The Good, The Bad and The Ugly of Real Estate Investing

For those of you who know me, I love to talk about real estate – even when I’m not asked about it!  That is because I am so passionate about it, both as a vehicle to build long term wealth as well as a mechanism I use to generate income.  From buying income properties (buy and hold) to selling real estate to flipping properties, I have been able to use these methods to create a wholesome financial future for myself and my family.

When I am asked about the different strategies of real estate investing, I always share that I am a big proponent of the single family investment model. Mostly because my wife and I choose to self manage our properties and this is one of the most challenging parts of real estate investing.

But because of the recent market conditions (which I foresaw a few years ago) I began duplexing.  It is the next best thing, especially with beautifully constructed legal units whereby the home is set up for two families.  These are more difficult to manage though – you have double the tenants, hence – double the problems when they do arise.

Aside from property management, financing is also becoming a major challenge for real estate investors – especially with the constant fluctuations in lending rules.  Real estate investors are hitting road blocks fairly quickly into their investing careers whereby they cannot qualify for any more mortgages.  They are reliant on creative means to finance properties such as using private funds or JV partnerships to continue to grow their portfolios.

Many people think that it is just a matter of having some extra cash and buying property – and it is.  The basic philosophy behind real estate investing is simple.  Buy good properties in good areas with strong economic fundamentals.  Ensure that you can cash flow and voila – you are in the game.

But as those of you who are in the game know by now, the formula is simple but not easy.

This week has been especially challenging.  We were in court dealing with a tenant who has not paid water for several months, whose dogs have damaged our property and has now failed to pay June and July rent.  We came across many of these issues when we did our routine inspection of the property, but our system is extremely tenant friendly and things take very long to deal with.  This can result in the landlord facing huge financial loses.

We also had a washer dryer conk out, had a foundation crack that needed repair and put in extra soundproofing in a duplex where there were lots of complaints about sound transfer.  It seemed like the laundry list of repairs was unending.

I do not share all this to scare you or to deter you from investing in real estate.  It is one of the most fruitful and lucrative investment models out there – if you educate yourself, surround yourself with a team and do it right.

But the purpose of my rant is simply to prepare you for the reality.  I know investors who collect rents every month, are able to pull out large amounts of equity from their properties but get very upset when the slightest issues creep up.

Nothing comes for free – and the simplicity of the model doesn’t come without its challenges.  But I would say that it is 100% worth it in the end!