Real estate investment myths are all around us, however, investing in real estate is a huge step towards financial independence. For first-time investors, investing in real estate could be both a thrilling and confusing time. Even after doing extensive research, it is difficult to discern the factual from the inaccurate information swirling on the internet.
There are many misconceptions about real estate investment that should not influence the decision to invest in the property sector. This is especially challenging if you’re new to the game. With many myths sprouting from many crevices of the real estate industry, it can be hard to separate fact from fiction. Admittedly, while some myths may seem harmless, they can still hold you back from doing well in real estate. While minor mistakes are excusable, major ones aren’t. So, if you wish to succeed in this business, then it’s best to know the myths and learn the truth about each.
8 Real Estate Investment Myths
Here are a few of the most common myths to ignore as a real estate investor.
Myth #1: A Huge Amount Of Capital Is Necessary To Start Investing In Real Estate
This myth is one of the most misleading perceptions about real estate investment. People assume that a substantial amount of capital is required to invest in a property. In truth, investors don’t need a substantial amount of wealth or a 20% down payment to get started. Although it helps to have money for a sizable deposit, it’s certainly not a requirement.
Money, no doubt, can get you places. But sometimes, money is not the only thing that you’ll need for your real estate venture. In other words, while a large sum of money is good, it’s not a requirement when it comes to investing in real estate.
So, how does it really work?
According to Bloomberg, an analysis of county records by real-estate broker and buyer Redfin Corp. reported that in 2021 alone, 30% of U.S. home purchases were made in cash. This goes to show that paying upfront is more of an advantage of the home buyer, rather than financing a place.
However, if you’re seriously worried about being able to sustain yourself financially when in the real estate business, then you should know that you’ll need a sufficient rental income in order to cover the mortgage costs (along with additional property expenses). Other than that, having large sums of money isn’t really necessary just as long as you can sustain yourself financially.
Believe it or not, there are plenty of options for hopeful real estate investors. One possibility is to purchase a property with an investment partner who possesses greater financial resources. Another solution is to take out a loan designed to help first-time home buyers.
Myth #2: It’s All About Perfect Timing
The truth is there is no perfect time to invest in the real estate market.
While there’s a good chance to end up investing at the wrong time, that doesn’t mean that you have to be on point when it comes to investing. The truth is, timing will depend on your situation. Here are some scenarios that you might relate to you:
- Low on funds (whether from job loss, changes in pay, unfortunate circumstances, theft, etc.).
- Living in a small home and making ends meet.
- Inherited a large sum of money from someone.
- Have a great-paying job, and you’re doing very well financially.
- Just moved out of your parents’ house.
- Or, You’re tackling personal loans (i.e., student loans, credit cards, etc.).
- And so on…
No matter your situation, you’ll need to consider the following factors before investing in real estate:
- Financial stability
- Emotional wellbeing
- Your living situation
- Your familiarity with home buying
- And, your familiarity with home improvement, etc.
These factors will show you how ready or not ready you are to invest in the real estate industry. Therefore, timing isn’t the same for everyone.
“No one knows the perfect time to buy a property,” says Terry Myers, business analyst at Academic brits. “When it comes to real estate investment, research, analysis, and strategy beats timing every time.” Markets are ultimately unpredictable. Investors should make informed and well-researched decisions, but waiting for the perfect moment to invest is a waste of time.
Myth #3: Investors Should Only Invest In City Properties
If you ever wanted to invest in properties in the city, that might sound lucrative at first. However, behind the curtains, investing in properties in the city can be very competitive, seeing that you wouldn’t be the only one trying to invest in urban properties. Plus, with urban properties skyrocketing in value, many first-time investors might find themselves priced out of the urban real estate market.
Fortunately, income as a real estate investor is possible even if one invests outside of the city. According to a report by real estate company Zillow, almost half of millennial homeowners prefer the suburbs. As the housing supply dwindles in urban cores and renters face increasingly unaffordable rent prices in the city, the suburbs and its surrounding regions will continue to experience growth. Thus, investors should consider investing in a real estate property in these regions.
Myth #4: Renovating A Fixer-Upper Is Easy Money
Fixer-uppers have been the subject of many TV shows. If you’re not familiar with flipping a home, essentially, it’s a process where you buy an investment property only to sell it again quickly for a higher price. Homebuyers will watch the home market rise in value every so often, and then buy when the time is right for them. Then, within 12 months or less, they’ll sell a home (the fixer-upper) for a price that’s mainly higher than the price that they had bought it for. Sounds like a lucrative lifestyle?
Thanks to all the property flipping shows on television, many falsely assume that buying and renovating a fixer-upper is a quick way to get rich. Though it can be profitable, purchasing a dilapidated home and fixing it is no easy feat. It requires a huge amount of research, cost analysis, and a concrete strategy. Indeed, having a team to advise you is essential. For example, an architect can help let you know what the property could look like. Also, don’t forget that electricians, plumbers, accountants, lawyers, etc. need to get considered as part of the project. However, when done properly, investing in a fixer-upper can be a solid source of income as an investor.
Don’t Forget the Inspection
In addition, fixer-uppers will need to be inspected in order for you to turn around and sell them to home buyers. If you simply buy a fixer-upper for the sake of selling it at a higher price to other people, then you’ll be disappointed at your investment, because you didn’t have a sufficient plan for it. That means seeing what the fixer-upper needs in order to be deemed “buyable.”
So, skipping out on a professional home inspection is NEVER something you should do. Home inspectors are there to ensure a safe home by looking at many things in the home – from electrical, to heating, to foundational parts of the home, etc. Essentially, home inspectors are your ally, when it comes to fixer-uppers. And, if you can afford to do some DIY – or, at the very least, you know your want around a toolbox – then flipping a fixer-upper might suit you. However, if you can’t (and won’t) waste time on DIY work, then avoid fixer-uppers at all costs.
Myth #5: Become A Home Owner First Before Investing In Rental Properties
In truth, property buyers want to have an emotional connection with the property that they buy. While buying a home or property is no longer an “adult” thing, seeing that in the first quarter of 2021, 38.1% of homeowners in the US are persons under 35 years of age, according to Statista. So, with hearts set on that “special home,” and money on the line, home buyers want to be sold something that will meet their emotional and financial needs.
Owning a home is not a prerequisite to investing in a rental property. In fact, many millennials are choosing to invest in a rental property while renting themselves or living with their parents in order to finance their own dream home someday. Investing in a rental property can be an excellent source of income for anyone, not just exclusively homeowners.
As you can see, while buying a home to invest in may be ideal for some situations, let’s not forget about renting property. Again, doing either or isn’t a prerequisite. Remember: Real estate operates on a case-to-case basis, meaning that the situation is dependent on the case.
Myth #6: Being A Landlord Is Time Consuming
Do you have time for being a landlord? That will all depend on your situation, including finances, your time, your commitment, etc. While being a real estate person can require your time in some areas, that might not be the case for other areas.
Almost three-quarters of rental properties are owned by individual real estate investors, according to a report by the US Census Bureau. Individual landlords as opposed to large corporations comprise and manage most of the rental property market. A lot of investors allow the misconception that being a landlord is time-consuming to prevent them from investing in a rental property. In reality, the solution of outsourcing exists.
Outsourcing has become a convenient way to do things, including being a landlord to a property. That may sound strange at first, but it’s still a fact that anyone can outsource landlord tasks if they wanted to save on time. In doing so, you can have more time to do other things outside of being a landlord.
As you can see, outsourcing landlord tasks is not only time-efficient, it enables investors to invest in real estate anywhere.
Myth #7: Investing In Real Estate Is High-Risk
Like any investment, investing in real estate comes with some degree of risk, though “high-risk” is more of a myth. There is no guarantee that a rental property will attract tenants or property will continue to grow in value. Plus, the following risks may scare you into not investing in real estate:
Sometimes, as a real estate agent, you’ll deal with many characters in the tenant pool. You’ll get kind souls, while you’ll get distasteful individuals. If you believe that you’ll get great tenants in your home-selling ventures, then let us be the first to tell you that THAT is not true. In reality, you’ll get two different types of tenants: good or bad, as mentioned earlier. Good tenants pay their dues on time, are responsible for using their property, and won’t have any legal hassles with you. Bad tenants, on the other hand, can’t (or will refuse) to pay their dues on time, will destroy the property, and will try to hassle you with lawsuits.
So, the risk here is that you might not know who will be buying or renting your property. So, it’s best to do credit and background checks on potential tenants.
Liquidation can be another risk. There’s a large amount of money required for real estate investments, which requires a commitment from the investor when it comes to personal finances. Should you wish to exit a property, like investing in art, or jewelry, there’s no ready market that will give you immediate quotes on the property. That’s not as quick as liquidating, say, dividend stocks, bonds, etc. Therefore, consider illiquidity, as you invest in real estate, and price the property based on that.
Homebuyers will either buy with cash, or they’ll do so with a mortgage. However, with mortgages carrying interest rates that will need to be paid over a certain amount of time, why not convince buyers to pay with cash? That’s considered leveraging.
However, keep in mind that you’ll have to leverage at your own risk. This involves strategic thinking, looking into client preferences, how clients would plan to pay for a new home, and so on.
While unfinished units are often cheaper to buy, they can also come with risks. That’s when investors become vulnerable to counterparties. Counterparties consist of either local authorities or others who have presiding jurisdiction over real estate causes. So, if you invest in a home to sell to other people, know that you’ll need to do so lawfully and strategically.
Finally, you’ll need to ensure that the real estate market is up to date and accurate with the right information. Such information includes bonds, stocks, etc. As such, you can use this information is vital to know if it’s the right time or not to invest in a property to sell.
Plus, the information might not always work in your favor, since brokers might have it in for you. Brokers will only focus on the market when it comes to their own interests; they don’t have time to meet all the needs of real estate agents. Therefore, it’s best to perceive that information as a large guess. That’s why it’s important to look to multiple sources of information, not just one.
However, in most cases, the benefits outweigh the risks. While risks are inevitable, the benefits persevere. Investing in real estate provides investors with a tangible investment, a place to live if necessary, and a relatively reliable source of income.
Myth #8: Real Estate Investments Are Like What You See On TV
Now, this real estate investment myth has to be the biggest one of the bunch!
While TV shows and movies may show the glamorous lifestyle of being a real estate agent, they don’t necessarily show you the 100% truth about this industry. Believe it or not, the media – especially reality TV – may show the good and bad for real estate; but at the end of the day, real estate is spotlighted and paraded as a lucrative industry to get into. As a result, many home-buying hopefuls and gurus are inspired to get involved in this business and reap the supposed benefits. Now, while many of these great stories of success are partially true, when it comes to real estate investments, that’s mostly a myth.
What You Don’t See
Behind the scenes, you don’t see what successful TV real estate gurus had to do to achieve their successes. Media doesn’t show you what people had to do to find and hire contractors, set up LLCs, formulate home-selling strategies, and so on. As you can see, there are many important steps to take to set up your real estate business.
So, to be a genuine and successful real estate agent, running a business and making money should go hand-in-hand. In other words, don’t just think about the money-making aspect of being in the real estate business. Why? Because only following the money will eventually get you nowhere. In fact, real estate agents often get a bad rap for the following characteristics, due to the “glamorous” lifestyles portrayed in media:
- Selfish and greedy
- Always looking for cash flows, AND
- Only caring for profits, not the clients
So, instead of believing the myth of real estate being the epicenter for the “rich and greedy,” and that you should follow the ways of said “rich and greedy,” you’ll need to focus on your clients by offering the best services to them as possible. Preferably, beginners need to succeed with wholesome knowledge and a heart for clients, so that they can provide the best services to others.
BONUS: Don’t Waste Time With An Open House
Now, this is one real estate investment myth that you should NEVER believe.
Open houses exist for a reason. People want to see a home before they consider buying or renting it. If you want interested parties to look at your home, then setting up an open house is beneficial.
In an open house, you can present the best features in the home. This is especially great if your home has technological features, which can attract the tech-savvy and the younger generation.
Plus, you can take the open house online by giving prospective buyers an online tour of the home without them having to leave their home. Again, this is especially great for the tech-savvy and younger generation, because they’re already well acquainted with using technology. When people are able to shop at their convenience, you’ll most likely get a willing buyer from it.
A study by the National Association of Realtors found that 99% of millennials are interested in the housing market. With more young people than ever hoping to invest in real estate, distinguishing useful information from misleading perceptions is crucial.
As you can see, there are many ins and outs of investing in real estate. Believe it or not, with the ins and outs comes many myths that can stem from them. But not to worry! Now that we’ve talked about 8 of the most common myths in real estate investment, they should definitely be treated as such – myths!
Real estate investments require a tremendous amount of research and hard work, but investors should not allow the myths above from influencing their decision to take one step further towards financial freedom.
We wish you the best of luck in your real estate endeavors!