Investing in real estate is a huge step towards financial independence, but so many people are afraid to take the first step - because of the many misconceptions about it. Especially if you’re new to the investment game.
And with so many myths sprouting from the many crevices of the real estate industry, it can be hard to separate fact from fiction. So we're here to tell you if they are, or not in the 9 shocking real estate investment myths below!
Thinking about buying a property, taking out a second mortgage? It can be intimidating. You may think you need a huge amount of money, which you don’t have. Investing isn’t like homeownership, however. You’re generating the passive income that will eventually pay for the cost of the property over time. On top of that, you can always go in with partners, private money lenders, and take other alternative financing routes that you don’t have on the table as a homeowner. Yes, there is a cost involved and it’s wise to have money to cover contingencies, but you don’t necessarily have to be rich to start.
Again, alternative financing means you don’t have to depend on getting a bank loan to secure an investment property. Borrowing hard money from private lenders, partnering with investors who do have good credit, getting involved with a crowdfunding platform…there are plenty of options out there for investors struggling with bad credit and limited resources.
You can still invest while you work to restore your credit to good standing.
The truth is there is no perfect time to invest in real estate. Here are some scenarios that you might relate to you:
No matter your situation, you’ll need to consider the following factors before investing in real estate:
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.
One of the most common myths in real estate is that land is scarce and so the price will always go up as there is a fixed amount of land and there is a disproportionate rise in demand due to population growth. So the myth that is spread by the real estate agents, salespeople, and the proponents of real estate is that the price of land would perpetually rise as there will always be a shortage of land.
The above opinion is completely untrue. It is indeed true that there is limited land but the rise in population is leading to the scarcity of land and surging the price higher is a wrong postulation. Technological development today is making it possible for more people to stay on a small piece of land. Many studies have been conducted in this area and they all state that even if the population of the world has to rise four-folds, there would be no scarcity of land and enough land would still remain for the humans to live and thrive. Hence the perception that land is a scarce commodity and hence precious and it will always rise in value is just a myth that may not hold good in all situations.
Actually, it’s a calculated risk that education mitigates. Like every other investment, real estate also has risk, but it is unlike stocks or gold prices. Because it is well within your control. You’re not blindly hoping things will go well and hoping for a good year. The more you learn and educate yourself, the more you’re equipped to take that calculated risk. Even beginners aren’t automatically guaranteed to lose money if they do their homework. Better check out our beginner's investment guide if you want to be better prepared.
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.
Land prices would always rise is a myth without any economical basis. In developing countries, this statement may be true in a few areas where the growth has been higher for which there is a common notion that is being circulated that land prices would always rise which is not the case. In developed economies, you would find examples of land prices dropping by even 40% to 50%. In many countries, the prices of land have plummeted and have remained so for more than half of a decade. So the prices of land always appreciate in value is a mythical statement. The price of land is connected to many factors out of which economic growth is a factor that surges the value of the land.
Many people in the real estate investment market believe that the growth of flipping properties can make you a millionaire and it is quite easy to perform. On the contrary, getting a buyer and selling it at a higher price is not always possible and might be a hassle - each time the transaction cost would amount to somewhere between 2% to 5% of the property - which would drain time and money.
In practice, the flipping of properties would cost the seller more and should be avoided if you have minimal experience.
Buying is not always as profitable as renting, and it certainly depends on the situation one is in and the market conditions. However, there is always an emotional attachment linked with owning a property which makes people feel that buying is better than renting - which may not be true.
Now that we’ve busted some of the most common myths in real estate investment, you'll know that in the end, real estate investments require a tremendous amount of research and hard work. But if you're determined, never fear, because we have just the real estate investment guide for you to start your real estate investment journey!
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