Real Estate Is a Terrible Way to Make Money

Last week I was in Austin, Texas, speaking at my buddy Josh Ruzin’s mastermind. And this mastermind is for people who are looking to get into multifamily investing. And two things. One is remind me never to go to Austin, Texas in June or end of May. It was hot, it was humid. Guys, I am a midwesterner through and through. Keep me up in the north, up in the tundra. I can’t handle the heat.

Whatever. Anyway, I wanted to share with you a conversation that I had as I left that venue. I had spoken and hung out with this group of hungry entrepreneurs, people that wanted to get into real estate investing. They wanted to get into multifamily specifically, and had some really great conversations. And at the end of it, as I was leaving the hotel, this young kid comes up to me, 19 years old, and first of all, kudos to him for investing so heavily into his education at that age, like these mastermind groups that I speak at, they’re typically not inexpensive to be a part of. So the fact that he was willing to invest so heavily at such a young age into his education, I think that’s money much better spent than going to college personally because he’s getting some real tactical skills in real time experience and working around people who are operating at a higher level that he can aspire to. And I think that’s just going to be, that’s going to put him on a real good fast track. Much more so than going to four years of getting classes and college degrees that don’t necessarily serve you out in the reward anyways.

That’s a digression school. Not terrible for everybody, but I think for him, he’s on the right path anyway. He comes up to me and he goes, Mister Vasino, what should I do moving forward from this to maximize my likelihood of success? What are the next steps that I should be taking? I want to get into real estate investing. What should I do next? And at that age, first of all, he is so much further ahead of the curve than I was. I didn’t even become conscious of real estate investing in any kind of meaningful way until I was nearly 30 years old. So for him to be at 19, already thinking about this, kudos to him. But here’s the problem. Here’s the problem is that a lot of the people that you will see on social media are selling a bill of goods that real estate can’t necessarily cash.

And what I mean by that is there’s a whole lot of get rich quick schemes around real estate people thinking real estate is the best way to make millions of dollars. And it’s true, real estate has made more millionaires than any other asset class, because you don’t have to be particularly bright to do well in that sphere. But the problem with real estate that I’ve come to experience over the last 15 years is that real estate is what you do to manage your money, but it’s not necessarily the way that you go and you make your money. You see, there’s a big difference here. In the beginning of my financial journey, I had to learn how to make money. And then once I had money, I had to figure out what to do with that money. So first you have to figure out, how do I make the money? And then how do I manage the money. Real estate is unequivocally, in my book, the best way to manage your money.

The tax benefits, just the hard asset, the appreciation, coupled with cash flow, like all those things. Best way I found, to manage the money and have it grow for you. But real estate is expensive and you need to have money to feed that machine. So you need to learn first how to make money. And this is why my whole thesis around making money and like building a, you know, getting, winning the money game in particular is to build a cash generating machine. Take the proceeds, the profits of the cash, and then pour that into hard assets like real estate or into stocks, bonds, whatever you want to invest into, right? But you gotta have the money first to invest it. Right? That’s why they say it takes money to make money. That’s not true.

But when it comes to investing, it is. Okay? It’s not true that you need to have money to go out there and build your cash generating machine. You can do that in the same way that I did, which was to start a window washing company or a service business where you’re selling your time and your expertise in exchange for money and that you can do very well there. But once you have the money, that’s where the real estate comes in. And my feedback to this kid at 19 years old is like, listen, where you’re at right now, you don’t have the experience and you don’t have any capital. So you’re gonna have a very, very hard time getting ahead in the real estate game. That doesn’t mean that being here is a waste of time. You’re getting experience, you’re getting exposure to people who think different, who think on a higher level than most people in your day to day life.

And you’re building up the experience and the knowledge, so that when you do have the money, you’re gonna be able to deploy it very easily into real estate. You’re going to crush it. Now, what was interesting about his story is that he actually already had a business. He had a lawn care business, a landscaping business, and he had a couple of buddies working with him. And I think he was doing maybe a couple thousand dollars in profit per month. So not. He was not crushing it by any means. Right? And my feedback to him was, you need to focus on that business, focus on growing it, because I have worked with students who, you were actual literal students in college who wanted to start a business on the side.

And we, you know, I coached them through how to start a landscaping business, lawn care. And what they would do then is they would, for four months out of the year, the summer months when they were between school, is they would start up this business. They would make a couple, 20,000, 25,000 in profit per month for the summer, and then they would retire her for the year, and then they would do it again the next summer. And I told them that that’s what you should be doing right now. You should focus on gaining the skills, the experience of building that business. Learn how to market it, learn how to sell, learn how to recruit, how to train talent, learn all of the things that come from building the business. And in the process, you’re going to acquire this beautiful thing that they call money. And once you have that money, then you can worry about the real estate.

But until you’ve learned these skills and you have the experience and you have the money, don’t worry about the real estate quite yet. Focus on the cash generating machine. And you already have it started. He’s already started. Done the hardest part, which is to get into the game. Now, the key is to figure out, how do I go from making a couple of profit a month to $10,000 of profit or to 100,000? Because I know, again, from first hand experience that a lawn care business can easily do a million dollars a year without necessarily being a super genius and super refined in your processes. It comes down to hustle and learning a whole lot of skills that are going to translate into every other domain of your professional career if you so choose. And that is the takeaway here is focus.

Instead of trying to go get rich in the real estate, which has, like, these ideas of people selling you on passive income. And that’s true. But again, passive income is a result of deploying capital. It’s not just going to magically appear, you know, every deal needs one of three things. It needs somebody who has the time, somebody who has the experience, and somebody who has the capital. The person with the capital gets to put in the least time. And if you’re young, the chances are you don’t have the experience, you don’t have the capital. So all you have is time to hustle to put into the deal.

And that is not, by definition, passive. So I think a lot of people, they get it kind of screwed up. They think real estate is the best way to make passive income. I don’t believe that at all. And I know that from, again, just my personal experience, having been in this game for a long time, that real estate is not the best passive play if you’re trying to make your, make your first bag. So that is just my, my general disclaimer. Do not rely on real estate to get rich. It’s for once you have money to get even more wealth and to continue compounding it and building it.

But you need to first learn the skills that are going to help you go make it. And now, in another video, I’ve talked about how there’s a difference between building a real estate business and a real estate investing or investing in real estate. Investing in real estate is where you’re deploying your money in the asset. And that’s just, you know, it’s going to go do its thing. It’s going to be very, very passive. That’s great. Building a real estate business is going and learning wholesaling and then flip, flexing and flipping houses. It’s becoming a syndicator, right? There’s a lot of ways to build a business around real estate.