 2% rule, then that didn't work anymore so someone invented the 1% rule, like we're constantly moving the goal line to justify a deal. And now, I see people everywhere saying do rent by room, that works. Well yes but I've done that and its EVEN MORE headache. Imagine that on 10+ properties? Its a full time job. Im keeping track of some of the properties I sold and they have already been sold again 1-2 times, probably because people realize the same thing. I even looked at commercial real estate on crexi in all kinds of cities and literally nothing makes sense. Majority of 10-20 unit buildings would still be NEGATIVE!

I've realized that real estate is definitely not passive, it has incredibly low returns (probably lower than the stock market), and the only people that still think its a good idea are the ones that bought 20-30 years ago.. Instead, Im looking into buying a small service business. Sure its not as passive, but at least it makes money, and has the potential to be about as passive as real estate if you grow it big enough to hire a manager. So to anyone considering investing in real estate: My advice: DON'T! 

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
1w

REI doesn't "suck". The way you did it does. As I read through your description of what you did, I kept saying to myself, "don't do that".

What it appears to me is you build a treasure trove of "information", but no a lot of "knowledge". There's a big difference between the two. Information is just that. It's a pile of bits and pieces that have no connection. Knowledge is that same info, but connected together in a system...and it's that "system" you have to build that makes it work. You had no system.

Having said all of that, you probably do have a lot of info. You just needed to make all of it connected together.

First, all those "percent rules" are not rules, they are garbage. Those that like them will say they are guilds,...to what I have no idea. To me, they are shortcuts. Shortcuts are never solutions to anything.

Second, When you started out saying your goal was 10K a month (that was fine) and it would need 40-50 doors to get there. How did you arrive at that number of doors? I know what your math must have told you, but that math was leading you without a map of how to get there. Not all rentals have the same CF. Every market is different.

Third, you need to adhere to three knowledge bases. All three are equally important and they work with each other:

1 - Market analysis. Learn how to analyze markets to find the micro-markets to invest in. A state, city, zip are NOT markets.

2 - How money works. This means you must learn and create as many different strategies as you can. NEVER focus on one strategy. You lose.

3 - Design a REI Plan...and stick with it. This plan is part CF and part profits. The CF pays you monthly bills, the profits pay of debt and provide cash to buy rentals. They play off each other.

The market analysis tells you "where" to invest.

The Strategies tell you "how",

and the Plan tells you "when".

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    1w

    REI doesn't "suck". The way you did it does. As I read through your description of what you did, I kept saying to myself, "don't do that".

    What it appears to me is you build a treasure trove of "information", but no a lot of "knowledge". There's a big difference between the two. Information is just that. It's a pile of bits and pieces that have no connection. Knowledge is that same info, but connected together in a system...and it's that "system" you have to build that makes it work. You had no system.

    Having said all of that, you probably do have a lot of info. You just needed to make all of it connected together.

    First, all those "percent rules" are not rules, they are garbage. Those that like them will say they are guilds,...to what I have no idea. To me, they are shortcuts. Shortcuts are never solutions to anything.

    Second, When you started out saying your goal was 10K a month (that was fine) and it would need 40-50 doors to get there. How did you arrive at that number of doors? I know what your math must have told you, but that math was leading you without a map of how to get there. Not all rentals have the same CF. Every market is different.

    Third, you need to adhere to three knowledge bases. All three are equally important and they work with each other:

    1 - Market analysis. Learn how to analyze markets to find the micro-markets to invest in. A state, city, zip are NOT markets.

    2 - How money works. This means you must learn and create as many different strategies as you can. NEVER focus on one strategy. You lose.

    3 - Design a REI Plan...and stick with it. This plan is part CF and part profits. The CF pays you monthly bills, the profits pay of debt and provide cash to buy rentals. They play off each other.

    The market analysis tells you "where" to invest.

    The Strategies tell you "how",

    and the Plan tells you "when".

    24Reply
    • Luka Jozic
      OP
      New to Real Estate · Member since 2022 · 146 posts · 110 votes
      1w

      You must be a politician because there were a lot of words, but I don't think you actually said anything.

      1Reply
    • Joe VilleneuvePro Member
      Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
      1w

      IF that's what you got from what I said, then it says a lot about why you think the way you do.

      9Reply
    • Shiloh LundahlPro Member
      Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
      1w

      @Luka Jozic I don't know you, so please don't take anything I write personal. What I am going to write is only based on my limited knowledge of what you wrote that could be applied to anyone else in your situation. 

      @Joe Villeneuve was actual pretty clear and accurate in what he wrote and it makes a lot of sense to seasoned investors. 

      Right now, real estate is harder than it has been between 2011 to June of 2022. A lot of people have stopped actively buying real estate because it isn't as easy to make money as it was the previous decade. BiggerPockets became very popular the previous decade when it was easy to make money in real estate. But now a lot of novis investors, such as yourself, are realizing that the information that they got through plateforms like this doesn't seem to be working in today's market as easily as it worked in the past so they are leaving real estate. This includes people like Graham Stephen. They are used to a certain level of difficulty in order to get their reward and when things get more difficult, it stops being fun for them so they stop playing the game. Similarly to most athletes that don't go pro. Either it stops being fun or their skill set is not high enough to get to the next level. 

      What Joe explained was this, you have a lot of bits and pieces of information but the information you have is not connected the same way a professional real estate investor connects information. It's kind of like having all the ingredients of a cake but without the recipe, of better yet, without a cook showing you how to put the ingredients together to make the cake come out right. So eventually you complain about the cake and swear off cakes altogether. Cakes are not bad but the way you add the ingredients and bake the cakes make them not turn out good. 

      Let me tell you your first mistake, "going all in on real estate." Years ago someone stood up at a BiggerPockets conference during a Q and A and stated that they are quitting their job to go "all in on real estate." The veteran investors cringed underneath a supportive smile and later talked amongst themselves saying that that was a terrible idea. But this is what you get when you have motivated novices. They are recklace in their decisions. 

      By way of self-disclosure, I coach people in real estate investing. I only tell you that so the next part of what I share makes sense. The thing that I have helped my students with the most is staying out of bad deals that they thought were good deals. And the reason I can do that is because I have bought bad deals before that looked like good deals. And I help them learn what good deals actually look like. 

      The second mistake you shared was that you tried too many strategies, and you went in on 2 different markets, too soon before you mastered 1. It usually takes 5 years of dedicated learning and experience to become an expert at something. And once you master it, then moving onto something else to get more variety is fine. But most novice investors jump from one thing to the next thing to the next thing without becoming an expert at anything. And then they complain because they are not getting the results they want. 

      So let me ask you this question, who has been mentoring you or coaching you in real estate? And what did they tell you about each of the deals that you presented to them before you bought them? If the answer is no one, then you have gotten the results of making inexperienced decisions that don't work in today's market. 

      I am not trying to criticize you and I am not trying to promote myself. I'm trying to give you insight into why you may have gotten poor results with real estate. 

      Here is an example to put theory into practice. I have purchased somewhere between 15 and 20 homes so far this year. This is the last deal I bought this last Tuesday. 

      10153 W Wenden Dr, Arizona City, AZ 85123

      I bought it for $233,000. It was built last year and according to the comparables it should be valued at around $320,000. The investor that built the property lost about 40k on this deal and I will make about 100k on the deal. The difference is what he doesn't know and what I do know. Things are not selling very quickly right now in this market. However, I just put a property on the market that was 1350 square feet, and it isn't as nice as this one, and I got it under contract within a week for $245,000. So I knew buying this much nicer property for cheaper was a good deal. And not only that, but I will be selling this property on a 3-year lease with the option to buy. That is my strategy that I am really good at that I have been doing for 9 years. I will be selling this property for $339,900. I will be getting a loan for $240,000 and I will leave very little into the property at the refinance. Probably less than $10,000. I may make about $200 a month in cash flow, but my bigger profit is when I sell the property to the tenant buyer in 3 years. I listed the property on Wednesday and we already have multiple people interested in the lease option. 

      Could you do this same thing. No. Because there was probably 5-10 things that I didn't tell you about how I bought this property that is going to make it possible to do what I just stated I would do. This is an example of having bits and pieces of the information without having the blueprint on how each step of the process works. 

      Real estate investing isn't for everyone. But before swearing it off, I would encourage you to consider that you just might not be putting all the pieces together correctly. Find someone who is being successful at one specific strategy and find out what they are doing that you are not doing. And then do what they are doing. But just choose one strategy though. And then get really good at it. 

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    • Joe VilleneuvePro Member
      Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
      1w

      Tremendous post. I particularly like the part where you state that you teach, but you are mentioning that to validate what you said after that. That's a tricky road to cross here. Many people are leery of REI "Gurus" not realizing all "teachers" are not "gurus". I have to tiptoe down that path all the time with my program.

      New REI come in with too much info from too many sources and no cohesive plan. This just leads to trying to make that "cake" in your example taste like,...well, not very good. Not all cake ingrediencies mix well, just like not all REI techniques work together well. IR is just making it worse, but that's a different topic for a different time.

      3Reply
    • Shiloh LundahlPro Member
      Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
      1w

      I know what you mean. You, me, and lots of people need to be careful of how we post because BiggerPockets shouldn't become just an ad dump. If it did then it would lose value and interest. But just between you and me, and maybe anyone else who reads this specific thread, if you had coached Luka, what would his results have likely been if he had the same results as your average student?

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    • Joe VilleneuvePro Member
      Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
      1w

      Better. Like every situation like this, it still comes down to the person actually executing. To some, that might sound like I'm covering my a$$, and to some extent I guess I am, but like anything you learn...you still have to use it.

      My actual answer would be they would definitely learn how to properly analyze markets, learn a lot of strategies (and the basics of math so they can develop their own), and would have to design their personal REI Plan. I give homework, so I know all of this to be true. How about you?

      1Reply
    • Luka Jozic
      OP
      New to Real Estate · Member since 2022 · 146 posts · 110 votes
      1w

      When I said all in, I didn't mean I quit my day job to do only real estate, I meant I didn't do any other investments, and put all my money on real estate. Look, I started out in one market, bought my first two deals as regular deals, still own both of them today and they are actually ok. This was to get in the game and learn the processes. I then started BRRRR after that in the same market. Now I bought them all for great prices and got most of my money out. The mistake I made was that I did multiple BRRRRs at the same time, instead of one at a time and only continue once the next was stable. In terms of value add, I've made money, in terms of rent, I have not. Now, as I explained in another response, even if I had 100% tenancy for this entire time (which I definitely didn't), it still wouldn't have been a great outcome. It's simply because the margins aren't there in any market, unless you have access to extremely deep discounts. Now because I had so many issues in OH I bought a house hack in my local Tampa market. Tenants and constant repairs are gone, but it's still not making money because better markets don't support it. Thats the trade off. Would a coach have helped avoid some mistakes? Maybe, but the benefit it would have given from that probably would have been eaten up by the outrageous fees online gurus are charging.

      Im trying to argue that real estate does not work for the average Joe trying to invest. But you're responding with "yeah it works for me". Well of course it does, you're claiming you can buy properties at a $100K discount, and then basically adding you need a guru coach to achieve that.

      1Reply
    • Jules Aton
      MD/DC · Member since 2024 · 1k+ posts · 1k+ votes
      1w

      Know that I have made more than my fair share of dumbass moves in my life. My intention is to possibly offer strategies to help in the future.

      As I’m sure you know and hindsight is 20/20 but it is unfortunate if you went all in on RE during this time frame in particular because my Vanguard taxable account which is 90% TSM index funds has returned a truly passive >17% since 2019. Consider this a contribution to your tuition and come up with a written financial plan regardless of where you start investing going forward which will guide a thoughtful AA.

      0Reply
    • Joe VilleneuvePro Member
      Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
      6d

      IT works for the average Joe. Most REI started out as "average Joe's". It doesn't work for everyone. No job, investment, career, etc...works for everyone. You said, "real estate is an awful (your sord) investment." To me, its sounds like you are bitter that it works for others but not you. I'm waiting for you to say, "others just got lucky".

      0Reply
    • Luka Jozic
      OP
      New to Real Estate · Member since 2022 · 146 posts · 110 votes
      6d

      I mean Im bitter for sure not gonna lie. I don't think it works for the average Joe today. It only works for people that bought a long time ago, or people that have access to extremely deep discounts. If it worked for the average Joe today, then you'd be able to send me a single on market listing that works today.

      0Reply
    • Peggy Mason-Ewing
      Member since 2026 · 1 post · 1 vote
      1w

      Hi Joe,

      What is "CF" please?

      1Reply
    • Jay HinrichsBusiness Member
      Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
      1w

      CF = Cash Flow

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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    1w

    @Luka Jozic

    I appreciate your transparency here, and I almost entirely agree with you. My advice to new investors these days is that if there is no value-add component to what they're doing, their return is likely to be low or even negative compared to other options. We don't invest in real estate to "do deals," we invest to make money, and if you can make more money elsewhere - a business, the stock market, Pokemon cards - you should.

    With that said, if I recall correctly from your other posts, you've done several BRRRRs in Ohio that continued not to perform well. Is that accurate? My BRRRRs have been pretty good, in that I've been able to defer large capex, get great tenants, and keep vacancy fairly low. The recent ones don't cash flow at all, so the return there is entirely the equity that I forced. And I keep doing it since I can't make my stocks go up $50K with a rehab.


    In reading your post, it seems like you've had a combination of issues including non-paying tenants. Just to challenge you a little... doesn't that mean that you're maybe not in as nice of an area as you thought, even if it's not a war zone?

    In any event, again, I commend your transparency, and I think a lot of people aren't honest about their returns. I hope this helps new investors the way that I am trying to do.

    11Reply
    • Luka Jozic
      OP
      New to Real Estate · Member since 2022 · 146 posts · 110 votes
      1w

      I appreciate that and I agree, I mean the only reason I am still somewhat net positive in this whole venture is because of value adds in my BRRRRs. The areas that I bought were clear C areas. Not better, not worse. Sure I did have struggles with management and stuff but lets assume for a second I had ZERO vacancy in any property every. It still would have been bad because even though I did BRRRR and renovated majority of the houses, there was always something left that could break, that would then wipe out cash flow for the next 1-2 years. And before those 1-2 years are up, you guessed it, something else breaks and its now 2-4 years of cash flow wiped out.

      I did buy a house hack where I live in Tampa in a better area, and yes I do agree that the only way to get rid of headaches is better properties in better areas. However, you will not find a good property in a good neighborhood anywhere in America that cash flows. In fact, in majority of markets you will be negative. So you are now buying an investment that best case breaks even every month, and you're now banking entirely on appreciation. Looking back pre-covid, it's now evident it worked out for those people, but real estate is getting so unaffordable that I don't see how we can continue to see the same kind of appreciation. So as a new investor today, you can buy in a cash flow marker, cash flow on paper but not in reality, or you can buy in a good market and not cashflow on paper and not cash flow in reality. Either way you lose.

      2Reply
    • Shiloh LundahlPro Member
      Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
      1w

      @Luka Jozic this statement "you will not find a good property in a good neighborhood anywhere in America that cash flows" is not true for 2 reasons. You have not described the strategy and you have not explained the debt structure. There are nice properties in nice areas that can cash flow. I just spoke with an investor with a house in Scottsdale that is valued at around $900,000 that he is renting out for I think $7000 a month to a specific tenant that wanted to rent it for that amount. And he is cash flowing on it. Also luxury short-term rentals in certain markets by certain operators can  cash flow. And almost always, nice houses, in nice neighborhoods, will cash flow with no debt. 

      I am sharing the obvious, just to point out that some of your real estate investing conclusions lack context which may be part of the difficulty you are having with investing.  

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    • Marcus Auerbach
      Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
      1w

      Renting a 900k home for 7k is not a repeatable strategy, that's a unicorn!

      4Reply
    • Shiloh LundahlPro Member
      Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
      1w

      Agreed, the property was for sale and the guy wanted to rent it for a period and then buy it. I wasn't stating that it was a repeatable strategy, I was pointing out that the certainty of his statement "you will not find a good property in a good neighborhood anywhere in America that cash flows" is not always true. Similarly to his premise of his original post. He has not had a good experience with his investments. But let me ask you this Marcus, if you had coached him in buying properties, do you think he would have had the same results as he wrote about? What are the average results of the people you coach in real estate investing?

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    • Marcus Auerbach
      Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
      5d

      I don't coach anyone, but I would say you can still break even on a quality property in Milwaukee, maybe cash flow a little year 2. That's why I keep saying REI is not primarily for cash flow. CF just keeps the lights on long enough to build wealth.

      0Reply
    • Luka Jozic
      OP
      New to Real Estate · Member since 2022 · 146 posts · 110 votes
      5d

      Would love to see an example. The only way I can see that to be true is if you have zero vacancy and no major capex, which usually isn't reality.

      0Reply
    • Nicholas L.Pro Member
      Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
      1w

      @Shiloh Lundahl

      I think it's a slight exaggeration but I do think it's true for the vast majority of new investors.

      1Reply
    • Shiloh LundahlPro Member
      Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
      1w

      This is a one off deal. But the person who put this deal together is an experienced investor and that is the point. This wasn't the strategy he was going for with this property. But he had the experience to see how this property could work as a rental until the guy renting it bought it. I am just pointing out that Luka is missing a few things due to his lack of experience. And I don't mean it in a bad way. If you read my earlier posts on BiggerPockets you'll see the same thing, confidence without experience. Over the years I gained more experience, and I am a little bit less confident, or I should say less overconfident.

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  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    1w

    This is a very valid post and I think it is good for new investors to see. Not every property will make a good investment. What I have seen work for myself as well as many repeat clients is buying 3 or 4 unit buildings on the class A side of a big city like Chicago and then doing cosmetic updates to raise the rents high so they cashflow, same strategy should also work in other large cities with strong jobs so not just saying this because it's mine. I have not had even a late fee needed or ever seen a client need to evict a tenant that I helped them lease in these areas, never. It's a completely different rental experience when people are fighting for the unit and you pick the absolute best tenant. The numbers also tend to be better vs worse than expected as you have no vacancy doing same day move in and move out, as well as can just self manage the tenants very easily skipping managers. Property managers without a ton of units are often not very profitable. No one manages your property better then you will.

    I do not work a ton in the over 5 unit buildings but have done a few and yes it's weird how many large investment properties are sold that no way would cashflow after actual expenses. I think its a lot of people putting down large payments or 1031 into these low cap multifamilies. The last one 13 I sold the buyer was all cash and the 8 before that was 1031. 

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  • Alan AsriantsBusiness Member
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    1w

    There is a lot of validity in what you are saying but its really import to understand the full picture here. Also you can't expect to be successful in RE when you have only been investing for 4 years. Experienced investors know that the game is played for a long time.

    What's important is if you're doing the following:

    1. 1. buying in the right area

    2. 2. Buying the right type of RE - understanding cap ex, building structure, how much actual maintenance goes into it. Often, I see people buying the wrong type of Real Estate because the numbers seem to work well on paper. What they miss is the amount of work that needs to be done. Buying a property with poor workmanship is an easy way to get into a money pit that doesn't seem to ever go away.

    3. 3. Putting in the right people - the wrong Tenant can make the right investment seem like a horrible mistake

    If you genuinely do those three things in the right market and as someone mentioned above, not just a ZIP Code or a city then you should be able to hold the Real Estate comfortably for a long time to take advantage of benefits that happen - not four years from now but 10, 20, 30 years from now. This is where the real wealth is generated. The people who owned Real Estate for a long time and refinanced in 2020 were major winners. Had they not owned the Real Estate they could not take advantage of these opportunities. That time will come again sooner or later, maybe not at the same exact rates but potentially something similar and if rates don't fall that much, time in the market with appreciation and pay down will present other opportunities to you- but again it takes time.

    The same thing is true for the stock market. It's easy to look at the stock market now and see all of the years that it was very bullish and think that that will always be the case. There will be major downturns in the stock market in the future as well - its not always butterflies and rainbows. It's what you make over a long time with compound interest that matters. If you shorten the window, you're absolutely right you can see that the stock market can certainly outperform and give you a lot less headache. I still think it's a good idea to do some dollar cost averaging into the stock market, but also owning the right piece of real estate is another solid investment vehicle.

    However, retiring off of Real Estate cash flow is a different Beast. And just like the stock market it'll take a long time to get there unless you take big risks and make big moves.

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    • Alex Forest
      Rental Property Investor · Henrico, VA · Member since 2019 · 265 posts · 155 votes
      1w

      Yes indeed, I'm on the same wavelength here.

      2Reply
  • Dave MeyerPro Member
    Head of Real Estate Investing at BiggerPockets · Seattle, WA · Member since 2015 · 224 posts · 826 votes
    1w

    While real estate is definitely not entirely passive, as any active investor will tell you, it feels a bit extreme to label all real estate investments as terrible. I have done plenty of good deals in recent years, as have most experienced investors I know. I'm not trying to come at you or anything, but frankly, you probably just bought bad deals. Didn't buy low enough, underwriting wasn't strong enough, markets we not solid. Its hard to do all those things right in this market, especially if you're new -- but it absolutely can be done.

    If I were you, rather than aiming for 40-50 doors, I would start thinking, how do I execute one excellent deal in the next year. Be patient, negotiate hard, be incredibly discerning about what you buy. Don't even think about what comes next -- just do one great deal. Once you do that, you figure out how it scales.

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    • Luka Jozic
      OP
      New to Real Estate · Member since 2022 · 146 posts · 110 votes
      1w

      Appreciate the response Dave. Look, I will admit my BRRRRs were in the wrong market (Cleveland). In terms of buying low enough i definitely did, was able to get pretty much all my money out but the problem with BRRRR that they dont tell you is for a BRRRR to realistically work, you need to do your cash our refi at the top of the market value to get your money out. So sure, you get a "free" property, but what happens is because the loan is now quite high, you can forget about cash flow. Its the same as if you bought a property for a premium but didn't have to do a down payment. Hope that part makes sense. Now if you do that in a good market, you will most certainly be cash flow negative. So sure you got a "free" or "almost free" property but its now costing you money every month. That doesn't sound like an investment to me that sounds like a headache and liability.

      Look Im sure you and some of your friends are still buying decent deals, but you are experienced investors with years of experience. REI has always been marketed as not necessarily easy, but simpler than a business or learning stocks or some other stuff. Basically an investment achievable for anyone on the side of their W2. But its becoming pretty clear to me that the only people that are actually succeeding are the ones with years of experience, very well connected and often work full time in RE where they have access and resources to get better deals, financing, etc..

      1Reply
  • David Krulac
    Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    1w

    @Luka Jozic  I say that anybody can do what I did, but not everybody will do what I did.  

    The first 11 propertis that I bought, I financed 100%, becuase I did not have any money for down payments.

    The first property that I bought (story is in Bigger Pockets Podcast # 82) I bought from the State Highway Department with 90% bank mortgage and a 10% loan from parents.

    The second property that I bought was a multi-family and the owner was an estate. For some unknown reason they property was not listed, not advertised for sale, and did not even have a sign on the property.  Got it through word of mouth, bank financed non-owned occupied 92% ( talked about that purchase also in BP Podcast # 82) and got a no collateral line of credit for 8% remainder of the purchase price.

    I ended up buying and selling over 1,000 properties for my own inventory and am still active today.  Thsi year I bought 2 properties and sold 3 properties in FIVE different states. (None of them were either Ohio or Florida.)

    Has it all been Peaches and Cream, or what other phrase you want to use?  Absolutely not! Through hundreds of tenants we have had none payment, evictions, and things do break.  Last week replaced a roof and a heat pump.  The heat pump was only 12 years old, and personally I think heat pumps should last longer than 12 years, but the reality is this isn't the first heat hump that failed in 12 years or less.  I can't tell you off the top of my head how many roofs, furnaces, hot water heaters and every other electrical, plumbing and mechaical system of houses and apartments, I have had to replace.  At another property we're adding a dormer costing $30,000 not including interior finishes. On another single family house, we had an addition built that cost over $250,000. Was every deal a great deal? NO.  Some we did lose money, for a variety of reasons, but then there the ones that were home runs.  We sold multiple properties for $1,000,000 more than we paid for them.  Those were rarities, I'd admit.

    The best thing that I like about real estate is that you can work as much or as little as you like.  I know people that stopped after they owned 2, 3, or 4 propeties. I like that you are the CEO of your own business.  If you own stock in a Wall Street company you have little to zero control, I say that you are not even the tail on the dog, you're a flea on the tail of a dog.   

    4Reply
  • Brayden Johnson
    Rental Property Investor · Salt Lake City, UT · Member since 2021 · 3 posts · 0 votes
    1w
    I’ve changed my model to selling everything on land contracts or lease options. It’s removed a ton of headaches for me.
    0Reply
  • J. Mitchell Bernier
    Lender · Southwest Georgia · Member since 2017 · 312 posts · 278 votes
    1w

    I would absolutely agree that this market is a lot tougher to make money than ones in the past, but just like every industry it goes in cycles. Remember, that from 2000 to 2012 was a flat return in the stock market. So, is real estate tough right now, hell yes. Is it still a good strategy to generate long-term wealth, absolutely. But that certainly doesn't mean it's for everyone either. Good luck!

    4Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    1w

    I average 22% IRR on real estate. I average 10% in the stock market. I invest in both, but the return is definitely there for me in real estate, at least in the DC and Boston markets.

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    1Reply
    • Jay HinrichsBusiness Member
      Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
      1w

      Markets matter as does class of real estate.. low end OOOOLD rentals in the mid west or deep south this is a common experience. But I get why folks buy them easiest to buy and finance.. same investor is thinking 10 cap and pass's on the NNN 5 cap on a nice commercial property.

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      1Reply
    • Jules Aton
      MD/DC · Member since 2024 · 1k+ posts · 1k+ votes
      1w

      Imagine trying to get out of a 10 cap commercial property. Hard pass.

      0Reply
  • Jorge VazquezBusiness Member
    Real Estate Broker · Tampa, FL · Member since 2017 · 1k+ posts · 679 votes
    1w

    I actually love disagreeing with this, because I think the biggest issue is that four years is just too short of a timeframe to judge real estate investing.

    Real estate is not about instant gratification. I look at it a lot like stock investing. Cash flow is basically your dividend, but that is only one part of the return. You also have appreciation, principal paydown, tax benefits, and eventually much stronger cash flow as rents rise over time.

    The problem is that a lot of investors today expect the investment to prove itself in 2, 3, or 4 years. Real estate doesn't always work that way.

    I've gone through periods where it felt like nothing was working, followed by periods of incredible growth. I've seen rents nearly triple over a decade and equity double. I've also lived through years where values, rents, and the overall market went the wrong direction.

    That's investing.

    Stocks go up and down. Bitcoin has had massive swings. Businesses fail all the time. Why would real estate somehow be expected to go straight up every year?

    To me, rental properties are almost like owning little franchises. The property is your product, the tenant is your customer, and property management is your operating team. As you build enough of them and improve the operation, the portfolio becomes a real business.

    And I think that's another issue here: trying to do too much yourself can make 10 properties feel like 100. Good management, systems, reserves, and realistic expectations matter enormously.

    The other thing I see constantly is investors who never created a real long-term goal. They say, "I want $10,000 a month," but they haven't reverse-engineered how many properties they need, how long it should realistically take, how much equity they expect to build, or what bad years might look like along the way.

    Without that roadmap, it's very easy to quit during the painful part because you can't see where you're going.

    I started with basically nothing. Today I own close to 40 properties, we've managed around 500 properties, and after roughly 25 years in this business, I could pretty much retire if I wanted to.

    But it took 25 years.

    I didn't expect real estate to make me wealthy in four.

    Buying a service business may absolutely work for you, and there's nothing wrong with changing strategies. But I wouldn't conclude that real estate "doesn't work" because one four-year period didn't produce the results you expected.

    Real estate is a long-term, tangible asset. It isn't passive, it isn't painless, and it definitely isn't for everyone.

    But if you're willing to treat it like a 10-, 20-, or 30-year business plan instead of a short-term investment, the outcome can look completely different. And at the end of the day, there’s a reason real estate has created so many millionaires. It may not make you rich overnight, but over decades, very few investments have been as consistent at building long-term wealth. Great Topic .

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    • Luka Jozic
      OP
      New to Real Estate · Member since 2022 · 146 posts · 110 votes
      1w

      I totally agree that 4 years is too short to see actual results. But what I am seeing right now which is a reality (for long term rentals regardless of BRRRR or house hack or regular purchase), is if you buy in a nice neighborhood, you will be breakeven or negative on paper and in reality. if you buy in cashflow markets, you will be positive on paper, but most likely negative in reality. Either way you lose. These days, you are entirely banking REI on future appreciation, which with current market conditions does not look as good as pre-covid. The only exception to this is if you somehow have access to deep discounts that majority of people don't. I dare you or anyone else to show me one on market listing that will make you money TODAY.

      0Reply
  • Jules Aton
    MD/DC · Member since 2024 · 1k+ posts · 1k+ votes
    1w

    Class C in Cleveland sounds awful and only making a few hundred dollars a month on any property will surely result in you paying out of pocket for all the stuff that happens especially in a crap neighborhood. It is unfortunate that someone ever started the myth that brick and mortar RE can be passive even with a property manager. I have found that just having 4-5 in class A neighborhoods takes a lot of babysitting. Over the long haul RE has been good to me but I’ve held my properties 10-15 years on average and have a high paying W2 job. Don’t give up if you are still interested. Maybe check in with @AndrewSteffans? I think he’s in Tampa/St. Pete. But definitely lose the subpar locations.

    4Reply
  • Alex Forest
    Rental Property Investor · Henrico, VA · Member since 2019 · 265 posts · 155 votes
    1w

    Some observations on the original post

    • - Time. 4 years all in, 2 years investing (?).

    • This is too short to come to this conclusion. It takes time to start to see the long term benefits if you're a buy and hold. Eventually, the amortization schedule kicks in and principal payments start to be more noticeable. At some point the principal payments catch up to interest (and overtake them) and at the same time generally speaking rents do usually go up over time. It just takes...time.

    • - Cash out. you mentioned you did cash out refis and got original down payment back for an "almost free" property. Is that right? Well, then yeah, your cash flow will be very meager or none because you noe have a near free house. If you didn't refi (not saying you shouldn't have, it's good to get it back), then you'd have more cash flow. Spending on other expenses (with higher monthly mortgage because pulled original down payment out) and describing it as a poor investment. If you got your down payment money back, then what is your investment money? it's basically none...if you are breaking even before repairs, then your only investment into the property is those repair costs.

    • - Arms length: Sounds like you are hands off (whether out of state or with property management). That will always cost more, with property management, repairs, etc. But also, see above, if you already got your down payment back, then yeah it's going to feel more expensive in the near term.

    • - Enjoyment or lack thereof: If you're viewing this as strictly an investment only and experience no enjoyment in any part of the process, or rather are repulsed by all of it, then maybe it is not a good choice. What's the point in doing something that makes you miserable, regardless of the return?

    • - Current conditions: I do sympathize with current conditions, prices and rates. That can indeed make it much more difficult. But as Dave mentioned, if you can find a quality local property to focus on, and don't worry so much about scaling up and up and up, and instead get very good tenants (makes a huge difference) and holding that over the long term, your future 15 years from now self will thank you (unless you really do find no enjoyment at all from it, see bullet point above). 

    2Reply
    • Luka Jozic
      OP
      New to Real Estate · Member since 2022 · 146 posts · 110 votes
      1w

      1. The average mortgage in America lasts 7 years. By the time amortization really starts to make a dent, most people have already refinanced or sold.

      2. This is the problem Im trying to explain, if you execute a perfect BRRRR and get all your money out, you now have a property thats most likely negative and valued at the top of the market. Meaning appreciation will take extra long. If you leave cash in, well then you have a typical 5% return investment. To me, neither is good enough.

      0Reply
    • Joe VilleneuvePro Member
      Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
      6d

      Timing. REFI , sell or keep is all about timing. There is no magic number of years. That is one of the few comparisons you can use to the stock market.

      0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    1w

    RE investing is challenging right now. By this I mean most of the recent RE investments are lean or negative. Do not purchase one of these. Perform conservative underwriting and only purchase RE investments that project returns that warrant the effort and risk of residential RE.

    This implies passing up virtually all purchase opportunities to look for that gem.

    As for those that think it is ok to wait a decade or more for a decent RE profit, I question if such an “opportunity” is an optimal investment. I expect to recover my RE investment in no more than 4 years. Note the historical recovery on the sp500 is just over 7 years. If it takes anywhere close to 7 years to recover your RE investment, I question if it is worth the effort and risk versus other options SUCH AS SP500.

    My son just went under contract on his first flip. It was bigger than I wanted for his initial flip. His underwriting was more hasty than I recommended. I told him I would not offer full price, he offered $5k over asking price. So he ignored a lot of my advice. Hopefully he makes some money. Hopefully he does not loose money. Regardless he will learn a lot; hopefully it is not an expensive lesson.

    Good luck

    3Reply
    • Josh C.Pro Member
      Property Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
      1w

      @Dan H. This is the perfect answer. Tougher than 2015, but still doable. 
      Also that's fun watching the kids start, hope he goes to home depot less than 100 times. lol 

      1Reply
  • Aristotle Kumpis
    Specialist · Long Beach, CA · Member since 2011 · 873 posts · 393 votes
    1w
    It’s not perfect. But I’ve been taking the buy and hold approach for 13 years now and I can say it’s been good to me. All the creative ways of trying to make a quick buck in real estate is not always glamorous. Slow and steady wins the race
    1Reply
  • Ken M.
    Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
    1w
    Quote from @Luka Jozic:

    After about 4 years of going all in on investing in real estate, I have tried regular buy and hold, BRRRR, and house hacking in multiple markets, and I can now say that they all SUCK. I started out getting hyped by all the BP books and went through any information I could get my hands on to make sure I was prepared. I figured okay to reach roughly $10K a month, I need about 40-50 doors, so I got to work and scaled to about 10 doors in 2 years. The problem was I wasn't making any money, if anything, I was losing money. Despite having a PM, the headaches of just 10 doors was insane, always someone late on rent or not paying, something breaking every other week (despite being mostly renovated houses), some license, permit, lead ordinance, or whatever else would constantly come up to take mental capacity from me.. I own in OH and FL (no war zones) and despite at least one of them being a "cash flow market", on paper a property would cash flow roughly $200/mo, but in reality they would always be negative due to issues mentioned above. And i really did take care of them and repaired promptly but still it just didn't work.

    Now Im seeing more and more bigger investors (including Graham Stephan) who even bought YEARS ago and they are still barely breaking even. So imagine if you buy today. Sure you get future appreciation I can buy that somewhat but is it really worth all the hassle? Paying off the loan is a weak argument because you barely pay the principal until like year 20. Its pretty evident to me that REI is just not what it used to be. Brandon Turner started out by saying 50% of rent should be put aside for expenses, then that didn't work so someone invented the 2% rule, then that didn't work anymore so someone invented the 1% rule, like we're constantly moving the goal line to justify a deal. And now, I see people everywhere saying do rent by room, that works. Well yes but I've done that and its EVEN MORE headache. Imagine that on 10+ properties? Its a full time job. Im keeping track of some of the properties I sold and they have already been sold again 1-2 times, probably because people realize the same thing. I even looked at commercial real estate on crexi in all kinds of cities and literally nothing makes sense. Majority of 10-20 unit buildings would still be NEGATIVE!

    I've realized that real estate is definitely not passive, it has incredibly low returns (probably lower than the stock market), and the only people that still think its a good idea are the ones that bought 20-30 years ago.. Instead, Im looking into buying a small service business. Sure its not as passive, but at least it makes money, and has the potential to be about as passive as real estate if you grow it big enough to hire a manager. So to anyone considering investing in real estate: My advice: DON'T! 

    It sounds like you took prime rib and treated it like hamburger. It's good you've taken action, but it appears you went into the kitchen with a sledge hammer instead of a tenderizer and a sword instead of a skewer.

    You just need a little training, that's all. Those of us that have done well, approach things with understanding, that's the only difference.

    We start with the assumption that you buy at 80% of ARV. It's a little easier than it sounds and it sure pays off.

    0Reply
  • Jim Walker
    Real Estate Agent · Carmichael, CA · Member since 2011 · 17 posts · 19 votes
    1w

    I worked as a Realtor for 15 years, before I bought my first rental houses after the 2008GFC. Even though prices had cratered for me to enter the market, I was break even cash flow for the first five+ years. I was great at selection because I had been doing selection for clients for fifteen years. I got 2 to 3% back on every purchase as RE commission representing self. My interest rate was below market. I had (and still have ) the most amazing skillful handyman at a shamefully low wage. I did a lot of the low skill maintenance and rehab myself. I bought supplies and fixtures at the Habitat Restore! And it was still break even the first five years! My intention was buy and hold every time. Profitable flips happened only because happy on time paying tenants wanted to own and wanted to pay me top dollar for the house they were already living in. Most of those flips were seller carryback. So that is when cashflow started to get real positive as a portion of principal was coming in along with the interest and I no longer had taxes, insurance, utilities and maintenance!

    Alex, Jules, Jorge, and Dan wrote of similar experiences. Rental home investing commonly takes years (even decades) of break even or even negative cash flow before it ever becomes lucrative enough to fully retire on the positive cash flow. I think we have a consensus. Real estate is for getting rich quick very slowly. But only if you know what you are doing. are smarter than the average bear, are willing to put your hands in a mucky toilet, are as patient as a rock, and have a whole bunch of unfair advantages.

    I'm not filthy rich, but I don't have to worry about running out of income while retired.

    1Reply
    • Luka Jozic
      OP
      New to Real Estate · Member since 2022 · 146 posts · 110 votes
      1w

      Thats exactly what Im saying, if it takes years of negative or breakeven, then why am i even doing it? Because one day it will have appreciated enough? My point is that the amount of work it takes to actually make decent business in real estate is probably more than just buying a business which pays you from day one, not 15 years down the line.

      0Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    1w

    The OC is not wrong; and the conclusion is correct too. I have often said small biz for CF and REI for long term wealth.

    But also: 2 years is too short, RE works over decades. I have been feeding my portfolio with cash for 15 years, before I started taking money out of it.

    We are going to see diesel and jet fuel go through the roof. Inflation is going to pick up, we may see double digits soon. That's the only way Basset can control the 40T debt; Trump says we will outgrow it, but the plan really is to de-value the dollar, then pay our debt off with 40T worth of worthless paper. Trump has done this "successfully" six times. Debt gone, everyone screwed. I don't believe the US is going to declare bankruptcy, but inflation and stable coin can accomplish nearly the same. We are basically screw all our creditors: no other country get's to do that; the privilege of being the worlds reserve currency.

    If you look at it through that lense: REI still makes a lot of sense.

    3Reply
    • Camden Lowrance
      Investor · IN · Member since 2019 · 35 posts · 24 votes
      1w

      Do you have an active small business? We are thinking about diversifying into it but really don't have time as we do BRRRs full time. What small businesses work well for active investors in your experience?

      0Reply
    • Marcus Auerbach
      Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
      1w

      Nothing worth doing is easy. I own a top real estate team and host a YouTube channel, but they can be entirely unrelated to RE; follow whatever talent you have.

      Food truck, couch flipping, mobile car detailing service, dog-poop removal service, pressure washing, vending machines, escape room, stump grinding, laser paint stripping, floor sanding, wall printing, boutique gym with classes, or duct cleaning. And of course huge opportunity of AI: classic example build websites for small business and rent for 500/mo or generate AI video walk through and sell to Airbnb owner, or, or, or

      All these business require little capital, can scale to 10-50k /mo in cash flow and are perfect to become the flywheel engine for a real estate portfolio.

      You may notice that while cash flow is the super power of a small biz, equity is not: hard to sell for a substantial amount of money. You need to be big enough that private equity is interested. But that is where REI comes in: not that great with CF, but amazing in generating generational wealth.

      2Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    1w

    I've seen 1,000's of investors make awful investment decisions over the years. But real estate in itself is not an awful investment by any means. Most every time someone loses money in real estate it's 100% their fault because they made poor decisions.

    For example: Giving your money to a scumbag like Brandon Turner or Clayton Morris --- Terrible decision.

    2Reply
    • Shiloh LundahlPro Member
      Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
      1w

      @James Wise I don't think it is 100% the investor's fault when there is a loss. I think that that every real estate deal has 3 components, 1) the operator/s , 2) the deal, and 3) the market. If any one of these things goes really bad, then the investment can go bad even if the other 2 are good. You can have a great operator and a great market but the deal itself may be an unforeseen bad deal that 9 out of 10 times should have worked out well. Or the deal is great and the market is great but the operator is not great (dishonest, bad actor, etc.) and screws up the deal. Or the operator is good and the deal is good but the market does a complete 180 during the deal. That can happen too. And it can happen to great operators. This information shouldn't justify not being a good operator though. Some bad operators blame the market when they should take more responsibility.

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      0Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    1w

    Great post that ALL NEWBIES should read!

    Too many newbies believe the hype machines out there and pay asking price for real estate. That may have worked from 2012-2019, but not anymore.

    You have to work to find motivated or ignorant sellers and then structure deals correctly.

    You also have to fully UNDERSTAND the deal and the inherent risks!

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  • Nick Robinson
    Rental Property Investor · Murrieta, CA · Member since 2020 · 338 posts · 343 votes
    1w

    @Luka Jozic
    A couple of things: I think many of us jump into real estate focused on increasing the number of doors, but if you have negative cash flow, adding more doors only digs you deeper. It’s worth reviewing your underwriting to compare projected expenses with actual ones. Maybe during your walkthrough, you didn’t account for credits on a roof or AC unit, so that unexpected $5k–$10k bill could wipe out your cash flow for years if you’re only making $200 per door. Real estate is often seen as a “get rich quick” investment, but it’s really the opposite, it’s a long-term game, requiring a 5-, 10-, or more-year horizon. Sometimes you need to consider selling some assets to pay off others and boost positive cash flow. If selling isn’t an option, you might focus on paying off one loan at a time. Many people chase “no money down” deals and maximum leverage, but over time you realize that’s often what gets you into trouble.

    Buying or starting a profitable business will almost always outperform real estate returns. As I said, real estate is long term, so investing for only four years and deciding it’s not worth it is just a matter of perspective. You need to review your portfolio, tweak your process, and determine your real goals. For example, if you bought the NASDAQ in Dec 1999, it took until 2015 to break even (nominally, not inflation-adjusted), but from 1999 to now, you’d be up over 5x. The key is buying at a good value and maintaining positive cash flow so you can hold the property long enough for appreciation, rent growth, and other benefits to kick in.

    3Reply
  • Allan C.
    Rental Property Investor · Member since 2018 · 826 posts · 809 votes
    1w

    ALL investment returns are a function of 1) risk 2) effort and 3) barriers to entry. Your experience is valid, but I think you lack an understanding of investment fundamentals.

    Your experience is the equivalent of buying into the stock market in 2007 and then saying it sucks by 2009.

    Markets are cyclical and no such thing as easy money. I’ve been in this for 20 years and I’m getting hammered in some markets lately. But I’m taking a step back and reminding myself of fundamentals and ramping up my acquisitions over next 12 months.

    4Reply
  • Camden Lowrance
    Investor · IN · Member since 2019 · 35 posts · 24 votes
    1w

    We've had pretty unprecedented stock market gains the past decade, which has made real estate investing look worse in comparison. Given the much higher risk of real estate, the fact that it can't outpace a broad market index fund makes it hard to justify unless you are able to vertically integrate your business.

    For us personally, the only way we are successful now is a fully vertically integrated BRRR business. We do everything from acquisitions at tax sales to full gut rehabs then property management.

    It was painful to get to this point, and it's definitely not easy, but all the deals I have done for the past two years I've left none of my own money in them.

    1Reply
  • Arman AhmedPro Member
    Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 904 votes
    1w
    Quote from @Luka Jozic:

    After about 4 years of going all in on investing in real estate, I have tried regular buy and hold, BRRRR, and house hacking in multiple markets, and I can now say that they all SUCK. I started out getting hyped by all the BP books and went through any information I could get my hands on to make sure I was prepared. I figured okay to reach roughly $10K a month, I need about 40-50 doors, so I got to work and scaled to about 10 doors in 2 years. The problem was I wasn't making any money, if anything, I was losing money. Despite having a PM, the headaches of just 10 doors was insane, always someone late on rent or not paying, something breaking every other week (despite being mostly renovated houses), some license, permit, lead ordinance, or whatever else would constantly come up to take mental capacity from me.. I own in OH and FL (no war zones) and despite at least one of them being a "cash flow market", on paper a property would cash flow roughly $200/mo, but in reality they would always be negative due to issues mentioned above. And i really did take care of them and repaired promptly but still it just didn't work.

    Now Im seeing more and more bigger investors (including Graham Stephan) who even bought YEARS ago and they are still barely breaking even. So imagine if you buy today. Sure you get future appreciation I can buy that somewhat but is it really worth all the hassle? Paying off the loan is a weak argument because you barely pay the principal until like year 20. Its pretty evident to me that REI is just not what it used to be. Brandon Turner started out by saying 50% of rent should be put aside for expenses, then that didn't work so someone invented the 2% rule, then that didn't work anymore so someone invented the 1% rule, like we're constantly moving the goal line to justify a deal. And now, I see people everywhere saying do rent by room, that works. Well yes but I've done that and its EVEN MORE headache. Imagine that on 10+ properties? Its a full time job. Im keeping track of some of the properties I sold and they have already been sold again 1-2 times, probably because people realize the same thing. I even looked at commercial real estate on crexi in all kinds of cities and literally nothing makes sense. Majority of 10-20 unit buildings would still be NEGATIVE!

    I've realized that real estate is definitely not passive, it has incredibly low returns (probably lower than the stock market), and the only people that still think its a good idea are the ones that bought 20-30 years ago.. Instead, Im looking into buying a small service business. Sure its not as passive, but at least it makes money, and has the potential to be about as passive as real estate if you grow it big enough to hire a manager. So to anyone considering investing in real estate: My advice: DON'T! 

    I think your experience is pretty common, especially when the numbers only work on paper. Real estate isn’t automatically a bad investment, but the deal and market matter a lot. I’ve seen investors have a much better experience in parts of the Midwest where the entry prices and rents still make sense. If you’re out of state, that can work too as long as you have a solid local PM and boots-on-the-ground team handling the day-to-day. The key for me is buying the right property at the right price, not forcing a deal just to add another door.

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    2Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    1w

    Long term rentals aren't going to give you a massive return over a 2-4 year period. You are in it for a longer period of time. It depends on so many factors-price of the house, rent, interest rates, condition of the home, insurance, taxes, etc. It also isn't about how many you have. I'd rather have fewer solid homes with good tenants, than a bunch of cheap places that attract problem tenants.

    1Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    1w

    This is a long-term game. As should other investments be, you're thinking short-term which is more trading.

    Very hard to find something as tangible as land, and as utility based as renting a house. When you measure appreciation + cash flow, it's immensely harder to find something that'll produce a better long-term return.

    I don't know your background but scaling to 10 properties in 2 years means you thought just get the numbers on the spreadsheet, and it'll figure itself out. As does the get to $10k comment. But people like you are exactly why savvy investors thrive; they prey on your impatience. I've developed 4-5x faster than you, but am coming with a significantly longer tenure of investing and longer view. A lot of this is cyclical, and you really need to be well equipped to manage it.

    You would've been better off buying 3-5 incredibly good locations, add some value(1 bathroom or 1 bedroom, or both) and managing debt ratios to service it on a 1.33-1.5 DSCR.

    If anything posts like this make me more bullish. I am still thinking definitely more headwinds short term(2-8 quarters), but the back end of the curve will need to re-rate.

    3Reply
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