Money Rehab with Nicole Lapin - Investment Property or Nah?

Episode Date: May 4, 2021

Nicole debunks the myths around investing in real estate… as well as showing you how you *might* be able to make a not-so-quick buck. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. I get asked all the time about investment properties.

Honestly, I get asked more about them than pretty much any other financial concept. Apparently, the word on the street, Main Street, that is, is that rental properties is a surefire way to grow wealth. Well, it is one way to grow wealth, but it's certainly not a surefire one. This question comes to us from Jamie. I run a wedding catering business, which has seriously dried up in COVID. So I've been looking to set up another income stream for myself. My brother says you can make a lot of money in an investment property. Is that a thing? Successful real estate investing in hopes of

creating a steady passive income stream takes time, sister. Breaking even does not happen overnight and making a profit certainly doesn't either. But it can happen and when it does, it can significantly increase your cash flow. The best part of real estate investing is that you can't lose all of it like you could in a fund or in the market. You'll still have that house or building or trailer or yurt or whatever it is, even if the current value isn't what you dreamed it would be. Here's what's historically true. You don't make money in the house you live in. Yep.

Let's say you buy a $200,000 house today, and in five years you sell it for $300,000. Well, you need to live somewhere, and so you buy another $300,000 house, which is probably pretty similar to the one you just had, unless you downsize, it's often a wash. So can you make money owning an investment property? I fully understand wanting to have assets that are concrete, pun is intended,

versus the ones that just exist as a bunch of numbers and charts. But before you go into an investment property, really plan out how much you'll be spending on it versus making off it. I'll give you an example. I had a client once who bought a foreclosed house, thinking she would make a bank renting it out. She thought it was a great deal at the time. The home's market value was $100,000, and she got it for $50,000 and put $10,000 down. And then she needed to hire a landscaping person, a maintenance person, and that's more money that sunk into that house. Once she had renters, taking care of the house ended up being too much to keep up with, so she sold it. She thought that because she got the house for basically half the price,

she would at least sell it for $75,000 or $85,000. Wrong go. She sold it for $55,000. Plus, she ended up putting up a little bit of money into some light renovation in order to even sell the house and had to comply with the buyer's extensive punch list, like stuff they wanted to change or fix. At the end of this saga, she broke even. I know what you might be saying, Lapin, that is one example. Okay, yeah, you're right. I don't want to base investment advice off one person's example. For every cautionary tale, there is certainly a success story of people making money, getting real tax incentives, and living off that profit. It's up to you to weigh the risk and reward with not only how you want to make money, but also how much you want to spend

on it, like your time and your money. If you're still gung-ho about investing in real estate, then go for it, but do so cautiously and really know what you're getting into. If you're purchasing a foreclosed property, like I mentioned, you gotta know that there could be additional bills, tax bills, outstanding HOA dues, all sorts of stuff that you're gonna need to pay for and may not have been disclosed in the sale. Also calculate the cost to maintain the property. Water heaters, AC units, they are not sexy, but they are expensive. Know your state laws. In a lot of areas, it's nearly impossible to evict tenants even if they don't pay. Like during the COVID crisis,

renters were able to delay paying their rent for over a year, which is great for the renter, but the landlord didn't collect a dime in rent for over a year and perhaps had to still pay the mortgage. I get it. Not every year is COVID and people often do pay their rent so you could make money. But if you really, really don't want to be a landlord and still want to invest in real estate, then you can look into REITs, which stands for Real Estate Investment Trusts. Not trusts like trust funds, but trusts you can buy into kind of like a stock. And you would be investing in a bunch of different real estate, like commercial real estate or residential real estate, without having to fix

the fucking heater. So here's today's tip you can take straight to the bank. An investment property isn't as simple as a get-rich-quick scheme that it's sometimes made out to be. For me, personally, I would rather spend my time with startups than tracking people down to collect rent. But what's right for me is not going to be right for anyone but me. Maybe your passion is real estate, in which case, get smart about it and get after it. Money Rehab is a production of iHeartMedia. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Catherine Law. Money Rehab is edited and engineered by Brandon Dickert with help from Josh Fisher. Executive producers are Mangesh Hatikader and Will Pearson.

Huge thanks to the OG Money Rehab supervising producer, Michelle Lanz, for her pre-production and development work. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.