My First Million Wiki

Real Estate Investing: The MFM Guide to the Asset Class Everyone Respects but Nobody Wants to Manage

13 min read

Real Estate Investing: The MFM Guide to the Asset Class Everyone Respects but Nobody Wants to Manage

The most popular wealth-building strategy in America is one that most ambitious people find insufferably boring. Real estate accounts for roughly 27 to 28 percent of the average ultra-wealthy investor’s portfolio, according to Tiger 21 data shared on My First Million. It is the single largest allocation among people whose average net worth exceeds $100 million. Larger than public equities. Larger than private equity. Larger than everything.

And yet the hosts of My First Million, two of the most successful entrepreneurs in the podcast world, have spent years circling real estate like people who admire a painting but cannot find the right wall to hang it on. They respect it intellectually. They acknowledge its power historically. They just cannot bring themselves to deal with it operationally.

That tension — between knowing something works and finding it psychologically unbearable — is the most honest thing the podcast has ever said about building wealth.

The Unsexy Foundation

Real estate’s appeal is structural, not exciting. Michael Sonnenfeldt, founder of Tiger 21, explains why the wealthiest investors overweight the category:

“Real estate is the gift that keeps on giving. Your child can be less than brilliant and still know how to collect the rent. When you own a great piece of real estate, the tenants have to pay the rent even when you’re playing golf.”

The statement reveals something important about how generational wealth actually works. It does not require genius. It requires durability. Stocks demand rebalancing. Startups demand founders. Private equity demands active management through cycles. Real estate, done correctly, demands a mailbox.

That is the theory. The practice, as the MFM hosts have discovered, is considerably messier.

A Thousand Variations and One Core Principle

When Andrew Wilkinson appeared on the show to rank business models, Sam asked him about real estate. Wilkinson’s response captured the category’s paradox: “There’s like a thousand variations of how you do this.” Multi-family. Commercial. Cash flow plays. Improve-and-sell. REITs. Syndications. Short-term rentals. Raw land. Each variation has different capital requirements, different risk profiles, different levels of operator involvement, and different tax implications.

The sheer number of approaches creates both opportunity and paralysis. Unlike starting a software company or buying a franchise, where the playbook is relatively defined, real estate investing forces an immediate second-order question: which kind of real estate investing?

But across all variations, one principle emerges repeatedly on the podcast. Sam Parr discovered it when he briefly entered the space:

“I bought some real estate and I learned that basically the way you make real estate is through doing the most due diligence upfront and looking at tons and tons and tons of property because you make your money when you buy. And that is not my skill set.”

The admission is more useful than any tip about cap rates. Sam identified the core mechanism — the returns are determined at acquisition, not during operation — and then honestly assessed whether his temperament matched the requirement. The conclusion was no. Due diligence is patience-intensive, detail-oriented work. It involves spreadsheets, property inspections, local market analysis, and the willingness to say no to ninety-nine deals before saying yes to one. For a founder whose instincts run toward speed, narrative, and deal-making, the process felt like a mismatch.

This is not a critique of real estate. It is a critique of the idea that every wealth-building strategy works for every person. Sam’s self-awareness saved him from the most common mistake in the category: buying something because you want to be a real estate investor rather than because the specific deal warrants investment.

The Operator Problem

The central challenge of real estate, at least for the MFM audience, is operations. Someone has to manage the properties. And the question of who that person is determines whether real estate functions as passive income or as a second job.

Shaan Puri struggled with this for years before finding an answer. His description of the problem is worth quoting at length because it captures what thousands of aspiring real estate investors experience silently:

“I never could figure out the way to do it. Do I buy my own and manage it? That seems like a pain. Do I use one of these funds? But they are all just fee monsters. The answer was sitting in my own wheelhouse. My brother-in-law is an amazing real estate operator. The guy’s built a billion-dollar real estate portfolio. So I just started giving him money.”

The solution is elegant precisely because it solves the operator problem through trust rather than structure. Shaan did not acquire expertise in property management. He did not become a landlord. He did not pay the 2-and-20 fees that syndications and real estate funds typically charge. He found someone with demonstrated skill and an existing operation, and he deployed capital alongside that person.

The approach has a name in finance: co-investing with an operator. It is how most wealthy families have always invested in real estate, though the term makes it sound more formal than the reality. In Shaan’s case, the reality was a brother-in-law with a track record and a willingness to accept outside capital.

Not everyone has a brother-in-law who manages a billion-dollar real estate portfolio. But the underlying principle applies universally: the best position in real estate is capital partner to a skilled operator. The worst position is unskilled operator of your own capital.

The Airbnb Question

One specific variation of real estate investing has received consistent attention on the podcast — and consistently poor reviews.

When Andrew Wilkinson built his business tier list, he rated owning Airbnbs as a D. The reasoning was not that short-term rentals cannot make money. They can. The reasoning was that the work-to-return ratio is unfavorable compared to nearly every alternative.

Airbnb hosting combines the capital requirements of real estate with the operational intensity of a hospitality business. Properties need cleaning between guests. Listings need optimization. Reviews need management. Local regulations need monitoring. And unlike a long-term rental where a single tenant occupies a unit for twelve months, short-term rentals create a customer acquisition problem that recurs weekly.

The regulatory risk compounds the operational burden. Cities from New York to Barcelona have implemented restrictions on short-term rentals that can render a formerly profitable property illegal overnight. An investor who underwrites a deal based on Airbnb income is making a bet not just on occupancy rates and nightly prices, but on the political environment of a specific municipality.

Wilkinson’s D rating does not mean Airbnb hosting is impossible. It means the same capital and effort deployed elsewhere — in self-storage, in long-term multi-family, in franchising — would likely produce better risk-adjusted returns with fewer headaches. The Airbnb investor who succeeds is typically someone who genuinely enjoys the hospitality aspect. For everyone else, the category represents the worst version of real estate: active, uncertain, and regulated.

Real Estate Adjacent: The Nick Huber Path

Perhaps the most instructive real estate story on My First Million belongs to someone who does not think of himself primarily as a real estate investor.

Nick Huber built Bolt Storage into a $103 million portfolio of self-storage facilities. The business is technically real estate — he buys properties, improves them, and generates rental income. But the mental model is entirely operational. Huber does not analyze properties the way a traditional real estate investor does, looking at location, comparables, and market trends. He analyzes them the way an operator does, looking at revenue per square foot, occupancy optimization, and cost structure.

The distinction matters because it explains why some people succeed spectacularly in real estate while others struggle with identical properties. Real estate returns are not primarily determined by the asset. They are determined by the operator’s ability to extract value from the asset. A storage facility that generates 6 percent returns under one owner can generate 15 percent under another, simply through better pricing, lower vacancy, and more efficient management.

Huber’s adjacent insight was building service companies around the real estate operation. RE Cost Seg for cost segregation studies. Titan Risk for insurance. Blue Key Capital for commercial lending. Each business originated as something Bolt Storage needed, and each became a profit center in its own right. The real estate was the foundation. The services were the leverage.

This approach — using real estate as a base layer for an ecosystem of related businesses — represents something more sophisticated than simply buying property and collecting rent. It is sweaty startups applied to real estate, and it requires a fundamentally different temperament than the passive approach Shaan Puri chose.

Real Estate vs. Tech: The Competing Paths

The unstated context of every real estate conversation on My First Million is comparison. The hosts and their audience are technology-native. They understand digital businesses intuitively. They can build a newsletter business, launch a software product, or create a media company with relatively low capital and no physical infrastructure.

Against that backdrop, real estate looks slow, capital-intensive, and geographically bound. Sam Parr has been direct about his preference for digital: the capital requirements are lower, the location independence is higher, and the scaling dynamics are more favorable. Shaan Puri does not want to worry about roof damage at a storage facility or an hourly employee calling out sick.

These are legitimate objections, not excuses. The question is not whether real estate is a good investment — the data over centuries is unambiguous on that point — but whether it is the right investment for a given person’s skills, temperament, and existing position.

The MFM framework suggests a resolution. In the podcast’s discussion of “How to Get Rich Without Luck,” the capital section references a cousin who quit his job and used his money-making skill in real estate investing. The skill was the differentiator. He was not investing in real estate because it was the best asset class. He was investing in real estate because it was the best asset class for his particular abilities.

This is ultimately what the hosts model, even when they are not explicit about it. Sam recognized that due diligence was not his skill set and moved on. Shaan recognized that he was better at finding operators than being one and structured his investments accordingly. Neither abandoned real estate entirely. They just found the configuration that matched their capabilities.

The Math That Matters

For listeners who want to evaluate real estate against alternatives, the podcast offers several useful benchmarks.

A typical real estate investor celebrates a 12 to 16 percent IRR. A franchise owner, by comparison, expects 25 percent or better. A successful digital business might return multiples of invested capital within a year. The raw returns favor non-real-estate alternatives.

But returns are not the only variable. Volatility matters. Leverage matters. Tax treatment matters. Real estate permits depreciation deductions that reduce taxable income, sometimes to zero. Through cost segregation, investors can depreciate 20 to 30 percent of a property’s value in the first year alone. The after-tax returns of real estate are often meaningfully higher than the pre-tax numbers suggest.

The Tiger 21 allocation data tells the story from the demand side. People who have already built significant wealth overwhelmingly choose real estate as their largest single allocation. They do this not because the returns are highest, but because the combination of returns, tax efficiency, leverage, and durability is unmatched by any other category.

Real estate is the asset class you graduate into, not the one you start with. That ordering explains why it appears so frequently on My First Million but so rarely as a recommendation for listeners who are still building their first million.

FAQ

How do I start investing in real estate with no experience?

Shaan Puri’s approach offers one template: find a skilled operator and invest alongside them. This avoids the learning curve of property management while still capturing real estate returns. For those who want to operate directly, Sam Parr’s lesson applies: real estate rewards exhaustive due diligence. Look at hundreds of properties. Make your money when you buy, not when you sell. If the process of detailed analysis does not match your temperament, consider a different configuration.

Is real estate a good passive income strategy?

It depends on the structure. Owning rental properties with a property manager is semi-passive, requiring 5-10 hours per month of oversight. Investing as a limited partner in a syndication or alongside an operator is closer to truly passive. Operating an Airbnb is active. The passivity exists on a spectrum, and the returns generally correlate inversely with involvement — the more passive the structure, the more fees and the lower the net return.

Why did Andrew Wilkinson rate Airbnbs as a D?

The work-to-return ratio is unfavorable. Airbnb hosting combines real estate capital requirements with hospitality operational intensity: cleaning, guest management, listing optimization, and regulatory compliance. The same capital and effort deployed in long-term rentals, self-storage, or franchising would likely produce better risk-adjusted returns. Wilkinson’s rating reflects the comparison, not an absolute judgment.

Should I invest in real estate or start a tech company?

The MFM hosts suggest matching the strategy to your skills. Sam Parr tried real estate and found that the due diligence process did not match his temperament. Shaan Puri invested through a skilled operator rather than operating himself. The question is not which asset class is better in the abstract, but which approach best fits your specific abilities and circumstances. Real estate rewards patience and analytical rigor. Technology rewards speed and creativity. Both build wealth. Neither is universally superior.

How much of my portfolio should be in real estate?

Tiger 21 members with average net worth above $100 million allocate 27-28% to real estate — their single largest category. This allocation reflects wealth preservation priorities rather than maximum growth. For those still building wealth, the allocation might be lower as capital is deployed into higher-growth opportunities. The percentage matters less than the principle: real estate belongs in a diversified portfolio, and it becomes more important as the portfolio grows.

Sources & Episodes

See Also

  • Self-Storage — Nick Huber’s $103M portfolio and the operational approach to real estate
  • Boring Businesses — The broader category of unglamorous wealth-building
  • Passive Income — Tiger 21 allocation data and the semi-passive spectrum
  • Andrew Wilkinson — Business tier list and the Door 3 framework
  • Nick Huber — Sweaty startups applied to real estate
  • Franchising — The 25% IRR alternative to traditional real estate returns
  • Holding Companies — Portfolio ownership as an alternative to direct operation
  • Sweaty Startups — Physical-labor businesses that overlap with real estate operations

Graph View

Backlinks