Nearly half of real estate investors are losing money, new survey finds

Investing in residential real estate isn’t nearly as lucrative as it might seem—for many, in fact, it’s costing hundreds of thousands of dollars.

According to a new survey by Clever Real Estate, 90% of residential real estate investors have lost money on at least one property.

Perhaps shockingly, 52% of survey respondents said they’ve lost $100,000 or more on a single investment, and 42% have lost at least $200,000 on a single deal.

But it gets worse.

Nearly half (42%) of investors said they’ve lost more money than they’ve made on real estate, and 45% admitted that a bad investment nearly ruined them financially.

Higher interest rates, rising insurance costs, daily maintenance and repair hassles, and tenants who don’t pay their rent on time all contribute to the headache of being a real estate investor.

Another issue seems to be that too many investors are pushing up property prices. That increases financing costs and makes it harder to break even.

The issues aren’t limited to a certain type of investment, either.

According to the Clever survey, 80% of respondents invested in more than one type of residential property, including traditional long-term rentals, land development for future rentals, house-flipping, and short-term rentals.

“The post-Great Recession days of lucrative, easy-to-find residential real estate deals are long over, as is the lengthy period of rock-bottom interest rates that helped make mortgages more affordable than ever,” Clever said in its report.

Although many investors eventually do make money, the survey made it abundantly clear that real estate isn’t a ticket to “passive income.”

Real estate is not a “passive investment”

Many Americans got caught up in the real estate frenzy following the financial crisis, as rock-bottom interest rates and low housing prices promised positive cash flow and steady price appreciation for years to come.

The pandemic offered a similar opportunity—this time with the added benefit of remote work creating more demand for single-family homes and spacious units away from city centers.

But things have drastically changed in recent years.

“You hear that real estate investing is passive, and that’s certainly not been my experience,” Tess Waresmith, a New England-based property investor, told Business Insider.

“A lot of people think that they’ll buy a couple of rental properties and just live off the cash flow,” said Shelby Johnson, another real estate investor.

“They have this really fairytale imagination painted in their minds about what being an investor is, but the reality of investing is that one bad tenant, one bad deal can cost you thousands of dollars, which is sometimes a couple years worth of profit,” she said.

According to Eric Roberge, an investment adviser who founded the Beyond Your Hammock financial planning firm, most investors underestimate the amount of work real estate requires.

In most cases, real estate investing can’t be done as a side gig but requires a team of professionals, such as an insurance broker, attorney, tax professional, and property manager who can handle day-to-day operations.

These costs can add up, making it harder for investors to generate that passive income they dream about.