Why is REI so popular if it takes YEARS just to break even?

[Mark Kennedy]

I've really wanted an answer as to whether real estate is a get rich slow endeavor, and after watching Brandon's video on How to Quickly Analyze a Property Deal it seems to be the case

https://www.youtube.com/watch?v=XW_9AUsdPC0

Brandon invests $30,000 into a 4-plex and ends up with a net cash flow of $4,020 a year. At that rate, it will take him 7.5 years just to break even. Sure, he may end up with more because of appreciation/tax benefits...but still almost Seven and half years?! 

During that same amount of time, you could've invested $5,000 into a software business and scaled it up to $10k monthly recurring revenue or $100k a year in less than 6 months (very hypothetical, but you get the point).

Sure, you can get higher cash on cash return percentages for larger size deals, but it still takes so much more time to get a return (since your investment dollar amount also grows in proportion)....

I was really interested in learning more about investing in multi family deals, until I came to this realization. Does anyone have any objections? It really does seem like real estate is a slow man, or woman's, game (at least compared to other sources of building cash quickly like starting a software business) 

Really hope I don't come across as a troll...but I'm just deeply turned off by this.

[Ben Leybovich]

@Mark Kennedy

This is an interesting thread - you are not wrong, and yet you are totally wrong...

1. If you are going to use $30,000 to buy this pig - you are a fool.

2. If you are going to buy this pig strictly for Cash Flow - you are doubly a fool.

Let me give you an example:

1. In 2013 I bought a 10-unit for $373,500. I closed with $5,300 out of pocket...

2. In 2013 it made cash basis $3,000 - this was a tough re-positioning;

3. In 2014 it made cash basis $12,000;

4. Early 2015 I refinanced the building. The current NOI capitalized value came out to $450,000. My loan is $350,000. This means I've put $100,000 on my balance sheet;

5. Currently, in the first 8 months of 2015, cash basis T8 sits at $16,500, which means that I have a very real chance to touch $20,000 of CF in 2015.

6. I will pay no, or very minimal, income tax on this CF.

Thus, an investment of $5,300 of cash has generated up to $35,000 of CF and $100,000 of value on the balance sheet...

Now - you are not wrong, because:

I have an internet platform that earns a little money, and I am in development stages of another one. And you are right, IM can throw off substantive income faster than RE. However - it is not likely to be as stable as well-chosen RE, nor is it going to be leveraged, meaning OPM generating your wealth. While business is indeed the most effective vehicle for CF, equity is a bit of a different conversation.

Finally, the tax code is such that the cash flow from business needs to be eventually shielded by RE. So, purchase of RE is rather institutionalized within the wealth-building process...

hope this helps with the big picture, mark.