Common Real Estate Investment Facts And Falsehoods - Private Lending Blog

Common Real Estate Investment Facts And Falsehoods

| Posted in General Lending

August 25, 2022

All investment opportunities come with common facts and falsehoods, which is why it is so important to do your research ahead of time to distinguish what the truth is for your situation.  If you desire to be independent financially, then investing in real estate can be a great place to start. This market can at times be a bit challenging for new investors which is why a good real estate agent can help you start off right in a big way.  Below we will explore some of the most common real estate facts and falsehoods to help you decipher the differences.

You Need A Lot Of Capital

Most new investors believe that you need a lot of money to start investing in real estate, but that is far from accurate. Investing is not the same as owning a property; when you invest, you should expect to get a return from the money you’ve invested, which will make it possible for you to pay back your mortgage over time.  If you want to invest in real estate, you can look for partners or private money lenders. All in all, every investment is a risk, so you should always have a plan B in place ahead of time.

Buying Beats Renting

A common falsehood in real estate investing is that you must have your own home first before investing in other real estate. This is simply not the case.  Many new investors are investing in real estate while still renting the place they currently live in. This is very common with people who rather wait to save up for their dream home by investing until they have enough capital in reserves to buy or build what they desire long term.  Many new investors own vacation rentals or condos first and see a great return while they build equity for their future projects and goals.

Fix And Flipping Equals Quick Cash

This is perhaps one of the most common falsehoods circulating in the real estate industry, where investors buy rundown houses, fix them up and sell them for a profit. Cable network programming often highlights this tactic of real estate investing.  While it’s possible to profit from flipping houses, they are far from a get-rich-quick fix as it requires a careful and calculated plan. To be successful, you must survey the property, calculate the total repair and labor costs, at end a 10-20% buffer for unexpected expense contingencies, and ensure that the amount you pay for the property is not more than 70% cost of repairs. If everything goes to plan, you stand to make about 30% profit after all your hard work is done.  You must keep in mind though that if the real estate market crashes or takes a significant hit, you don’t have to sell the property at a loss; you can hold on to it until the market recovers.  At the end of the day, you can see many examples of how real estate is not the best way to get rich quick without a lot of time and headaches.

Good Land is Rare

Most real estate agents will try to encourage new investors to buy a particular piece of land by convincing you that you’ll never come across such a plot again as land is scarce across the country and the population is increasing.  By these metrics, they argue that the price of land will continue to rise.

While it’s true land is limited throughout the country, advancements in building technology are making it much easier to maximize the use of available land out there and even if the population does increase, there will still be enough land with current death and birth rates, so there should not ever come a time when the amount of good land available will not be adequate for future needs.

Being A Landlord Is Too Difficult

It is true that owning an investment property can be a lot of work, especially if you have difficult or demanding renters. On top of that, you will have to ensure that your rental property is maintained properly, accounting is current and rent is collected in a timely manner.  Luckily, you don’t have to do all of these things alone; many new investors utilize a property management company to manage their investment property for them. Just understand that you will have to pay them a certain amount which will need to be accounted for in your bottom line but it can be well worth the cost if they take all or even most of the headaches off your plate.

To start investing in real estate, a wise new investor will make sure to research ahead of time and figure out the differences between common facts and falsehoods within real estate investing.  By taking this approach, this will help you avoid being led astray to purchase a property that is not worth the return on your investment and also help you develop your sixth sense when it comes to real estate opportunities. If you find a good real estate agent you trust, they can be a great resource especially when you are first starting out, to help you discern what is the best opportunity for you to get started when investing in real estate.

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