The Truth About These 7 Real Estate Investing Myths

Many people believe that the secret to successful real estate investing is to time the market – buying at the bottom of the cycle. Other people believe that you have to buy properties that cash flow – and that is the most important thing. While people that believe these things may not necessarily be wrong, they are buying into a real estate myth more than a reality.

If you want to make money in real estate, you have to separate the myth from fact. To help you, here are seven of the most common myths dissected:

Myth 1: You don’t need money to invest in real estate

Reality: You DO need money to invest in real estate, but it doesn’t have to be your money. At the end of the day, every real estate deal requires some cash. Even if you do a no money down deal that does not require a cent for a down payment you will still need cash for things like appraisals, inspections and lawyers.

And, almost every property needs a bit of love when you buy it. Even a simple coat of paint requires some cash. So, you don’t need your own money to buy property, but you WILL need money.

This does not mean someone without a penny to their name can’t buy property – but it does mean that person will have to do some networking to find a few sources of funding.

Myth 2: You need a corporation to buy property without risk

Reality: Every situation is different, so you should always get professional advice to determine what is best for you. In most cases, however, a corporation is not necessary at the start. In fact, if you wish to get conventional financing from a bank, you will not be able to buy property in a corporation without personally guaranteeing it. There are exceptions, but even business owners that buy it for their business (example, a Dr. buying a property for his business), will usually be required to personally guarantee the mortgage on their property.

Eventually incorporating may be beneficial for tax or liability reasons, but when you are just starting out, a corporation is just another hurdle that will slow you down to the point of stopping. When you are first starting out don’t worry about complicated and costly things like corporations, just find a good property and buy it. You can always restructure how you hold your properties later on.

Myth 3: Cashflow is the most important thing

Reality: Cashflow is important, but setting your real estate investing goals and then finding properties that help you achieve your goals is the most important thing.

Focusing purely on the numbers can result in buying problem properties that do not attract tenants easily, do not appreciate, and require a lot of work. You always have to consider what you want to achieve, what your exit strategy is and whether the property will deliver on your expectations.

It is more important to figure out what you want, and then find a property that works for you, then it is to find a property that makes plenty of positive cashflow every month.

Myth 4: Buy the Ugly House on a Good Street

Reality: Sometimes the seller of that ugly house thinks their house is worth more than it is just because the comparable properties around it are of higher value. You also might find yourself with a money pit.

If you have a good contractor, you have the money, and you know you can make the ugly house pretty then there often is tremendous opportunity in finding the ugliest house on a good street. But if you are buying the ugly house on the street, just expecting it to be worth more later because it is surrounded by good houses, remember it is still the ugly house.

And, ugly houses do not attract good tenants, even if they are in good locations. If you are not planning to fix it up, you will have a hard time getting and keeping good quality tenants in that property.

Myth 5: All real estate is a good investment

Reality: Over the long term, properties purchased in good locations will usually be good investments. We rarely hear long time investors say “I never should have bought that place” but we often hear them say “I never should have sold that place” or “I wish I had bought that when I had the chance”.

Over the years, real estate has gone up in value nearly everywhere. However, if you buy in an area that is in decline or dependent on one industry that is struggling (timber, fishing, etc,) you are taking the risk. It is possible for areas to decline and never improve.

You can make poor investment decisions in real estate just like you can with stocks. Not all real estate is a good investment, just like not every blue chip company stock is a good investment.

Myth 6: You need to time the market

Reality: Unless you have a crystal ball, you will never know what is going to happen in the market. The reality is that you just have to find a good deal. You don’t have to wait for the right time. In fact, waiting is the worst thing you can do in real estate. The sooner you buy, the better for your wealth growth. Just make sure you buy a good deal.

Your best bet is to focus on your objectives and find a good area with good prospects for the future, and buy there. If you hold onto it for 5 or more years, you will be able to weather any downward turns the market takes, and as long as someone else is paying down your mortgage and it costs you nothing, or very little, to hold each month, you don’t have to time the market.

Myth 7: Real Estate Investing is Easy

Real estate investing is simple, but it is not easy. It takes work. It takes effort to find good properties. Once you own the property, it becomes pretty easy over time.

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