"Real estate produces more millionaires than any other industry."

[mav55339]

How true is this statement? I've heard it many times. Do they become millionaires from flipping or rentals or both? I know MJ says this is one of the 3 things to avoid but I'm curious why people say this.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[MJ DeMarco]

How true is this statement?

It was true 25 years ago.

It's no longer true.

It's just someone repeating what they heard decades ago while ignoring what has happened on the internet in the last 2+ decades.

I never said to avoid RE either, when I was growing up it seemed to be the best way. Today, it's just one of MANY ways.

 

[Fox]

Probably because its a massive asset class that most people are involved in.

Think of every house, on every street, in every city. Someone has to own them and thanks to a money printer that never stops, soon most of them will be worth a million dollars.

But that doesn't mean it is the best wealth generation tool for you. I would argue that a large percentage of people who made their money in property just bought and held and inflation did the rest.

Not to say it isn't a highly profitable niche. But just that it is one that requires more capital to get started than say the internet. Plus leverage, scale, risk versus reward etc.

In short - if you have the capital to get into property right now, then by all means.

If you don't, then get to work with other easier options and come back to it later.

 

[MJ DeMarco]

The easiest $350K I ever made was sitting in my primary home for 2 years and then selling it, taking $250K tax free.

Inflation did the rest.

Does that make me a great real estate investor?

No. Just a beneficiary to inflation, money printing, and bad government policy.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[theag]

Just a beneficiary to inflation, money printing, and bad government policy.

Unfortunately, looking back over the last ~10 years, the easiest way to become a (multi-)millionaire has been to have a reasonably well paid slowlane job and buying a house as primary residence as soon as possible. Then just wait. Taking the tax-free gains every couple of years is just a bonus.

Must faster and safer than attempting to build a fastlane business, which most will fail at or are not successful enough to match the slowlane path. Biggest regret of my life so far.

 

[Bounce Back]

I think this thread is confusing inflation hedge with getting wealthier personally. Just because your house goes from $200k-$1m doesn't mean you have the buying power as if you had $1m at the date you bought the house for $200k.

By common sense if you sell it you could then only buy a $1m house for instance which.... is going to be what would've been $200k in the time your asset inflated.

The difference though is you got to hedge that $200k based on needing just the down payment (and ability to repay the loan) so some real upside but not as is commonly conflated.

If you are at the point where you say "yeah but I could've got the house at $200k back then (even adjusting my income for inflation) and now I can't get the $1m" well congratulations now you have learned why some like Ron Paul call inflation the most evil form of theft. That is the quality of life being stolen from a population. But you wouldn't have gotten rich had you bought that house back then.

 

[IceCreamKid]

I lost 6-figures on my rental properties last year. I'm not against real estate, but it seems significantly more difficult now than a few decades ago.

Must faster and safer than attempting to build a fastlane business, which most will fail at or are not successful enough to match the slowlane path. Biggest regret of my life so far.

Thank you for sharing your thoughts here. I feel that it is a much needed message in the current environment.

A friend of mine is a middle school teacher and he tells me so many of the students are obsessed with the idea of blazing their own path and "escaping the matrix". What they're not being told is the probability of success.

Starting a business is a suicide mission. Most will end up broke, some will end up with a biz that barely matches a w-2 income, and a tiny percentage will end up spectacularly wealthy. That's just the factual data. Google it yourself and you'll see.

This is why I've said numerous times here that everyone should follow this path if you want the highest probability chance of success:

1. Get a job; preferably one in tech where you'll learn highly transferable skills
2. Work on your biz at night
3. When the biz profits consistently match your w-2 income, consider jumping ship and going full throttle on the biz. Or keep the job if you genuinely enjoy it and just put 50% effort in. I've seen the weirdest thing happen where people tend to perform better at work and get promotions when they no longer need the job.

Everyone seems to think that getting a job is accepting failure. Nah, getting a job is a guaranteed path to funding your dreams. It provides you the capital needed for hiring employees, marketing, product development, etc. It's the ammo you need to survive multiple failures. And yes, you will fail multiple times. Even the greats have.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[ygtrhos]

I seem to be contrary to most forum members on this.

Probably because everyone knows one RE market or two. I kind of know 3-4.

If you have no cash, that is true. But if you have some cash (20-30k) and some mobility to look beyond the overcrowded places, you will find properties that will pay themselves heftily. I am talking about buy& rent here.

If you do buy&make shared flat or AirBnB, you might profit even more.

Depends of course on your buying price, rate of return etc. The statement in the title is very probably true, because rental RE is a never-ending demand.

 

[MitchC]

If there was a "best way" to get rich it would be print money in a fastlane business and put all that money into real estate

I have a feeling the real estate market looks like it creates so many millionaires because people who are printing money elsewhere and dumping it into real estate get lumped in with people who make their money in real estate

 

[theag]

If there was a "best way" to get rich it would be print money in a fastlane business and put all that money into real estate

I have a feeling the real estate market looks like it creates so many millionaires because people who are printing money elsewhere and dumping it into real estate get lumped in with people who make their money in real estate

Agreed. You have tons of gains for individual and institutional investors in a red hot stock market, which is driven by similar market distortions that MJ described. Those are flowing into real estate, and creating of ton of FOMO for everybody who missed out due to poor life choices.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[ygtrhos]

One thing to add is that, you get cheaper unit prices with bigger volumes of purchase. It accelerates your way to multi millions.

RE is probably the "slowest fastlane". But like in every business, if you have a good tenant (customer), you will save a lot of headaches. This is my experience so far.

 

[Sirrom]

@ygtrhos

Where? Which markets are you talking about?

 

[ygtrhos]

@ygtrhos

Where? Which markets are you talking about?

If I want to put them on a spectrum:

Switzerland ==> Frankfurt ==> Leipzig (in order of consolidatedness, i.e. finding opportunities, in a non-inflationary environment)

Also my hometown Ankara I know a bit, but that is inflationary, so your strategy becomes different. It is much more about taking in cheap loans in local currency and watch your debt melt with inflation, while your RE value in reserve currency (like USD) stays the same. You basically ride inflation fastlane.

99% of 1st world people just do not understand this really, they get terrified when they hear the word inflation or unstable economies. Instability is high risk, yes, but the rewards are also higher.

In stable economies, the speculation value is lower, but your chance of success is higher. This is why I preferred Leipzig as a compromise of both. West Germans just have no idea about what is happening in the East.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Panos Daras]

Where I live now, in the Netherlands, I can refinance the house and pay just a little bit more on the mortgage—approximately 100-200 EUR extra per month. By doing this, I can essentially purchase a property in my hometown in Greece, in a tourist area, and rent it out for a return of 1000 EUR per month. That is gross of course (disclaimer).

In this situation, during the buying process, I would need to tackle bureaucracy and sift through misinformation from sellers. The whole process can take 6 months to 1 1/2 years. Once this is accomplished, I could use platforms like Airbnb and Booking.com to list the property if I'm up for additional challenges or just rent it out. Thus, real estate can indeed generate passive...ish income. But remember houses still need maintenance and finding handymen can be VERY time-consuming. You can hire someone to do that but then you add more to the expenses.

However, the assertion that RE produces more money than other industries is simply not true. Opportunities still exist in real estate, for sure, if you know where to look but not that much in Northern Europe.

Also, why is this OP moderated?

 

[MJ DeMarco]

Also, why is this OP moderated?

Many new threads started of low value. This one got through.

 

[biophase]

I lost 6-figures on my rental properties last year. I'm not against real estate, but it seems significantly more difficult now than a few decades ago.

How did you lose 6 figures on rental properties?

Repairs? Vacancies? How big were these properties?

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[MJ DeMarco]

How did you lose 6 figures on rental properties?

My guess is California tenant law that allows deadbeats to live freely for years before landlords can do anything about it. If that's not the cause, it is worth noting anyway.

 

[Bence Ur]

Here's the performance of the Dow Jones Global Select Real Estate Securities Index: Dow Jones Global Select RESI | S&P Dow Jones Indices

The Dow Jones Global Select Real Estate Securities Index (RESI) tracks the performance of equity real estate investment trusts (REITs) and real estate operating companies (REOCs) traded globally. The index is designed to serve as a proxy for direct real estate investment, in part by excluding companies whose performance may be driven by factors other than the value of real estate.

These are mostly REITs managed by professional real estate investors, they do this full time. They invest in properties such as homes, office buildings, hotels, hospitals, warehouses, shopping malls, storage space, data centers etc., globally (70% USA, 30% rest of the world).

You need to look a the "net total return" number, this is the return including dividends, less the dividend withholding tax.

As you can see the net total return in USD in the past 10 years is 3.13% per year. In the past 5 years the net total return is 0.05% per year.

There were better investments, for example the S&P 500 stocks.

Be aware of the fact that these are professional REIT companies, they have real estate managers who do this full time. If you want a higher return then you need to do this full time and you must be smarter than the market.

 

[IceCreamKid]

Thanks for the questions, @biophase and @MJ DeMarco

How did you lose 6 figures on rental properties?

Repairs? Vacancies? How big were these properties?

All of the above. It was a myriad of mistakes.

Here's the full story:

• My sisters have been investing with a turnkey property management company for years and were very satisfied with them.
• Early 2020 I decided to jump in and quickly buy 10 properties in Ohio because there aren't really any deals that cash flow in California. Also spending $1.5M on a rental property in Cali scares me as opposed to 10 rental properties in Ohio.
• All of these are low end properties averaging 100-150k in price. Blue collar tenants who are very likely to be living paycheck to paycheck.
• Inflation starts to ramp up and the tenants can no longer afford rent. Multiple evictions happen at the same time.
• The property management company charges a full month of rent as commission when finding a new tenant. Then after that they charge 10%.
• New tenants come in and stop paying rent almost immediately. After they're evicted the properties are trashed with mice, cockroaches, broken windows, etc. I don't know how a property can get damaged like that so quickly. At first I thought it was just a fluke, but this pattern starts to repeat itself again and again.
• I dig deeper to find out why this is happening and it turns out the property management company sold the biz, but kept the original name since they have been around for decades. The new owners have no process for qualifying tenants. Basically if you have a pulse they'll take you in.
• I fly to Ohio to see what's happening for myself. Turns out I was paying for fake repairs that never happened and the few real repairs were charging me Cali labor rates but in Ohio. If it was a real repair, the quality of the work was terrible.
• I ate the loss and am now slowly selling off the properties. They haven't appreciated much because it's Ohio. Who wants to live out there lol

Lessons learned:

• I was too hands off with these rentals. I'm busy running a carpet cleaning biz, a software biz, and am also managing a team of tech sales folks. They say real estate is passive income, but I don't think that's entirely true unless you're investing in a REIT.
• I wish I didn't buy out of state. I'm sure there's a way to do it effectively and not get burned, but I clearly didn't do that.
• I moved too fast because I blindly relied on the fact that my sisters had been happy with them for years.
• I mistakenly focused on buying lower end properties because the calculations initially told me I'd get a higher ROI. It didn't factor in the fact that lower end tenants are more likely to stop paying rent if inflation skyrocketed.
• Turnkey properties sound nice at first, but there's no one to hold the property manager accountable. For example, the repair guys were often relatives of the property manager. Next time I'd rather build a team that holds other team members accountable.

I'm sure I'll give real estate another shot in the future, but I won't be asleep at the wheel when that time comes.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[theag]

Thanks for the questions, @biophase and @MJ DeMarco

All of the above. It was a myriad of mistakes.

Here's the full story:

• My sisters have been investing with a turnkey property management company for years and were very satisfied with them.
• Early 2020 I decided to jump in and quickly buy 10 properties in Ohio because there aren't really any deals that cash flow in California. Also spending $1.5M on a rental property in Cali scares me as opposed to 10 rental properties in Ohio.
• All of these are low end properties averaging 100-150k in price. Blue collar tenants who are very likely to be living paycheck to paycheck.
• Inflation starts to ramp up and the tenants can no longer afford rent. Multiple evictions happen at the same time.
• The property management company charges a full month of rent as commission when finding a new tenant. Then after that they charge 10%.
• New tenants come in and stop paying rent almost immediately. After they're evicted the properties are trashed with mice, cockroaches, broken windows, etc. I don't know how a property can get damaged like that so quickly. At first I thought it was just a fluke, but this pattern starts to repeat itself again and again.
• I dig deeper to find out why this is happening and it turns out the property management company sold the biz, but kept the original name since they have been around for decades. The new owners have no process for qualifying tenants. Basically if you have a pulse they'll take you in.
• I fly to Ohio to see what's happening for myself. Turns out I was paying for fake repairs that never happened and the few real repairs were charging me Cali labor rates but in Ohio. If it was a real repair, the quality of the work was terrible.
• I ate the loss and am now slowly selling off the properties. They haven't appreciated much because it's Ohio. Who wants to live out there lol

Lessons learned:

• I was too hands off with these rentals. I'm busy running a carpet cleaning biz, a software biz, and am also managing a team of tech sales folks. They say real estate is passive income, but I don't think that's entirely true unless you're investing in a REIT.
• I wish I didn't buy out of state. I'm sure there's a way to do it effectively and not get burned, but I clearly didn't do that.
• I moved too fast because I blindly relied on the fact that my sisters had been happy with them for years.
• I mistakenly focused on buying lower end properties because the calculations initially told me I'd get a higher ROI. It didn't factor in the fact that lower end tenants are more likely to stop paying rent if inflation skyrocketed.
• Turnkey properties sound nice at first, but there's no one to hold the property manager accountable. For example, the repair guys were often relatives of the property manager. Next time I'd rather build a team that holds other team members accountable.

I'm sure I'll give real estate another shot in the future, but I won't be asleep at the wheel when that time comes.

Very interesting insight, thanks!

Funny enough, in Germany the safest tenants are refugees and the unemployed, because the government is paying the rent directly to the landlord.

 

[MJ DeMarco]

Funny enough, in Germany the safest tenants are refugees and the unemployed, because the government is paying the rent directly to the landlord.

Sounds like America...

If you identify as an undocumented immigrant you get free health care, free food, free shelter, and free preloaded debit cards. If you identify as a homeless veteran, you'll be lucky to find a tent on skid row.

 

[JordanK]

I lost 6-figures on my rental properties last year. I'm not against real estate, but it seems significantly more difficult now than a few decades ago.

If you live and breathe Real Estate there are always opportunities. If you consider it a passive income stream or a side hustle you'll inevitably get burned. Right now there is an operator with experience in Ohio who may purchase your properties and generate a significant return from them. I do always find it amazing that people who are so hands on and on the ball with their own businesses, put so much money into RE and treat it like an investment in the stock market. I have seen this happen multiple times with so many different people.

I'm not attacking you as you already seem super self aware and understand where you went wrong. An expensive lesson but I don't think it has ruined you financially. Some people never get the chance to come back from it. If I took the money I make in Real Estate and purchased your carpet cleaning business, I'd probably immediately run into significant difficulties too. Real Estate is a fulltime job!

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Kevin88660]

Unfortunately, looking back over the last ~10 years, the easiest way to become a (multi-)millionaire has been to have a reasonably well paid slowlane job and buying a house as primary residence as soon as possible. Then just wait. Taking the tax-free gains every couple of years is just a bonus.

Must faster and safer than attempting to build a fastlane business, which most will fail at or are not successful enough to match the slowlane path. Biggest regret of my life so far.

If we can travel back in time and knows what is coming, of course investing beats business.

And dogecoin beats real estate.

In the real life without time machines private banking HNW clients consists of mainly business owners, followed by a few high ranking professional managers with big paychecks, self-made multi-millionaires made via investing of saved income from salary is very rare.

 

[biophase]

Thanks for the questions, @biophase and @MJ DeMarco

All of the above. It was a myriad of mistakes.

Here's the full story:

• My sisters have been investing with a turnkey property management company for years and were very satisfied with them.
• Early 2020 I decided to jump in and quickly buy 10 properties in Ohio because there aren't really any deals that cash flow in California. Also spending $1.5M on a rental property in Cali scares me as opposed to 10 rental properties in Ohio.
• All of these are low end properties averaging 100-150k in price. Blue collar tenants who are very likely to be living paycheck to paycheck.
• Inflation starts to ramp up and the tenants can no longer afford rent. Multiple evictions happen at the same time.
• The property management company charges a full month of rent as commission when finding a new tenant. Then after that they charge 10%.
• New tenants come in and stop paying rent almost immediately. After they're evicted the properties are trashed with mice, cockroaches, broken windows, etc. I don't know how a property can get damaged like that so quickly. At first I thought it was just a fluke, but this pattern starts to repeat itself again and again.
• I dig deeper to find out why this is happening and it turns out the property management company sold the biz, but kept the original name since they have been around for decades. The new owners have no process for qualifying tenants. Basically if you have a pulse they'll take you in.
• I fly to Ohio to see what's happening for myself. Turns out I was paying for fake repairs that never happened and the few real repairs were charging me Cali labor rates but in Ohio. If it was a real repair, the quality of the work was terrible.
• I ate the loss and am now slowly selling off the properties. They haven't appreciated much because it's Ohio. Who wants to live out there lol

Lessons learned:

• I was too hands off with these rentals. I'm busy running a carpet cleaning biz, a software biz, and am also managing a team of tech sales folks. They say real estate is passive income, but I don't think that's entirely true unless you're investing in a REIT.
• I wish I didn't buy out of state. I'm sure there's a way to do it effectively and not get burned, but I clearly didn't do that.
• I moved too fast because I blindly relied on the fact that my sisters had been happy with them for years.
• I mistakenly focused on buying lower end properties because the calculations initially told me I'd get a higher ROI. It didn't factor in the fact that lower end tenants are more likely to stop paying rent if inflation skyrocketed.
• Turnkey properties sound nice at first, but there's no one to hold the property manager accountable. For example, the repair guys were often relatives of the property manager. Next time I'd rather build a team that holds other team members accountable.

I'm sure I'll give real estate another shot in the future, but I won't be asleep at the wheel when that time comes.

You mentioned losing six figures in a year, which is why I asked. Were you just talking about the value of real estate that you sold at a loss?

I guess I was wondering how you had a -$100k operating cost on real estate, that’s how I read your original post. I must have interpreted it the wrong way?

 

[IceCreamKid]

You mentioned losing six figures in a year, which is why I asked. Were you just talking about the value of real estate that you sold at a loss?

I guess I was wondering how you had a -$100k operating cost on real estate, that’s how I read your original post. I must have interpreted it the wrong way?

It wasn't a -$100k operating cost. The 6 figure loss was mostly the value of the real estate sold at a loss in addition to the operating cost. The worst performing one was sold at a $30k loss.

What blows my mind is that the turnkey property management company simply buys the property back then puts a new tenant in and finds a new sucker investor to buy it. They advertise it as a cash flowing property and give spreadsheets showing these wonderful best case scenarios.

It doesn't seem right to be advertising something as a cash flowing property when it has a track record of not performing, but it is what it is.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[AceVentures]

What blows my mind is that the turnkey property management company simply buys the property back then puts a new tenant in and finds a new sucker investor to buy it. They advertise it as a cash flowing property and give spreadsheets showing these wonderful best case scenarios.

It doesn't seem right to be advertising something as a cash flowing property when it has a track record of not performing, but it is what it is.

I've seen examples of that in the oil and gas business.

Well established and reputable production companies will have their reserves audited.

It's sort of like a "discovery" session in court cases.

The data, the assumptions, the models, the historicals, everything is shared and an independent auditor will recreate the economic forecasts.

This is what companies take to the bank to get the loans to fund their operations.

That doesn't stop dirt bags with some money and experience to piece together half-assed well proposals on some acreage and sell the asset pre-drill as an "investment opportunity".

There is 0 due diligence that's done, there are no reserves estimates because there's actually nobody doing real engineering.

There's just a handful of cold-callers and a landman who sections off the property rights to the lucky future investors.

All marketing.