What's the catch?

Question

Just finished watching a video on how to buy commercial RE by a guy who wrote a book for dummies. He makes it sound so simple and easy. If RE investment is so simple and succesful, why not more people do it? In other words, what is the catch?

Don Konipol · Answer

Its not simple and its not easy.

There was a period of time where you bought almost anything, leveraged to the hilt, and price inflation produced hugh returns.  No longer true, at least not in the last thirty years.

Knowledge, experience, ability, self insight, luck, all play a major role.

"Real estate" is not one business or one type of investment, it is a number of related businesses or investments

Residential, multi family, office building, warehouse, mixed use, retail, recreational, raw land, tech centers

Large, medium, small, micro

Urban, suburban, small town, rural, exurbsb

Different states, different metropolitan areas, different cities, different neighborhoods, different blocks, different demographics

Different property age, different architectural style, different fixed expenses, different financing, different tenant mix, different tenant demand

Single net lease, double net lease, triple net lease, CAM, building allowances, rent holidays, lease length, buyout provisions, personal guarantees, lease renewal, cost of living increases, flat percentage increases,

Different loan amortizations, fixed interest rate, variable interest rate, balloon payments, fully amortized, institutional loan, private loan, seller carry back

Buy and hold, fix and flip, syndicate, partner, joint venture, self manage, professional manager, management company, leasing company, in-house leasing, real estate agent, licensing requirements

Federal laws, Federal regulations, state laws, municipal laws, rent control, eminent domain, set back requirements, utility easements, property taxes, special tax assessments, development districts, water districts, utility bonds

Passive investing, active investing, portfolio income, business income, retirement funds, ERISA regulations

Asbestos, Clean Air Act, Environmental Super Fund, pollution control, water runoff, Flood plain, floodway, Flood control, Flood insurance, endangered species, wet lands

Zoning, Planning Board, building permits, occupancy permit, community board hearings, noise ordinances

Eviction laws, foreclosure laws, bankruptcy laws, civil liability, fair housing, tenant rights, disclosure laws, loan modification laws.

Simple and easy?

Account Closed · Answer

Fear.  Fear of loss and fear of the unknown.Probably many more reasons, but those two are pretty big.

J Scott · Answer

Unless that one option you pick isn't a good option based on your location, skillset, experience, financial situation, goals, tube availability, etc.

Don wasn't just laying out various options, he was pointing out the very basic aspects of real estate that anyone in this business needs to understand.  And not just a cursory understanding.

Andrew Ware · Answer

Real estate truly is fundamentally simple.  You purchase the rights to an asset then improve or rent that asset for gain.  But simple and easy are not the same thing.  Think of it like poker or chess.  You can learn the rules in a few minutes but it takes many years to master.

There are lots of challenges with real estate from financing, construction surprises, legal issues, people problems, and getting money you are owed.  Just talking about those things scares most people back in front of their televisions.  Part of that is because they think of a problem with their own house as money spent coming from their job.  But in a real estate business it's being funded by the asset itself and is part of the cost of doing business.  That perceived risk, lack of knowledge and motivation are what open up great opportunity for all of us who are willing to manage that risk.

Don't overcomplicate it.  Real estate is one of the few investments that you can really make your own luck.

Thomas S. · Answer

Simple answer, as noted, it is neither simple or easy. It takes hard work and a great deal of knowledge to be successful at anything except buying lottery tickets or receiving inheritance.

There is of course also the fear factor which comes from knowing you risk losing every dime you have ever earned and more.

Dealing with tenants and other sources of high stress is of course also a major factor.

Real estate gurus invest in and sell dreams.

Adam Bartomeo · Answer

@Dennis P.

If the title of the book was something like "Real Estate only for very intellegent people" then he wouldn't sell many books.

The concept of the stock market is much easier then RE, buy low and sell high. That's it! Now give me your money for my new book.

In my opinion Being in RE is not easy and MF is much more difficult. There are easy philosophies like B&H. Buy a property rent it for 20-30 yrs and sell it, easy peasy. The best thing to do is find an area that you are passionate about, and research, research, research, then anaylize,anaylize, anaylize, then buy. You will see that there are a lot of variables that you must take into account that are in your control and some that are out of your control.

Good luck!

Dennis P. · Answer

Andrew, funny you mentioned poker and chess. Don't like either. But everything about RE sounds doable. I asked the initial question checking for hidden traps. By the way, thanks for explaining one of them. In handy hands, business expenses come out of business income.

Completely agree with what you said about the affordability of RE investment. Hard to beat that.

Dennis P. · Answer

Thanks for responding, Adam. I asked in order to prepare myself better.

Dennis P. · Answer

Yes, it is like people's own mind argues against them. In another post, someone called it a "mind fart". I also read somewhere that it should not be a property that excites an investor but the numbers.

John Rogers · Answer

Edison reflected that the patent for the light bulb represented 587 ways to NOT make a light bulb...

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