17 brutal truths about real estate investing that no one else will tell you

Statistics show that 50% of new investors sell within the first five years. (Source: Getty)

Today, I am not holding back. I’m going to tell you some hard truths about real estate investing.

You’ll learn some of the things that can go wrong, you’ll discover the frustrations of being a real estate investor, and you’ll learn some of the ways clever marketing can lead you astray.

But stay with me – not everything is negative.

Also by Michael Yardney:

Understanding what could go wrong is one way to ensure things don’t go wrong and you can have the success that a small group of real estate investors enjoy.

The problem is that most people who get involved in real estate investing don’t develop the financial freedom they seek.

Statistics show that 50% of new investors sell within the first five years.

Most investors never go beyond their first or second property and only around 21,000 Australians own six or more properties.

In other words, less than 1% of investors succeed in building a significant real estate portfolio.

Now, that’s not the kind of information most people give you about property when you’re starting out, is it?

It’s probably because a lot of people you talk to – like real estate agents or buyers’ agents – are trying to sell you something. Sometimes it’s property, other times it’s their services.

So, this is my attempt to redress that balance a bit and share 17 brutal truths about property that you don’t come across often.

Despite what some will tell you, real estate investing is not easy. But it’s simple. Now, that’s not a pun.

What I’m trying to say is that if you do what most real estate investors do, you’ll get the same results as most real estate investors – and that’s not pretty.

However, you will be headed in the right direction if you understand the following truths about real estate investing.

1. Real estate markets go through cycles

Over the long term, the value of well-located residential real estate increases, but there are times when each real estate cycle stagnates, sometimes for several years.

And there are short periods when the value of your properties will drop a little.

Grade A homes and investment grade properties are less volatile. But sometimes even the value of these properties drops, sometimes for several years in a row.

2. You need a large sum of money to invest

The truth is, you need money to invest in real estate, probably more than you think.

If you don’t have the financial discipline to save a deposit, you shouldn’t borrow money to get involved in property.

3. It takes 30 years for the average investor to become financially independent through home ownership

While you can get rich with long-term real estate investing, it’s not a get-rich-quick scheme.

It takes most investors 30 years to develop financial freedom through ownership.

Interestingly, many investors waste the first 10 years making mistakes and learning what not to do.

The next few years are spent selling underperforming assets and getting their finances in order.

Then it takes two or three good real estate cycles to become wealthy through property.

Many of us think we’re smarter than the experts and look for shortcuts, but the only ever certain shortcut I know of is to get the right mentors at the start of your journey.

4. Saying “I will be fearful when others are greedy, and I will be greedy when others are afraid” is much easier than saying it

Most investors are overly optimistic during booms when they should be cautious, and most pessimistic during downturns when opportunity surrounds them.

5. No one really knows what the real estate market will do in the short term

While in the long term our markets are driven by fundamentals, in the short term human emotion and crowd psychology overturn the best forecasts.

6. Real estate investing is a game of finance with a few properties thrown in the middle

Strategic real estate investors buy time in the market by putting financial buffers in place to support them through the ups and downs of the real estate cycle.

7. Real estate investing is supposed to be boring

Make your investments boring so the rest of your life is exciting.

If you’re looking for excitement, bungee jumping or touring biking – don’t look for excitement in your real estate investment.

8. There is more free property information available today than ever before, but most of it is useless

Most market news is not only unnecessary, but harmful to your financial health.

The most expensive advice you will get is free advice that is wrong.

9. Be careful who you listen to

Rather than listening to get-rich-quick stories, it’s worth listening to those who talk about their mistakes and avoiding owners who don’t – their mistakes are usually much bigger.

10. There is virtually no accountability for the many real estate gurus and their hot spot predictions

I find it interesting that people who have been wrong about everything for years still draw large crowds of followers to their podcasts, videos, and webinars looking for the next get-rich-quick scheme.

11. The “comfortable” an investment is, the more likely you are to be taken by marketers or salespeople

I understand that many novice investors seek what they perceive as security, but generally avoid rental guarantees or promises of certain returns. These usually come at a fairly high cost.

12. Despite what most would like to think, the biggest difference between ultra-successful real estate investors and the rest isn’t their real estate strategy or their investing “secrets.”

Both groups only have access to the same investment vehicles – real estate, stocks and companies.

What makes rich people more successful is their way of thinking – their “mindset” and their rich habits.

13. If you have credit card debt and are thinking about investing, stop

I suggest you become financially fluid before you start investing, otherwise the large debt you will incur for buying a property will likely overwhelm you.

14. Residential real estate is a high-growth, relatively low-return investment

So don’t buy real estate for cash.

Sure, cash flow is important to keep you in the game, but it’s capital growth that will get you out of the rat race.

15. Just because the price of a property goes up doesn’t mean it’s a great investment

In 2021, we had a one-of-a-kind real estate boom that increased the value of almost every property.

This was driven by historically low interest rates and pent-up demand, which ultimately led to FOMO (fear of missing out), forcing many investors to take shortcuts and buy second properties.

In my mind, only 5% of the properties on the market are investment grade.

The truth about investing, which investors have to face, is that just because a property goes up in price doesn’t make it a great investment.

Potential buyers attend an auction of a residential property.

A booming market does not make every property a good investment. (Source: Getty)

The problem is that when the market explodes, as long as prices go up, we almost never question the rationale.

We never ask ourselves: “Is the price increase justified by the underlying fundamentals?”

As Warren Buffett wisely said, “A rising tide lifts all ships. But when the tide goes out, you’ll see who’s swimming naked.

16. There are 3 stages in your real estate investment journey

All successful investors go through the following three phases.

First, there is the asset accumulation phase, which requires leverage and ownership of high-growth properties.

Then you slowly reduce your loan-to-value ratio.

This is when you will eventually be able to live off your “slot machine” of properties.

Of course, there is also the learning phase, which should come first, but many investors ignore this.

17. Whatever number of properties you think you need to provide cash for your retirement, double it

Now you are closer to reality.

So my advice for a successful investment is to develop a strategic real estate plan for your investment journey.

Then plan for your plan not to go as planned, knowing that there will always be unexpected X-factors that will come out of nowhere to test your resilience.

Michael Yardney is a director of Metropolitan Real Estate Strategists, that creates wealth for its clients through independent and unbiased advice and defense of property. He is a bestselling author, one of Australia’s leading experts on building wealth through property and writes the Property update Blog.

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