In the world of real estate investing there are a lot of myths floating around. Some of these deter hopeful investors from ever entering the market. Other myths have been known to lead to bad decisions and a significant decrease in profits.
Let’s take a look at five of the biggest real estate investing myths.
You Need a Bunch of Money to Get Started
One of the biggest myths and probably the number one thing keeping anyone from becoming a real estate investor is thinking it takes a lot of money. Yes, there are certain deals that are going to be expensive. However, there are also many ways to purchase a property for much less than you’d think. You just need to be creative.
A popular option for many is to buy a fix and flip. You start off by looking for distressed properties that are structurally sound but need a lot of cosmetic work. You can usually purchase these homes at a severe discount.
Another option takes this a step further. It’s called the BRRRR strategy. It stands for buy, rehab, rent, refinance, and repeat. You start out purchasing a home that needs a lot of work done to it. Once you’ve fixed it up, you’ll then rent it out to a tenant. From there you refinance the property using the new appraised value and pay off the original loan. You can rinse and repeat until you have a portfolio of properties.
This does come with a little risk. If the appraised value after the remodel isn’t enough to cover the original loan, you’ll need to bring cash to the closing or sell the property and take your profits.
Another way to invest in real estate for a lower initial investment would be to use a partner. This can help significantly reduce the money needed to purchase a property. You could also look for different wholesale opportunities.
It’s Best to Buy Real Estate in a Down Market
A common thought is that it’s best to purchase property only in a down market. While the purchase price will be lower, the rent you can charge will also be much lower.
In reality, you can make money as a real estate investor no matter if the real estate market is booming or in tough times. The key is finding good properties that can yield high cash flows.
Raising the Rent Will Drive Away Tenants
Many people believe that when you raise the rent on a tenant it will drive them to look for someplace else to live. As an example, let’s assume you purchase a property where the current tenant has been paying rent for years, but it’s well below the market value. Most new investors would probably be scared to raise the rent. This is where you would end up hurting your profits.
The key is to be gradual with your tenants. Instead of increasing the rent to market value in the first year, do it over time. Gradually increase the rent each year until you have reached full market value. This will greatly reduce the odds you will ever lose your tenant.
You Should Own a Home Before Becoming an Investor
Many people believe that you need to actually own a home yourself before you can become a real estate investor. This isn’t true at all. If you’ve never owned your own home, but know you want to become an investor, this would be a great time to buy a duplex and become an owner-occupier.
By becoming an owner-occupier, you’re taking care of two goals at once. Not only are you purchasing your first home, but you are also becoming a landlord. The rent you collect from the other side of the duplex will offset a portion of your mortgage payment each month.
Becoming a Real Estate Investor Is a Way to Make Passive Income
When it comes to investing in real estate, you can make it as passive as you want. However, the more hands-off you decide to be, the less profit you will have. This is a business and you should treat it that way.
When you first purchase the property, there is going to be a lot of work involved. Not only do you need to put in the time to find the best property available, but you also need to coordinate any construction that needs to be done. At that point you’ll find tenants and take care of general maintenance. That’s a lot of work and some of it is going to fall on your shoulders.
What are some myths you’ve heard regarding real estate investing? Let us know in the comments below!
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