On today’s episode of Financial Freedom Friday, Matt shares his thoughts on the cons of investing in real estate. Find out three reasons for not investing in real estate, why you must know how to manage the people in order to be a successful real estate entrepreneur, and why a market fluctuation is not a con.
What You Will Learn About The Cons of Investing in Real Estate:
- 3 cons of investing in real estate
- Why money is not liquid in the real estate business
- How passive income could be a con
- Why you must know how to manage people in order to be a successful real estate entrepreneur
- What part of the real estate business is risky
- Why a market fluctuation is not a con
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Speaker 1: This is Theriault Media.
Matt Theriault: Hey, Matt here at Epic Real Estate and today we’re gonna talk about the cons of real estate investing.
We spent the better portion of a decade here, talking about the pros of real estate investing, why you should invest in real estate, why you should do it now and why you should never stop. We’ve talked about that for over 10 years. Today we’re gonna talk about the cons.
So welcome to this episode of Financial Freedom Friday.
Alright, so in my opinion, everybody should invest in real estate. We’ve been talking about that. I really don’t think most people have a shot at any sort of financial freedom unless they incorporate real estate somewhere into their financial plan. Alright? So you absolutely should. But today we’re gonna talk about maybe three reasons, three reasons I came up with of why you should not invest in real estate. So here’s the cons of real estate.
One is liquidity. So if you got money inside of a real estate investment and you need that money back out, it could be a minute before you got it out. Your money is not liquid. And if that need coincides with unfavorable market conditions, you might have to wait for that cycle to rebound and come back before you can actually get your money out. So, liquidity.
Number two, I would say passive income. But man, how could passive income be a con? Well, it’s a con because it doesn’t exist. A lot of people come in with the misconception of passive income like they’re gonna buy this property, they’re gonna rent it out and they’re just gonna sit at home, wait for those checks to come and flow into their mailbox and that doesn’t work out for a lot of people. In fact, most people when they have that expectation and they go running for the hills with the wrong lesson and saying, “I’m never gonna invest in real estate again,” and it wasn’t necessarily the real estate that failed, it was really they came in with a bad expectation of real estate. So I would look at passive income … Let’s define that, from now on, a little bit more along the lines of we’ll call it ‘managed residual income’. Managed residual income. It can certainly produce money while you sleep, absolutely. Real estate promises that and it keeps its promise, but it’s not gonna produce that without your involvement. So either you’ve got to manage the property or you have to manage someone to manage the property for you. Alright, so passive income, big con. Doesn’t exist.
And the third thing, and this is actually pretty closely related to number two, I’m gonna say the people. The people involved. If I look back at the money that I’ve lost in real estate, it’s all directly related and not even too many cases indirectly, but it’s all directly related to the people that were responsible for making that property to perform. Whether it was the contractor, whether it was the property manager or whether it was the tenant. If you can manage the people, real estate is really … It’s really difficult to lose.
I mean, all you really need to do is know how to evaluate a property to determine its value, to determine what the fair market value is, and then what your exit strategy is gonna be and all that can be done with, gosh, pick any book online and get a spreadsheet out and that part is simple. But to get it to perform in the real world, it’s right here, the people. So you gotta do as much due diligence on the people that you work with as you do the real estate itself. You could put people with any investment, right? ‘Cause it takes people to many any investment perform, but the difference between here and what’s significant about real estate investing is that these are people that you hire, these are people that you select and many other investments, all that’s done for you, the management of those people is all done for you. Here, it’s up to you.
So those are my three cons, the lack of liquidity, lack of passive income, or non-existent passive income, and then the people. I mean, real estate, that’s safe. It’s the people that make it risky. Alrighty, so those are my three cons of real estate investing and did you think I forgot something? What about the market fluctuations? What if the market crashes? Right? ‘Cause that’s possible, it happens all the time. It happens in regular cycles, doesn’t it? Well, if the success of those investments is determined by the fluctuations in the market, I want you to understand that you’re not real estate investing. You’re not investing in real estate, you are speculating in real estate. That’s why that’s not up here. Alright? So buy, hold forever and watch your wealth build and increase and grow. As long as you buy in a good enough equity position, not even good enough, just a discounted equity position and the property cash flows, you’re gonna be just fine.
Alright, so I’ll see you next week on another episode of Financial Freedom Friday. Take care.