When talking about real estate, people love to give their opinion. It doesn’t matter if they are experts, beginners, or simple consumers of information, they always have something to say, and what they say are usually lies that confuse people, leading them to make bad decisions.
Before you start investing in real estate, it is best that you inform yourself very well. You must also understand that only experience will lead to success, and that it is important to get advice from the right people and sources.
In this article, we’re going to address all the lies that you’ve been hearing about real estate, and the comments that you should avoid in order to be successful in this business.
1- You need a lot of money
Is that true? It all depends on how creative you are in terms of money or in terms of utilizing whatever is it that you have at your disposal to invest in real estate.
One creative way to invest in real estate with very little capital is through a platform called Fundrise. With Fundrise you can begin to invest with as little as $500. Don’t have $500? Don’t worry! There are other assets that you can actually invest in: REITs – which are based on real estate and you can start with as little as $5.
Another option is to invest in real estate through OPM. What is OPM? OPM stands for Other’s People’s Money. What does other people’s money mean? Other people’s money could be a mortgage that’s going to help you get access to the property without having to wait 10, 20, 30 years just so you can save up enough money. It could be a loan, it could be money that you could get access to through 0% credit cards.
2- Real estate is very illiquid
Why do people think it is illiquid? Real estate produces cash flow every single time, every single month. Yes, every single month that you collect rent, you have cash flow, and at the same time, you are building equity. Equity that it’s going to help you build up your net worth, and equity that will allow you to also get access to cash through a cash-out refi or through a HELOC. Because of this, it can actually be considered pretty liquid.
3- People will trash your property
People destroying property…let’s say that there’s some truth to it to a certain extent but a lot of this actually has to do with the inability to qualify a good tenant because if you’re qualifying a good tenant then there’s nothing to worry about.
A lot of the issues come when a tenant is not selected properly. For example, when people buy houses, and they sign a mortgage – they want to rent their house as soon as possible because within a few days they are going to have to pay for the mortgage and don’t want to have to worry about paying out of pocket. They’re renting their properties quick out of desperation.
What most people do is that they interview people based on what they like. People shoudn’t make business decisions based on emotions. That’s why there’s a pre-qualification process. That’s why people need to be qualified to become renters. The bank already does that with you. They qualify you through your tax returns, they qualify you through your FICO score, through the cash reserves that you have.
You shouldn’t think any differently because you’re placing a person in your house and your property long-term so you want to at least take the time and make sure that this is a good tenant and that you want to make sure that this person will take good care of your property. You can do that through references, although that could be sometimes manipulated.
If you want to know if that person is responsible, you verfy their income, you run their credit – those are some of the steps that you can take to make sure that you are placing somebody that is going to help you take care of your property.
4- Houses are too expensive
They can be if you don’t know where you’re looking. If real estate investing was easy everybody would be doing it. In order to make this happen, you need to know where to look, you need to educate yourself, you need to do the proper due diligence, and the market research to know exactly where you’re going to invest your money.
5- “Only rich people get to do it”
When you think about it, every time you go on the news, every time you hear about someone else’s story, typically, the people who made it in real estate investing are people who are building themselves from the ground up. You don’t hear a millionaire say, “Oh yes, I’ve been handed out all these properties and now they’re mine.” At least not openly, but for the most part, the people who actually make it, they learned to be creative. They learned to build from nothing, they learned to create money from zero all the way up until the point where they managed to expand their real estate portfolio.
All you need to do is to educate yourself. For that, you can check out our free webinar where you can learn a lot. To sign up for it, click here.
You need to learn to invest with other people’s money, you need to learn how to invest with credit. If you don’t have any credit, don’t worry, you can eventually learn how to build a strong credit profile so that you become irresistible to lenders, and you have all those loans, all that cash, all that capital lined up for you and waiting for you to come in and invest it away.
So, no. Rich people are not the only ones who get to do it. People who don’t have any money get to invest in real estate as well.
6- “You don’t have to do any work on it”
Many people believe that you don’t have to do anything whatsoever once you own a real estate business and you place a property manager there, but it’s not true. There is some level of work that actually goes into it. Why? Because you still need to manage people.
You need to manage your property manager. You still need to manage the bank. You need to manage money because you need to pay for the mortgages. You need to make sure that the payment goes through. You need to make sure they are paying for the insurance if you have escrow in the equation.
Escrow is basically an account that the lender sets up for you to set money aside. Then once a year, they’ll take that money that they set aside and pay for property taxes and insurance. Sometimes if you’re not on top of things the banks might not necessarily make the payments on time.
Mistakes happen because, at the end of the day, even though they’re a bank and they have everything automated, there’s still people behind the equation and people can make mistakes.
You have to keep monitoring your portfolio and make sure it is still performing. Otherwise, you will have to implement your exit strategy and decide whether to sell it or do a cash-out refi with it. It all depends on what your investing goals are.
7- You have to do a lot of work
It all depends. If you are the type of investor who wants to do everything yourself, i.e., you want to manage the property, you want to fix the pipes, you want to fix the heater, you want to take care of the grass, the garbage, it will eventually be a lot of work and you will be miserable at it.
Why would you want to do everything yourself when you can only pay somewhere between 6% to 12% of your monthly rental income to have someone else take care of that headache for you.
Isn’t financial freedom the reason why you decided (or plan) to invest in real estate? By hiring someone else to take care of the maintenance of the properties, you can have time for yourself and become a much better version of who you were yesterday through education. You can also use that time to have quality time and build happy memories with your family, loved ones, or friends. That’s what all of this is about.
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