Real estate investment has long been considered a path to wealth, but one management consultant argues it may not be the best option. However, industry experts told Newsweek that while real estate might not be an entirely passive investment, it can be a great pathway to long-term wealth with the right approach.
The topic was discussed in a video shared by Leo George William Smith, a construction management consultant from the Profit Consulting Company in Canada, on his TikTok account @10xnetworking, where it amassed more than 100,000 views since it was posted on November 23 last year.
Smith says in the video: “Real estate is a terrible, terrible investment. I’ve tried it, used to flip 12 houses a month, used to do a lot of real estate, because I was told to…I was foolishly told that’s what I was supposed to, that’s how you create generational wealth…that’s how you control your life.”
His video comes as the global real estate market, valued at $3.69 trillion in 2021, was projected to expand at a compound annual growth rate (CAGR) of 5.2 percent from 2022 to 2030, according to Grandview Research, a market research and consulting company headquartered in San Francisco.
Smith’s perspective challenges the widely held belief that real estate is a low-risk, high-reward investment. He argues that it requires a significant amount of hands-on management, which many people underestimate.
“Everybody you know thinks about it [real estate investment] as hands-off investing,” Smith said. But “it isn’t when you’re dealing with tenants when you’re dealing with taxes…it’s not a hands-off type of investment—far from it.”
The video has sparked discussion among social media users, with one saying, “real estate is a great investment if you know what you’re doing” and another noting “rentals are horrible cash flow but great for capital gains.”
But what do industry experts say? Below, Newsweek spoke with real estate and investment experts who weighed in on the debate.
Real Estate Isn’t ‘Hands-Off’ Without Effort
Deren Flesher, an investor at Legacy Point Group, told Newsweek: “Real estate being a terrible investment isn’t entirely wrong, especially for people who expect easy, hands-off income. Managing tenants, handling repairs and dealing with unexpected costs can turn it into a demanding job.”
Andy Saintilus, a real estate expert who is the founder of We Buy Doors, a real estate investment company in South Florida, acknowledged the challenges but also highlighted real estate’s potential benefits.
“The idea that real estate is a completely passive investment is a common misconception. It requires time, effort and management, especially if you’re renting out properties. Issues like dealing with tenants, maintenance, repairs and landlord fees can be time-consuming and sometimes stressful,” Saintilus told Newsweek.
However, he pointed out that these burdens can be mitigated.
“You can outsource property management to professionals, which reduces the ‘hands-on’ nature of the investment, but this will eat into your profits,” he said.
“Still, even with these management fees, the return on investment (ROI) in real estate often outperforms other traditional investments like stocks or bonds in the long run.”
Good Way to Build Long-Term Wealth—If Done Right
Despite calling real estate a “terrible investment,” Smith acknowledged in the viral video that it can be profitable but argues it isn’t the best way to build generational wealth.
Brett Johnson, a licensed Colorado real estate agent who is the owner of New Era Home Buyers a real estate investment company in Colorado, told Newsweek that real estate has the potential to be a great long-term investment—if approached correctly.
“Real estate, if done right, is one of the best ways to build long-term wealth,” Johnson said. “It is not completely passive. If you buy smart, run the numbers right and manage your risk, the long-term reward is hard to beat. Smart investors can build wealth by finding undervalued properties, improving them, then holding on to appreciate in value.”
Saintilus added that even though real estate requires work, it has historically been a stable investment.
“The key here is long-term appreciation—while there are short-term fluctuations, over time, real estate tends to grow in value,” he said. “Plus, you build equity as you pay down the mortgage, which is a form of wealth accumulation.”
‘Biggest Mistake’ in Real Estate Investment
Johnson pointed to a common pitfall, noting: “The biggest mistake is buying the wrong property at the wrong price. Investors that overpay or underestimate the ownership costs of a property are setting themselves up to fail right from the very beginning. I’ve seen new investors plunge in without a plan, and then get leveled by unexpected repairs, vacancies or problem tenants.”
Flesher noted that many investors underestimate the challenges.
“The real issue isn’t real estate itself but how people approach it. If someone tries to self-manage properties without experience, they will likely regret it. Short-term flipping is risky, while long-term, cash-flowing investments tend to perform better,” Flesher said.
Risks and Other Challenges of Real Estate Investing
Saintilus noted: “The downside of real estate is its liquidity. Unlike stocks or bonds, it’s not easy to sell a property quickly. In addition, the real estate market can be cyclical, with prices fluctuating based on interest rates, economic conditions and demand.”
However, even with market fluctuations, Saintilus said that real estate has been “a stable and profitable investment for those willing to hold long term.”
Smith argues that business ownership offers better returns than real estate.
“Show me how you can make a 5,000 percent return on capital investment in the first five years by investing in real estate—you can’t,” Smith said in the viral clip.
However, Chad Willardson, president/founder and certified financial fiduciary at Pacific Capital, a wealth management firm, told Newsweek that comparing business ownership to real estate investment is oversimplified.
“To argue that starting a business could be more lucrative than real estate is valid to an extent but doesn’t account for the inherent risks and challenges of entrepreneurship,” he said. “Both paths can be viable to wealth building, and most entrepreneurs we work with own real estate.”
He also highlighted real estate’s role in diversification.
“Real estate can indeed be a powerful tool for building generational wealth, provided it’s approached with diligence and a clear understanding of the economic landscape,” he said. “For many of our clients at Pacific Capital, real estate investments have offered not just substantial returns but also diversification benefits to their overall market and business portfolio.”
Ultimately, Willardson emphasized that investment decisions should be goal-driven.
“Like any investment, real estate has its own set of risks and requires a proactive approach to manage effectively,” he said. “It’s not just about expecting passive income; it’s about making informed decisions based on what your financial goals are and what’s happening in the markets.”
Newsweek has contacted Leo George William Smith for comment via TikTok and email.
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