9 Reasons Why You Shouldn’t Invest in Real Estate (by an Investor)

Real estate is great! I own a few properties, and I make consistent cash flow every month. Meanwhile, I'm consistently building equity as my loans get paid down.

But real estate is not for everyone.

Here are 9 reasons why you shouldn't invest in real estate:

1. You Need Money NOW

If you're looking to make money very quickly, or if you're counting on the market continuing to surge, you're likely in for a rude awakening.

In real estate, to make the most money, you have to be in it for the long haul.

2. It Takes a Lot of Time and Effort

Real estate is a laborious venture. You need to be prepared to put in the extra time and effort required to find the right property, negotiate a good price, coordinate inspections, work with a lender, handle repairs and maintenance, and deal with renting the thing.

If you’re not ready to put in the work, especially up front, then real estate investing is not for you.

3. You Don’t Have a System

To be successful in real estate, you need to have a system in place. Real estate is filled with headaches. They pop up at seemingly random times. If you don't have a plan or a system for dealing with them, it's going to be miserable.

4. You Don’t Have the Right Team

A successful real estate investor knows the importance of having a great team.

You need a good real estate agent, a good inspector, a good property manager, a good accountant, and a good lawyer. Without a good team, you’re likely to make mistakes that will cost you a lot of money.

5. You Need Liquidity

Real estate is not the most liquid investment.

Unlike, say, a stock, you can't just sell a property in a few seconds. It can take weeks, or even months, to sell a property. And if you need to sell very quickly, you will likely have to take a significant haircut on the price. Even a cash-out refinance can take weeks to close.

If you need liquidity quickly, it's probably best to look elsewhere.

6. You Don’t Have Reserves

Even if you finance 100% of the property, you’re still going to need to bring cash to the deal. You never know when a major system is going to fail. You’re eventually going to have to cover a major expense. The amount of debt you’re using might push that “optimal” reserve number even higher.

I like to bring enough cash via reserves so that I can at least replace an entire roof on day 1 if it were to fail right after closing. Regardless, owning real estate can get expensive really quickly.

7. You’re Not Patient

Real estate is a "get rich slow" game.

Just finding a good deal can take months. Once you get an offer accepted, it can still take weeks from that point to close.

After that, you need to be prepared to hang in there for the long haul. If you’re looking for a quick (or easy) buck, you’re going to be sorely disappointed most of the time.

After all, with a 30-year, fixed-rate mortgage, you're paying way more in interest in year 1 versus year 20. But, if you can hold for the long-run, you'll likely get rewarded handsomely, especially if rents increase and your loan gets paid off.

Even with a short-term flip, that process can take many months to execute successfully. And that's if your systems are good. And that's in a hot market.

8. You Might Not Make the Money You Expect

A lot of people think they’re going to make a ton of money in real estate without really understanding the numbers. Just because you buy a property for $100,000 and it rents for $1,000 a month doesn’t mean you’re going to make 12% on your money.

You also need to factor in things like vacancy, repairs, and property management. Those things add up quickly.

And if you're banking on equity growth, the market can always take a turn for the worse. Equity can get erased in a flash, so be careful when assuming huge appreciation indefinitely.

9. You Don’t Understand the Risks

There are a lot of risks in real estate.

You could end up with a problem tenant who doesn’t pay rent and trashes your property.

You could end up in eviction court.

You could buy a property that needs a lot more work than you thought.

You could get sued.

You could have a problem with the property's title.

You could have a problem with zoning laws.

Your property tax bill might double.

Your great manager might quit.

Oh yeah, and you have to keep meeting your payments each month.

The list goes on and on.

Real estate is not for the faint of heart. You need to understand the risks before you get started.

All of that said, if you're willing to face the challenges that real estate throws at you, you can make a lot of money. You just have to know what you're getting into.

If you're not fazed, and if you're looking for a great real estate investing strategy for beginners, check out this article over on my site dedicated to house hacking!

And you can check out my YouTube channel and all my other accounts here!