There are a lot of misconceptions about investing in real estate. Some misunderstandings are generated by what we think seems like common sense. Because if it seems logical, we may not stop and think about the details or the origin of the poorly passed down advice. No matter the reason, plenty of real estate myths have caused many investors to make BIG mistakes. It may cost time, money, or possibly even discourage someone from getting started at all.
The biggest barrier for most people who want to get started in real estate investing is money. Money can be a big motivator for many starting out in investing. There are dreams of financial freedom and leaving office jobs, building strong retirements or securing a financial future for our children.
Money plays a large and important role when investing, so it’s no surprise that there are a lot of misconceptions surrounding it. We’re here to address a few:
5 Real Estate Investment Money Myths, Busted!
Myth #1: I need a lot of money before I can start investing.
Truth: You really don’t; and there are creative ways to finance.
Thinking about buying a property, taking out a second mortgage…it can be intimidating. You may think you need a lot of extra money that you just don’t have. Investing isn’t like home ownership, 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 cost involved and it’s wise to have money to cover contingencies, but you don’t necessarily have to be rich to start.
Myth #2: I should focus on getting the cheapest properties I can find. Good deals are everything!
Truth: Other factors are more important in the making of a good rental property than cost.
Cheapo properties can be a good deal, but they can also be a nightmare. The problem with cheap properties is usually that they come with a lot of hidden problems that you’ll have to fix. Bottom of the barrel properties may have good bones but what kind of work will you have to do to not only get them looking presentable, but also to fix the major issues that these kinds of properties are bound to have? They’re something that will end up costing you in time and money, while potentially increasing your vacancy time, too.
And if the location and quality isn’t good on top of it, chances are you won’t be able to charge a whole lot in rent. Cheap isn’t always better for your cash flow! In the long run, you’re not really doing yourself any favors buying cheap and dumpy properties.
Myth #3: I have to have good credit to invest in real estate.
Truth: Alternative financing options means you don’t.
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.
If you’re looking for ways to improve your credit, click here.
Myth #4: No matter what, I’m going to lose money in the beginning. Real estate is just too risky.
Truth: It’s a calculated risk that education mitigates.
Yes, there’s risk to real estate. But real estate, unlike stocks or gold prices, is well within your control. You’re not blindly hoping things will go well and hoping for a good year.
Yes, some things aren’t in your control. But you have active agency in your investments, where they are, and the decisions you make. What if you make the wrong decisions? That’s part of it! 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.
Myth #5: Cutting costs at all costs should be my priority if I want to maximize my cash flow.
Truth: Not at the cost of your property’s condition and quality.
This is a dangerous misconception, and it’s the kind of thinking that creates slum lords. There’s value in being smart with your money. Frugality and smart money management is great in this business. What’s not good is cutting costs at the expense of your property’s long-term value and condition to save money in the short term.
Don’t go for quick fixes. Repair things right the first time, even if it costs more. Don’t do band-aid temporary fixes. Make sure you’re hiring quality, reliable people to take care of your properties and your tenants.
Don’t cut corners where it really counts.
There are places where you can and should cut down on costs, but there are also places where the premium is definitely worth the cost for you and your business. (For instance, in property management and in property repairs!)
If you want excellence in your real estate investment experience, choose a turnkey real estate investment company known for quality.
Chris Clothier, author of The Turnkey Revolution, manages the development and implementation of sales and marketing for Memphis Invest. He helps potential investors define their purpose for investing in real estate and educates peer companies on best practices in the emerging turnkey real estate industry. He is a contributing columnist for BiggerPockets and an experienced speaker who regularly addresses audiences of real estate investors and business professionals.
