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If you follow the classical mantra 'location, location, location' and invest regularly in prime real estate, or, according to your economical level, in a company or fund that does this, what can go wrong?

Would this be a better alternative to governmental bonds (of reliable countries like the USA or UK)?

That is, is this A. extremely reliable, B. offer low but better return than bonds or inflation?

Add-on after some answers: I really mean prime real estate, like the financial district of cities like LA, NY or London. Not some new urbanization or some borough that's getting gentrified and it's the new hot thing. By regularly I mean, not buying when everyone is also buying, but consistently buying, which would imply down and up turns that compensate.

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    You might consider a case example of a city like Detroit across the last few decades. Sometimes, and in some places, it was a great investment. Other times, and in other places, not so much. The problem with the long run is that it is, well, long - lots of things happen, from felony-committing government officials (many) to drug epidemics, gang warfare, riots, organized crime, collapse of major industries once thought to be world-leading, mass demographic change, corrupt tax systems, and more. And that all happened in a single city in less than a normal humans working/investing lifespan! – BrianH Aug 14 at 1:27
  • I'm surprised none of the existing answers mentions the US housing bubble bust of just over a decade ago. – shoover Aug 14 at 12:35
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If you follow the classical mantra 'location, location, location' and invest in regularly in prime real estate, or, according to your economical level, in a company or fund that does this, what can go wrong?

  1. Poor management (this includes a lot of sins).
  2. Buying high instead of low.
  3. Laws that make it virtually impossible to expel Bad tenants.
  4. Economic downturn leading to a dearth of renters.
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    5. Leverage with too much loans. – mootmoot Aug 14 at 13:39
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Yes. It doesn't matter how safe anything is, particularly when you invest on margin (mortgage) the margin maintenance can become unsustainable.

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Can you lose money on real estate? Yes. If you buy a house, and it turns out to need serious repair work, or a renter trashes the place, or whatever, you can lose money on real estate.

Can you go broke? You still own the property, and can resell it, even at a substantial loss. But that's also the case with stocks. If you buy an index fund, that's never going down to 0, even in a horrific market crash. If you buy a US Treasury bond, and that goes down to 0, you've got bigger problems.

More generally, real estate is not a low-risk affair unless you have enough money to own a lot of properties, and if you do that, it's your full-time job. For normal people, it's a higher risk investment because they can only realistically own 1-2 homes for investment. If something happens, you can easily be out all your profit for the year. Also, real estate generally demands more hands-on work, whether that be picking houses, picking tenants, minor repair work, remodeling, or what not.

Investing in a fund that buys and manages properties could be a better angle for normal people, but at that point it's just a fund, and can be examined using the normal rules.

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The thing you're missing is the details. And the devil is always in the details.

  • How do you define "going broke?" If your definition literally means "all assets go to zero" then - maybe - the threshold of failure for your plan will be low(er). But, most people would consider an investment a failure at a much lower threshold. Let's say you've dumped $10M into this plan and at the end of the day, are left with $5M in assets. That's pretty darned bad, but you didn't exactly "go broke."
  • How are you sure you'll get the "location, location, location" thing correct? You edited your answer and said, "I really mean prime real estate, like the financial district of cities like LA, NY or London." That's still pretty broad! Even if you have a location that you can somehow be 100% sure will never be an issue, in the end, you are buying a specific asset, not that location. It's possible to own a property that's effectively worthless, even in the best neighborhood. Just look at the proliferation of government programs designed to fund the remediation of damaged or worthless properties. They exist even in the most stable markets.
  • Following up on that, how are you sure the asset itself will retain value? Do you know a 100% foolproof method for always buying properties with no structural issues? No faked documentation? No bad roofs? No permitting issues? No terrible neighbors? No mystery liens on the title? And so on.
  • After all that, at the end of the day, a real estate asset doesn't just make money in a vacuum. You always rely on at least one other party in order to generate or redeem any actual value. You can buy the nicest building on the block, but you need renters. Or a new investor to sell it to. Renters and investors aren't always stable or predictable. Can you be 100% sure that other party will always be trustworthy? Does that party even exist? What if the property suddenly sits vacant, because someone built a slightly better building down the street, and your renters all moved there?

Consider the fundamental rule of investments: Risk and reward go hand in hand. There are lots of strategies to maximize reward and minimize risk, but they're all just strategies and not guarantees. Strategies are basically just plans built on predictions (they're not facts). And even the best laid plans go askew.

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A few examples that could turn out pretty bad:

  • You invest in prime high street locations (shops). Turns out there's this Internet thing, and high street real estate goes down (takes a while, but it does). Or the flagship store that drew all the customers to the shops around it closes down.

  • You invest in a prime location. Government decides to build an underground / railway / highway / airport / whatever. Eminent domain, they buy the real estate from you, but for a fraction of the value for whatever reason.

  • Same situation, but the government does not buy as you're not actually on the path of the new railway / highway / whatever, just on the side of it. You're just stuck with real estate in a location that is very noisy or hard to reach or whatever other issue. Value goes down.

  • There's a big bubble, you buy for a high price, bubble bursts, you're left with an asset which is worth substantially less than what it cost you.

  • The economy is booming, rents are high, you buy for a high price. The economy tanks, your tenants no longer pay / you can't find any new reliable tenants / you have to lower your rent.

  • Regulations change. What was not taxable suddenly becomes taxable because the government shifted their priorities. Or taxes go up. Your carefully set up financing goes belly up.

  • You buy some nice piece of real estate for a high price. But suddenly, issues are found with it: it's crumbling down. There's asbestos all over. It's in a zone prone to flooding. It was close to the beach but now it's actually nearly in the water. It was a nice location on top of a cliff with a great view, but now it's teetering on the edge of the cliff.

  • Consider that recently, people complained that the simple fact that a nearby higher-end supermarket (Waitrose) closed reduced the value of their property!

Even if everything goes relatively smoothly and there are no big changes, it's easy to have smaller issues that will get you into trouble:

  • A bad tenant who won't pay, damages the property, is difficult to evict.
  • You have a higher turnover than you expected (because you're actually targeting students or corporate types only staying for a few months because of your location, pricing, whatever...), and the property stays vacant more often/longer than you expected and/or you have higher costs (listings, inventory, etc.)
  • You targeted a specific type of tenant, but you didn't chose the right location/size/equipment/design, so you end up with a different type of tenant, with lower rents than expected.
  • There's more maintenance work than you expected. The roof needs fixing. The boiler went bust.

So, yes, you can make a lot of money with real estate, and many people do. But it's definitely not just a matter of "buying properties on a regular basis in prime locations". You need to be very attentive to what you buy, what/who for, the local market conditions, regulatory changes, and a lot more.

Will you actually "go broke"? If you have dozens of properties of different types (commercial, offices, residential) in different markets, catering to different segments, then the risk is diluted. If you have everything in the same type/market/segment, you're more susceptible to market downturns (bubbles and crashes).

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