She owned 5 properties at 25—but says real estate investing was a mistake

When Naseema McElroy was 25, she owned five rental properties. It was how she thought she was going to build her wealth.

By taking advantage of subprime lending practices that allowed borrowers with weak credit histories to easily obtain high-interest mortgages in the early 2000s, McElroy figured she would borrow as much as she could to purchase multiple properties and it would all work out in the end, she tells CNBC Make It.

Then about a year later, in 2008, the housing market crashed.

“I was really naive,” McElroy says. Suddenly, she owed lenders more than what her properties were worth. To avoid foreclosure, she says she was forced to sell two of the investments for less than what was left on their mortgages. Two other properties were foreclosed on, and eventually she says she had to declare bankruptcy.

Since then, the now 44-year-old labor and delivery nurse has grown her net worth to over $1 million, according to documents reviewed by CNBC Make It. She owns her primary home, but the majority of her wealth comes from investing in the stock market through broad-based index funds, documents show.

The biggest lesson she says she’s learned from the experience: “Real estate is one form of investing, but it’s not the only form.”

While there can be upsides to investing in real estate, it’s significantly riskier than investing in the stock market and can require a lot more work than many investors anticipate, says Alex Caswell, a certified financial planner and founder of Wealth Script Advisors in San Francisco, California.

On social media, “there’s been a popularization of the idea that real estate is somehow a silver bullet in terms of building wealth,” Caswell says. However, in reality, becoming a successful real estate investor requires extensive research and dedication, he says.

Before purchasing a property, Caswell says investors should consider a swath of variables, including how much it could appreciate, property taxes, maintenance costs, insurance expenses and the best way to finance the purchase.

All of these variables rely on assumptions, and adding all of your assumptions together can create “a lot more of an unpredictable investment experience,” Caswell says.

Additionally, becoming a landlord like McElroy may not be as easy as collecting a monthly check, Caswell says.

“I just remember how hard it was to be a landlord,” says McElroy, who was also working full time as a health-care administrator at the time.

On top of constant costs associated with maintaining her homes, she says collecting rent and dealing with tenants became a constant struggle.

McElroy says she never generated as much revenue from the venture as she expected, and looking back, McElroy says her failure to understand the true costs associated with real estate before taking on so much debt became the biggest money-related mistake she has ever made.

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