Rental properties seem worse than traditional investments

[Juan Rango]

As an excited newbie, I have very little experience in real estate investing so at a meeting with my financial planner I asked about house hacking as a busy professional and he stated it would be a bad idea.  This took me down from cloud 9 real estate guru excitement.  It made me really face the fact that maybe a fiduciary fee-only financial planner with 30 years of experience has some wisdom. So I thought a lot, listened to tons of BP podcasts, read forum posts, analyzed several deals, and thought of worst case and best case scenarios.  It seems that for someone who doesn't want to work an additional job that real estate investing is a bad idea and here is why... 

I think that in order to be a successful real estate investor you have to take it on as at least a part-time job putting in 10-20 hours a week to maintain an informational advantage and run the day to day of the business.  It is absolutely a business and is not hands off like other investments hence the higher returns.  We cannot predict life or the market and when you factor in time invested and the risk of the entire cash flow of a property being wiped out overnight with the wrong tenant or just a bad year for the property, it makes it much less attractive.  Some would say stocks are risky as well but if you look at things like index funds over 20 to 30 years; a 7-10% annual return for sitting on your couch certainly has me second guessing how much I would like to pour into real estate investing.

In conclusion it seems that real esate investing is a great way to become financially free if you want to quit your day job with a lot of leg work (aka a second career), or a great idea for someone who is business savy already and has the capital to start an additional business.  For a busy medical professional like myself, I am certainly having second thoughts about going "all in."  The gurus and those who are successful certainly have done it but there are many more that have failed, or over the long run have not beat traditional hands off investments and spent a significant amount of time doing so.  If anyone has studies on the success rates of the average buy and hold investor I am curious.  

PS:  I still plan on trying to find a househack as a short term means to reduce my living expenses.  I am interested in real estate investing as a means to portfolio diversification.  It's all about the deal!  Thoughts and comments are appreciated!

[Kristina Heimstaedt]

My dad is a financial advisor and still invests real estate. I'll first list his cons:

1. Real Estate is not liquid- It's just not even close to the liquidity of stocks. The other concern is that with one phone call (ideally), you can double your investment in a single stock or pull all of your funds from said stock.

2. Free time- You buy a stock and can go on vacation and turn your phone off more or less. Obviously it is wise to keep an eye on things, but you're not getting 2 am calls about rain in the apartment.

The reasons why he likes it:

1. Level of complexity- For as convoluted as real estate can be, it doesn't require hours or study and commitment the way stocks do. I view real estate as somewhat similar to looking at a single sector in stocks like pharmaceuticals or tech.

2. There are lots of failures- However, if you can develop a system and get it right, you will eliminate your competition. Most people don't like to rent to young millennials. That is my bread and butter. They are so excited to be renting a nice place. Typically they work long hours. They do like to have a good time, but not to the point that it puts their jobs/careers at risk. 

3. Dividends- The dividends you can earn from real estate are leaps and bounds better than stocks. In the 5-7 years that we have owned the majority of our properties, they have produced a 10% ROI and appreciated by 75-150%. We plan on refinancing the loans on these properties, collecting the cash and purchasing more properties.

Does this take time to figure out? Absolutely. However, I can tell you just by my few years of experience and my interactions here on BP, I have learned to be an amazing property manager and have great relationships with 95% of my tenants. Are there crummy tenants out there? Sure, but it's your job to not let them have access to your property. Don't get me wrong, it can be really tough when you've been vacant for 30 days and you're looking at another mortgage payment, but it's so much better to work with someone of quality than not. You can do so with this link: Avoiding bad tenants. Be wise and don't learn the same hard lessons that everyone else has learned. If you can do that, you're bound to be successful