Appraisal Management News

Real Estate Investing Myths

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Norada Real Estate

There are various myths about real estate investing that never seem to die no matter how much you try to kill them!  Hopefully, the information provided below will help you avoid falling for these untruths.

Myth #1: You Can’t Make Money in Real Estate Without a Lot of Money.

It’s true that you usually (but not always) need money to get started in real estate.  However, you don’t need hundreds upon thousands of dollars to get your investment career started and moving!

As discussed in one of my other articles, one of the great benefits of real estate is “leverage”, that is, you can use very little money to buy your way into properties that will keep on appreciating over time and increasing your wealth. In effect, you have what the military calls a “force multiplier”, that is, with one effective “weapon” you can eventually conquer your piece of the real estate market.

If you are short on cash and want to invest right away then partnering up with another real estate investor may be an option to consider.  Having a “cash partner” to invest with you in your deal is a quick short cut when your only hurdle is the initial down-payment.

As you can see, having a lot of money is not necessary. However, it does help because it accelerates your wealth building plan. The wonderful thing about real estate is that you can get started by building up your cash reserves, and you can then leverage those reserves into more and different investment opportunities.

Myth #2: You Need Little to No Knowledge to Become a Real Estate Investor.

Ignorance is definitely not bliss when it comes to real estate! In fact, you can get your financial head handed to you in short order if you don’t know what you’re doing. Let’s illustrate this point with a quick example from my own experience:

When I purchased one of my first apartment buildings – a 40-unit complex – I was unaware the local gas company would reset my monthly payment plan from a regular “budget” payment to an “actual use” payment.  I was shocked when I received my first gas bill for $9,000!  Having known that one little fact would have saved me over $6000 and kept me in the black that month.

As you can see, you definitely need knowledge to get off on the right foot when buying or selling properties. It’s like a map through the “mine fields” of investment; it’ll keep you safe and in one financial piece!

Myth #3: You Should Time the Market to Have the Greatest Success.

While it’s definitely true that real estate is cyclical (like the stock market), the fact is that the cycles are much slower and longer than that of securities. So, you can’t really time real estate investments in the same way as you can with stocks and bonds. It’s a whole different mindset – a longer-term one, for the most part. Let me explain…

The real estate cycle typically works in this fashion:

  • High real estate demand creates a property shortage and higher rents, and appreciation along with it.
  • To meet demand, more properties are built.
  • The result – overbuilding occurs, and rents and property valuation decline.
  • The cycle begins again.

Note: We’ll talk about the real estate cycle at greater length later in another article.

Naturally, unexpected economic influences (war, catastrophes, etc.) can influence the cycle as well. But, remember what I said before – all real estate is local!  Even in a down market in, say, California, the real estate “rose” can be on the bloom in, say, Texas.

So, it’s not about timing in the larger sense; it’s about timing in the sense of finding and buying properties that meet your investment goals wherever and whenever they are. Or, as Gary Keller said in his great book, The Millionaire Real Estate Invester, “Timing isn’t about being in the right place at the right time. It’s about being in the right place all the time.”

Myth #4: Only Invest in Appreciating Markets

Many investors believe they should only invest in an appreciating market. This is simply not true! You can make money in any market and in any economy.

The key is to pick the right strategy for the market.  For example, if you purchased a bank foreclosure, or a property from a distressed seller at a price far enough below the current market value, then you could buy in a declining market and be able to flip it for a quick profit or hold it for cash flow, assuming you bought it with the right terms.

Myth #5: Real Estate is a ‘Get Rich Quick’ Investment.

This is definitely not true! However, it is the best wealth accumulator. You may not hear of too many people getting rich within a one year period of time, but you will hear of many people becoming wealthy over a few short years and certainly over the long term.  Real estate is a solid “get-rich-slow” investment.

Those are only five common myths.  What other myths are you aware of?

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Written by appraisalmanagementnews

April 19, 2011 at 5:46 pm

Posted in Real Estate Market

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