Ten Myths of Real Estate Investing
Is real estate investing only for the wealthy? Can you buy with no money down? Do you have to know the “right” people? Let’s answer these common questions by first looking at some of the common myths of real estate investing
1. Real estate investing is only for the wealthy.
Money helps, but one investor’s first real estate investment was a $3,500 lot – which he sold for a profit two weeks after he bought it. Small deals, partners, low-down deals, or just putting aside $7 per day for a couple years until you have enough money for a down payment – these are just a few of the ways to start with a small investment and create leverage to acquire a lot.
2. “Zero down” isn’t possible.
One investor sold a rental property for $1,000 down because he trusted the buyer to make the payments, plus, he wanted the 9% interest and higher price. The buyer could have gotten a cash-advance on a credit card for another $30 per month and made it a “zero down” deal. “No money down” means none of YOUR OWN money is put down, and yes, it happens all the time.
3. “Zero down” is the best way.
If you don’t invest any of your own money, you’ll likely have higher payments. Yes, it’s possible to do a deal with nothing down but it can also reduce your monthly cash flow. You’ll also spend more time finding suitable properties and often paying more for them because cooperative sellers know they can sell their property for more for their cooperation. Yes, there are zero down deals out there, however, not every deal is worth the effort.
4. You need experience.
Experience helps, but the only way you can get it is by investing. Educate yourself first with books, YouTube videos, webinars, podcasts, and seminars. However, know that the real learning starts with your first rental property purchase. Start with common sense, ask how you can lose money, be willing to learn the numbers, and you can start where you are.
5. Some investors just have a “knack” for making money.
Sort of. There are some investors that are more “gifted” than others. But, more accurately, some people just took the time and risk to learn the market, understand the numbers and continue their education. You can develop that “knack” too! It just takes some education and practice.
6. You need to know the “right” people.
It helps to know people who can help in your real estate endeavors. Real estate has always been about relationships. But everyone has to start somewhere. Begin by finding a good mentor. Then, attend local real estate meet-ups, chamber of commerce meetings, REI meetings, service clubs like Kiwanis and the Rotary Clubs, talk with other real estate investors, real estate agents, real estate attorneys, CPAs, landlords, bankers, etc. and start building your network.
7. You have to be a great negotiator.
If you understand the numbers and make the offers based on them, you can be the worst negotiator in the world and still do okay. Again, practice makes perfect. Always start lower than you think and be slow to come up to the sellers “best price.” Read “The Art of the Deal.” Becoming a great negotiator is possible for anyone willing to learn and practice.
8. You need insider knowledge.
Understand one deal, and you are on your way. Know your market well. Get every statistic on the local market and talk to locals that know the community best. Read everything and read more — local business journals, chamber of commerce newsletters, offering memorandums and more. The best “insider” knowledge comes from research and experience.
9. Fixer-uppers are safe.
People have the idea that doing the work themselves is the safest way to assure a profit. Not true. Poorly executed “fix and flips” cost more and have bankrupted even the most experienced investors. Poorly purchased rental properties will not only eat up your cash flow but they may do the same to your equity. It’s generally better to hire experienced and carefully vetted contractors.
10. The key is lowball offers.
The numbers have to work, and you need a plan. Of course you want to always buy under-market, however, you can offer MORE than the market price and still make great money on a right deal. The trick is understanding creative financing and how to do the math.
There are a number of misconceptions regarding real estate investing. But, what’s important is that you get educated and surround yourself with people who know more than you. An experienced mentor can also be invaluable. Overall, despite the misinformation, it’s tough to beat the many benefits of real estate investing.