why I don’t talk about real estate investing

Alternative income is a preoccupation of anyone who wants financial freedom – that and saving money. I talk about my ideas for wealth creation on this blog with a great deal of frequency. Part of that is just because that’s what blogs are – a conversation that swirls around particular topics – but part of that is just that I enjoy thinking about wealth creation. I am not terribly good at wealth creation. I am not a multimillionaire or financially free. I am not all that bad at wealth creation, either. Bubelah and I have worked hard to create a financial “kingdom” that keeps costs low, quality of life moderate but pleasant and future growth high.

But one thing you don’t hear me talking about much is investing in real estate. I have three good reasons I don’t like discussing real estate as an investment:

1. I hate the concept of “investing” in a primary residence. Your home is not an investment. It is a HOME, first, second and last. If you make some money on it, fine. If you are one of those people who live in it for two years, fix it up and sell it, fine, although I wonder how long anyone with a family could do that. You can’t buy a home with the same emotionless detachment that you might buy shares of GE. You don’t have to live inside GE, or clean its showers, or paint its walls, or have your kids go to its schools.

2. I don’t know much about real estate, let alone real estate as an “investment”. I have bought exactly one house in my life. I have never sold a house. Like everyone else, Bubelah and I went through a brief breathless hunt for “investment properties” a few years ago and came up empty (fortunately, considering the state of the market now). I read a couple of books, but much like my advice to the Writer’s Coin about financials I’m not foolish enough to think that made me an expert. It did make me enough of an expert to realize that….

3. …in the area where I live the real estate market is brutally competitive. It is expensive – down payments in the NYC area can be more than the entire cost of a house in other parts of America. Zoning and property tax laws are incredibly complicated. Competition is fierce. Gentrification can come out of nowhere. I am sure investing in a medium-sized city like St. Louis, for example, is complicated too but I suspect the rate of flux in the market is somewhat less than in New York.

For these three reasons I’ve tried to stay away from giving much advice on real estate investing as an alternative investment on brip blap. I plan to invest in real estate one day. I would like to own a place I could rent out. I’d like to flip a place. Bubelah and I bought a new construction townhouse and I’ve been through a million little upgrade projects – painting, installing stuff, even putting in crown molding. I know enough to “brighten up a place.” But all of these are future plans, and between now and then I need to put a lot of time into study – something that apparently a lot of people didn’t do over the last few years. I am working hard now at my consulting. Weekends tend to be spent doing “family stuff.” When I am financially independent I do plan on working real estate into my investing portfolio, but for now it’s not in the cards.

(photo credit: elvissa – look at it closely, it tells you everything you need to know about the screwy real estate market)

Odds and ends

  • I’ve updated the picture on one of my most popular posts – 101 thoughts on losing 100 pounds. If you’re curious to see the man behind the mask – so to speak – here’s your chance. When you look at the ‘before’ picture, keep in mind that black is slimming…

13 comments

  • I have a totally different background in real estate.
    Hubby and I bought our first property straight out of high school. We duplexed it out, got a tenant for the upstairs, lived in the bottom. Eventually we bought a separate residence… but we never stopped purchasing rental houses, even being a part owner in an eight-plex.
    It was fun, we learned a lot, and made some good money over the years.
    I personally think the real estate market isn’t a disaster from investment property purchasers, as much as homeowners that couldn’t afford the homes they purchased…
    That said, I do agree that knowledge is important when purchasing properties. But, a little learning along the way, is ok too.
    And you are totally on the money with location, location, location.
    I also think you have to have a certain comfort level with the whole “landlord” thing…

  • I can attest that Brip’s advice is good and this is more good advice. For most people I think real estate investing is just too much work and too much stress.

    How do you feel about REITs though? I’m looking at Vanguard’s REIT index but maybe not for another few months.

  • I’ve enjoyed using real estate as a means to making some money along the way in the first part of adulthood. It’s fun, it’s a learning experience, and it is something both hubby and I knew from growing up – we both have parents that used real estate as an investment vehicle. I think it all comes down to comfort level. Some people love the idea and know a lot about it or want to learn more so they get into it. Others are terrified of the stock market and wouldn’t dare go there. Our differences are what make the world go round. I am with you on being in NYC making it a lot tougher to jump into it though.

    And HOLY SMOKES! Nice before and after shots. I’d never guess it’s the same person. Way to go, Steve!

  • I find being a landlord stressful. Otherwise, it’s worked out well for us, luckily. I wouldn’t say we’re making money on it, though.

  • I totally agree with you–your home is NOT an investment. It is your home. Unless you liquidate it by selling it, it’s just a roof over your head.

    And, like any “investment” there’s no guarantee that you’ll make money on it.

    Sometimes, people have to pay to get out of their houses, if they sell for less than you paid (and you still owe on it). What kind of investment is that? A lousy one, obviously.

  • I’ve bought over a dozen homes in the past few years (and have facilitated the sale of nearly a 100 to investors). I’ve been renting my own home back in San Diego since 2005, which was the peak of the market.

    Now is definitely not a good time to get into real estate investing.

  • Steve, when you do eventually have something to say about real estate investing, I’m sure it will be very good advice. Thanks for not jumping right in before you have helpful advice to give.

  • When the U.S. Census Bureau reports that only 41% of real estate investors actually made money, you know its not as easy as it looks!

  • Nice pic! – of course I’m talking about the For Sale sign – that’s the kind of shot I was looking for when I did my FSBO post recently. Where do you get your post photos?

    As for the before & after…very impressive. I’m actually impressed that as a 101 pounds-overweight-man you don’t look as big as I thought you would.

    Mike

  • Steve, I feel the same way. I think I would like to have a rental property sometime in the future, but not quite yet. As for our primary residence, I’m not concerned about making a ton of money when we sell it. First and foremost it is where we live. Even if we didn’t have this house, we would have to live somewhere. Nice article.

  • “Your home is not an investment. It is a HOME, first, second and last.”

    Yes! Thank you for articulating what has been bothering me about the real-estate advice that I’ve been reading. I am no good at regarding my home as an investment. That may be because I grew up in the same place all my life, but I also can’t see why anyone would be okay with moving every couple of years for the rest of their life, especially if they have children.

  • Reasons 2 and 3 make a lot of sense to me. Number 1 doesn’t seem to fit as much since there are a lot of people who invest in real estate without making it their primary residence.

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