The night of September 28, 2004, brought confusion and curiosity into my life. Was it truth or fiction? Who were these people and why did I care? I’m talking about the premier of Laguna Beach on MTV. I’m not proud that I watched this show or its successor for their entire six-year run, and I’m furious that it completely eroded any moral high ground I would otherwise hold over the Andy Cohen faithful.
But I fully admit that I fell for the reality TV trap—it’s entertaining and really easy. You can insert yourself into a situation without any effort and feel like you are a part of the experience. That’s why after six years, I felt like I knew this random group of people in California. I didn’t. It’s also why people who watch any number of real estate-based shows on HGTV or TLC feel like they are professional house flippers. They’re not.
So who should invest in real estate? I'll answer by identifying who definitely shouldn't. With the notable exception of real estate professionals, you should not invest in real estate if:
You are depending on the monthly cash flow
If you are trying to fund monthly expenses with income from a rental property, don’t buy real estate. In an ideal world, you would collect a monthly rent check, pay a mortgage, and then pocket the rest. But we do not live in an ideal world. That one month when you really need the rental income to pay for an unexpected personal expense, your tenant will leave, the water heater will go out, and you’ll find a leak in the roof. In other words, at your most financially vulnerable state, you will be up a very certain creek without a paddle.
You already have high stress level
Rental properties are great, until they’re not. They have a way of waiting until the least convenient time for something to go wrong, and then all hell breaks loose. So if you have a stressful job or busy home life, don’t buy real estate. Even if you are not depending on the monthly cash flow and can afford to fix any issues that may arise, it can be stressful dealing with the tenant or property manager to make sure everything is handled appropriately. People are drawn to real estate as an investment because it is something they can see and understand, but ironically, real estate is more about managing people—tenants, property managers, contractors, etc.—and people are anything but easy to understand or manage.
You have no idea how to fix stuff
Even if you have a property manager, you should know how to fix basic problems. Otherwise, you will get nickel and dimed by plumbers and electricians on basic tasks. Regular repairs can add up quickly, eating into your profit margin. You should also have a fundamental knowledge about how much repairs outside your comfort zone should costs. I know it’s hard to believe, but most people do not have your best interests at heart and will take advantage of you. So if you get a quote on a project that’s double what it should be, you better be able to recognize it.
If you enter “real estate” into a YouTube search, you will find dozens of videos about giving up the nine-to-five for an easy life in the real estate world, but it’s anything but easy. The people I know within the industry make good money but also work very hard. So be sure you know what you are getting into before you buy something.
Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.