I just watched a Facebook Live with probably the most well-known of all the internet gurus, a guy who is always shooting videos showing his multimillion dollars houses and garage full of Ferraris. I’m on the fence about whether this guy is actually a person who has actually made his fortune from actual internet marketing / social media success or if he is one of those “if you can’t do, teach” guys who just lies about his results, shoots videos with leased cars and rented houses, hyping up his latest course, which apparently is going to teach you how to become rich by investing in real estate. If I’m being totally honest here, I can’t think of a worse idea for a program, especially given the fact that I have had 15 years of experience in real estate investment, almost all of which is negative in some way. There has not been a single time when I’ve been inclined to recommend real estate investment to a person who wants to build wealth, for a number of reasons. Here are a few of them:
- Real estate costs more than you think. Experts/ gurus are going to tell you that you can “buy real estate with minimal investment.” That may be true, but someone’s going to have to pay for the mortgage, taxes, insurance, and maintenance at some point. If you are the primary investor, that person is you. Do you enjoy having a job (or taking client work) just to pay for a place where someone else lives? No? Then don’t try to “build wealth” using real estate investing as your vehicle.
- “I’m in investment property for the tax benefits.” Another claim made by the internet guru, which is another thing claimed by this internet guru. I don’t know if he’s done his taxes yet (I’m guessing the answer is no), but either he doesn’t make nearly as much money with his internet marketing business as he says, or he’s flat-out lying. Truth: if you make over a certain amount per year (like, over $120,000), you actually don’t get to take the tax deduction for your investment real estate until you sell it. That can be a very long time if there is another recession. Example: I have been holding one particular property for almost a decade, have never gotten a tax benefit because of this stupid rule, and do not expect to make a dime of profit when I finally sell. That is probably not a thing you’re going to hear in this “expert’s” course. Just a wild guess.
- “Real estate is the best way to build passive wealth.” This claim actually made me laugh out loud, because it was so obviously spoken by a person who has never owned real estate. There is nothing, and I mean absolutely nothing, PASSIVE about real estate. Passive is “set it and forget it.” Passive is not “hey, property owner, my toilet is broken and I am not paying the rent if you don’t get it fixed right away.” Passive income is not “I can’t pay the rent but I am not moving out.” Passive income is not “Real estate taxes have gone up so you are now at cashflow negative, and you are still responsible for the mortgage, or the bank will foreclose on you and ruin your credit.” Real estate should never be said to be passive, because it takes more work than you will ever anticipate or know. More heartache has been caused by real estate than probably any other “investment” ever invented, and no one has EVER said that about a bank where you can put your money and just get a steady, truly passive monthly dividend. DO NOT BELIEVE any person who says that real estate is a “passive income.” This is a straight-up lie, and anyone who says this kind of thing has either never had the misfortune of holding real estate for the long term, or is selling you a lie, or both (meaning, they are losing money in real estate, and they are selling you a course to make up for the loss). Either way, you lose.
- “Most wealthy people have made their money from real estate.” That is a lie perpetuated by people who have never actually made money from real estate. People like Donald Trump make money from real estate because they exploit people, dodge their taxes, declare bankruptcy, then try to teach other people that “most wealthy people have made their money from real estate.” This is the liars’ equivalent of a snake eating its own tail. This statement alone, to me, is the classic sign of someone who has never had any real life experience with investment property, and therefore is not to be trusted. Do not be deceived! People who have actually made money in real estate will tell you—it is NOT passive! It is hard work, and is no joke!
- The “trapped” factor. Guess what supposed gurus will never tell you about real estate? That would be the fact that you are subject to the whims of the marketplace as to when you can actually see your money again. Unlike an actual “investment” where you can cash it in when you need it, money that is sitting in real estate is subject to any number of ridiculous things like neighborhood fluctuations,
I thought this whole “buy investment real estate property to build wealth” hype was over, especially with how much money so many people lost in the recession of 2007-2008, but apparently with the current upswing, there are still people willing to sell the real estate dream to people. I fell for it by taking a “Rich Dad, Poor Dad” course. Don’t make the same mistake.
Let me also tell you a little (horror) story about a former friend of mine who used to be both a realtor and a real estate investor. She took one of these courses and was so moved by it, she switched her career from being a teacher to being a realtor. Because she lived in Los Angeles, she thought the “market would keep going up forever” (real words she actual said to me) as well as “San Diego real estate is all the diversification I need” (again, real words. Real stupid). She was the realtor who sold me a piece of property in San Diego. I was very concerned that the “bubble” would eventually burst and that the house was a risky investment, but she reassured me that she held many properties and was profiting from all of them. Less than a year later, that very house was worth hundreds of thousands of dollars less than what I had paid, she had gone bankrupt and sold all of her investment properties at a loss, and had moved out of state with her one year old daughter, basically broke and having to start over. She actually got to start over, whereas I have been holding that same investment property for almost ten years, and am not expecting to see a profit when I sell. Thanks, real estate expert!