What They DON’T Tell You About Real Estate Investing

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If you think you want to invest in real estate, what I’m going to share with you could save you time, money, and even jail time.

(Yes, jail time!)

You see most people look at real estate “on paper,” meaning they don’t see what happens “behind the scenes.”

And if you don’t know what you’re doing, chances are you will regret it.

You see, on paper, investing in real estate looks awesome. I should know, my first purchase was based on paper numbers.

I was looking at big cash flow, to the tune of 33% a year, and potential for the market to drive up the value.

But what I soon discovered was paper means (next to) nothing, and if you don’t know what you’re doing, you’ll get burned.

And I’m not talking about risk vs reward, or if you’ll turn a positive cash flow, I’m talking about what you can’t see.

But before I tell you why I’m now WAY more cautious about real estate investing (and even slightly scared of it), let me tell you

Why Investing in Real Estate is Drastically Different Than Any Other Investment

Stocks, bonds, insurance, and nearly every other investment work like this:

  • Money goes in
  • Values go up or down
  • You sell for a profit or loss

Once money is invested it requires nothing else. You’re investments perform however they will, and life goes on…

…but in real estate, it’s far from that easy.

And like I said, what you don’t know could even mean jail time.

You see real estate doesn’t just have ups and downs in value and cash flow, it has “required ‘out-of-pocket’ expenses.

Simple example: Mold.

You’re responsible for eradicating it. You’ll have to pull money out of pocket to remove it.

But that’s only the beginning…

Why I’m (Almost) Scared to Death About Real Estate And Why You Care

Mold would have been a blessing. In fact, just about anything would have been better than what I was about to experience.

You see I’ve had this property for three years, and it’s really done well. In fact, since I had already got my money back from cash flow (was in the green), I didn’t think there would be anything that could be all that bad.

man was I wrong…

It came in the form of a certified letter. Here’s a snapshot (opens in new tab)…

Notice of violation- city of Cleveland Notice of violation- city of Cleveland3

You see I had a tenant make a complaint. A complaint I didn’t even know he had.

And when a complaint is made, the city gets involved (which is never good).

And when the city gets involved they send an inspector. Hence the letter.

Now if you’re thinking, “wow, that’s a lot of stuff to fix” you’re right. You see my property is not in perfect condition, but it’s much nicer than the properties in the area. But when the city gets involved, they can site you for just about anything, and here, they sited me for everything.

In other words, they wanted me to practically make my property perfect, and they gave me 30 days to do it.

Not exactly “fair” when you’ve bought a property, rehabbed it, helped improve the quality of the area, and are now stuck with excessive violations.

But that’s not the worst part.

Penalties, Fees, and Jail Time

They gave me 30 days to comply. And the penalties for non-compliance?

Up to $5,000 per day (for businesses)

Up to $1,000 per day (for individuals)

And if you own the property personally (which I don’t), you can spend up to 6 months in jail!

That is insane.

In other words, you can’t just walk away from the property, or just take a loss like other investments. If you don’t have the money to fix it, you could face serious consequences.

Fortunately for me I had been using the 500 account to store my cash and could afford the repairs. But if you don’t have ample cash, or are locking up money in government plans or even home equity, you could be in trouble.

It was then that I realized there is more risk to real estate than just not renting a property, or the value going down. I realized I could be writing this from a jail cell.

So next time you’re thinking about real estate, make sure you know what you’re in for, could be a crazy ride.