11 Biggest Lies In Real Estate

March 6th, 2011 · 12 Comments · Buying or Selling Your Property, Commercial Property, Property Management, Rental Property

5440422406 bf7b977594 11 Biggest Lies In Real Estate
cc 11 Biggest Lies In Real Estate photo credit: mikecogh

There are many unknown facts about landlording and many misconceptions about what is required to “make it” in this business…

Being A Landlord Is Easy

There a whole industry out there devoted to encouraging people to just buy a property and they’ll make a mint. This is a lie. The truth is that being a landlord requires dealing with tenants, contractors and a whole host of other people. Properties are easy, people are not.

Anyone Can Be a Landlord

This is not true, not everyone can be a happy landlord that makes money. Many people do not possess the skills required. You can buy a property and rent it out, but time will tell if you will become a landlord or become one more guy who bought a property and sold it a few years later. Some people lose their shirts in this business, just ask Donald Trump who has lost his shirt, then got it back, then lost it again in a bankruptcy and then went to Europe to buy a whole new wardrobe with the money he made doing his TV show.

Tenants Are Jerks

Tenants are customers, without tenants there is no real estate business. Real Estate is perhaps the only business that reviles it’s customers. It’s a mistake.

Landlords Are Cheap

Landlords aren’t cheap, they are saving their money to replace your furnace in 4 years from now. The profit margins in this business are extremely slim so in most cases the money isn’t there to indulge unnecessary “projects”.

All The Rich People Made Money In Real Estate

This is perhaps the biggest secret… here’s the List Of The Top 15 Billionaires and although I’m sure their real estate portfolio is impressive by ordinary people’s standards only one has made a business of real estate and telecommunications and hotels. Owning a port is not exactly the same as buying a house to rent out. In all these cases you’ll find that these business people own real estate to hold their real businesses.

McDonalds has a huge real estate portfolio that comprises a steady income stream. They made their money flipping burgers and now they buy the properties that house the restaurants. Next, as the author of the article suggests… this real estate portfolio may be spun off on the Stock Market.

Actually if you look at the list you’ll find that most of these billionaires made money in retail not real estate!

Real Estate Is Passive Income

This is a whopper if I ever heard one, just like any business, to be successful, the real estate investor has to actively manage their affairs. Today is a Sunday and I’m taking it easy, and also going out to pick up some rent checks and changing a door knob and taking pictures of a property for the Landlord & Tenant Board hearing tomorrow. Sounds relaxing doesn’t it?

No one is handing out hundred dollar bills on street corners. If you want money you’ll have to damn well work for it.

 

Real Estate Always Goes Up

This is true until it isn’t. Actually real estate goes up and down and up in quite regular cycles: it’s just that the cycles are long. I was a teenager the last time the real estate market in Canada crashed. Those pretty graphs that show that real estate always goes up don’t adjust for inflation or taxation. If real estate always went up in value the most expensive real estate in the world would be the oldest.

The Value Of Real Estate Is Determined By Commerce

Without commerce there is no value. If you don’t believe me go house shopping in Detroit or even my home town of Temagami. Without an active burgeoning economy and business there is no value to real estate. It’s just a bunch of bricks and mortar in the wrong spot you have to pay taxes on and maintain.

Location, Location, Location

Real estate investors want prelocation, prelocation, prelocation. That’s because the greatest gains to be made in real estate are made by waiting for areas to gentrify. By the time your real estate agent tells you about a “hot area” it’s too late. The train has left the station. What makes an area valuable is the commerce in that area. For example, look at the agricultural lands and what happens to the value when the area builds up around it.

My Real Estate Guru Says…

I know a number of real estate investors that do very well for themselves. Most are millionaires several times over. None of them have time to bullshit teach masses of people about real estate. None of them have time to write books and if they did you wouldn’t buy the book because in most cases you would never have even heard their names.

People who are selling these courses and memberships are in the business of selling courses and memberships. They are not in the real estate business.

You Make Money When You Sell Your Real Estate

Smart real estate investors make money when they buy the real estate. I have seen this over and over. They are patient, they are smart and they won’t buy it unless it’s a great deal. They know the minute they sign on the dotted line that they’ve made money. They don’t pay one cent more than they have to, and they never pay for potential…only income. That’s because potential is not worth a penny without a lot of work. They want to be paid for their work and assuming other people’s problems. So they’ll buy, but only on their terms.

If you were to market a property that was run down and empty to a savvy real estate investor and you told them how much more they should pay because of the great location and promise for the future, they’d tell you to call them when you had done all the work and then they’d pay the price you’re asking. Then, they’d tell you how much that property was worth to them and make you an offer that would probably offend you. Some people say yes, if they are desperate enough. That’s how smart investors make money.

Many of these people who have made good money in real estate have sold their properties in the last few years. There’s a lot of wise money sitting on the sidelines these days just taking a break and having a nap. They’ll be back to snap up the deals when there’s blood in the streets.

Real Estate Is Safer Than The Stock Market

Real estate is just another business. The stock market is a place where businesses are traded. Anyone who knows anything about the stock market will tell you that businesses cycle up and down depending on the economy and popularity. Sometimes energy is hot, sometimes it’s real estate. Other time’s commodities are the good buy.

Different people have affinity and the skills to succeed according to the field of business they choose. I might not do very well in a fashion business, because I don’t care about it at all. Fundamentally every business is the same, in fashion you make or buy purses or clothes and sell them for more than they cost you. In the real estate business, we buy buildings and sell or rent space for more than it cost us.

If you want to be a successful real estate investor you’ll be using the exact same principles that countless businesses traded on the stock market use every single day, and if you’re extremely good, you’ll eventually be traded on the stock market too, if you want to.

On that note… here’s a great article by Robert Herjavec on business principles, ideas that you’ll need to apply to any business you’re in to succeed.

I’m Sure I’ve Missed Some Lies…What Big Fish Stories Have You Heard About The Business of Real Estate?

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12 Comments so far ↓

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  • Joe Q.

    Great post Rachelle. The “pretty graphs” that show real estate continually increasing in value are not only not adjusted for inflation (usually), they’re scaled to just show the boom times. A chart of house prices in southern Ontario from 2000-2010 looks fantastic — a nice, nearly monotonic increase. Plot 1990-2010 instead and things look a lot different.

  • Sami

    one of the best posts you have written. I like the one about “My real estate Mentor says..” it is so true. People who attend these courses check their brains at the door and become robot in implementing what the guru says. and they shell 1000 every 3 months for mentorship and advice they can find around them if they ask.

    • Rachelle

      Thanks Sami,

      Some people have called me a guru and I tell them to stop, I don’t want to be associated with that bunch. I work everyday in this business and it’s not easy. I’ve attended those seminars and they do make you feel good thought. Some of them are free so it only hurts if you take out your credit card to buy more CD’s and courses and stuff like that. Actually one day I might write a book but it won’t contain stuff like feel your dream and think of your vacations in the sun. All the landlords I know work hard for their money. It would probably be something like “Best Practices For Small Landlords”

  • Brandon Yanofsky

    So many family friends have lost so much thinking real estate would be just some easy money.

    It really is a business in and off itself and should be treated as such. Not as just a side project.

    • Rachelle

      Absolutely, what worries me is the large number of small investors who have bought preconstruction condos these days. I get a lot of calls to rent them out which is fantastic for me. But its a little frightening when you think about all the skycranes in Toronto and what will happen to these people when the “correction” hits. It’ll be negative equityville for lots of them. Not to mention that many landlords in these condos actually pay every month out of their pockets to own them.

      Subsidized housing of the worst sort. It won’t be fun anymore when they check the mls and the price of their condo is less than they paid for it and they are dumping 3-400 every month into it.

      • Brandon Yanofsky

        I agree with you, but sometimes purchasing those condos can be a steal, especially here in the US.

        I’ve heard that on highrise condos, it’s cheaper to finish than stop construction. So they finish and just want to get rid of them.

        If you are smart, you can get one for way cheap. But you definitely need to know what you are doing.

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  • Afford-Anything.com

    Thanks for this post! I just bought my first rental property — yep, I’m a newly-minted landlord — and I’m SHOCKED by how much work it is!! It feels like a part-time job!

    I also now have a much better understanding of why some of my landlords, in the past, have done the things they’ve done.

    I’m in the strange position of being, simultaneously, a landlord AND tenant … yep, I own a property that I rent out, AND I live in a place that I rent from someone else.

    Being a landlord has made me a much “better” renter!

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