One of our borrowers tenants took up binge drinking, not paying their rent, and threatening other tenants and their staff during the pandemic. I guess she didn’t get the memo about us all being in this together?
Three months into it, two other tenants have moved out, the cops have been called to the property countless times, and a deal that looked great on paper has been blown to bits by COVID and grain alcohol.
So what would the Real Estate gurus have our borrower do in this scenario? Typically a tenant this bad can only be handled via eviction, but evictions have been banned until sometime in 2021. Even if you could evict a dangerous tenant, how do you passively hire an attorney? You were told that real estate was going to be passive and build wealth? Right now it’s doing neither, what went wrong?
Real estate gurus are in the business of selling you courses and content. They claim it’s passive because they either know nothing about real estate or they know and don’t care because they need you to buy their content.
You can invest passively in real estate, but the results will destroy your wealth, not grow it. Lets take a look at why we believe it’s better to be the lender of a property than the owner.
1. Tenant Hassles
It is impossible to remove having to deal with tenants out of owning real estate. Whether it’s as trivial as a broken toilet or as serious as an eviction, the tenants are the lifeblood and revenue of your business and they have to be taken care of. Unfortunately for you, that means time and significant expenses.
2. Being Overleveraged
Real estate and debt is a tale as old as time. Typically the debt for a real estate investment helps turn a bad investment into a decent return. The problem happens when a tenant doesn’t pay but you’re still expected to pay the mortgage or if significant repairs are needed to keep the property in peak condition. Covid-19 has decimated the net worth of landlords country wide for these exact reasons.
3. Transaction Costs
Being a real estate investor requires you to pay up to 8% in transaction fees everytime you buy or sell a property. So if you buy something, you better hope you don’t have to sell it for at least 10 years or you’re guaranteed to lose money.
What Should You Do Instead?
You know who’s not affected by any of these issues we mentioned above? The lender! If you’re lending money to real estate investors to buy and refinance their properties all of those issues are their problem and not yours. Since in most cases, as a lender you’re only lending up to 65% of the purchase price of a property, you only begin to lose principal on your investment if the value of the property drops by 35%!
Stop worrying about owning real estate and finding deals. BE THE BANK instead!
Constitution’s lending platform gives investors a way to generate truly passive income in real estate, without quitting your day job and sacrificing your weekend. As an added bonus, Constitution’s 6 Month Payment Guarantee gives additional security by paying every investor the first 6 months of payments no matter what. Click the link below to try out our platform with only $1,000.