Real Estate Investment: 6 Common Myths
6 Investment Real Estate Myths you need to know
Real Estate itself can be a little tricky to navigate the best of times. It can feel like a game of poker face during hot property markets or raise uncertainty during slower real estate markets. While everyone knows a friend who just got their license to sell, or a family member of theirs who guarantees to sell properties fast or for top dollar, it can seem that real estate agents are a dime a dozen.
The truth is that while some agents present obvious red flags with lack of knowledge, the business of Investment Real Estate has also fallen victim to some widely popular myths that need some clarification. When we use Investment Real Estate, we refer to property that is not used as your primary residence and purchased with the purpose of building wealth through a wealth building strategy, such as long-term rentals etc.
Here are the top 6 Investment Real Estate Myths
When you’re ready to sell your rental property, you need to evict the tenants to make it more desirable for buyers.
Well for starters, there are a number of legal implications to consider when evicting a tenant, which require the knowledge and expertise of Licensed Property Managers or thorough research in your municipality.
Secondly, if properly positioned in the marketplace, and advertised to other Investors, having a tenant occupying the space removes any doubt on rental potential. Often when investors are looking at rental properties with existing tenants, and leases in place, they see this as a turn key business opportunity, saving both the buyers and sellers valuable time and money.
You should always renovate your rental property before you sell to get the highest value.
This myth comes from a long line of hit television shows showing properties being renovated and then sold at high prices during bidding wars.
While this reality of property flipping can be lucrative (see Myth #6) renovating an investment property is NOT always necessary. In fact, like Myth #1, if the property is in good condition and positioned to sell to an investor looking to place tenants, a quick sale will not only keep the sellers’ costs down but attract buyers interested in quick sale.
Any realtor can sell your investment property-it’s just like selling your home.
Realtors are not a dime a dozen and it’s very important to not only understand the differences between a Residential Realtor and an Investment Realtor, but also understand that selling an investment property is NOT the same as selling your family home. We touched on this above discussing how small nuisances that would matter to a new homeowner would potentially not be the same for an investment buyer. Property improvements like renovations, to major property value drivers like kitchens and baths are often the areas considered for upgrades when sellers are looking to position their homes to sell to other home buyers. The opposite is true for Investment Real Estate, that’s not to say that property improvements are not necessary, but a qualified Investment Realtor will know the Investment Real Estate market, rental potential, and how to best position an investment property to sell to the right buyer.
Residential Realtors are excellent in their field of residential real estate knowledge, including how to position homes to sell to buyers looking for their residence and have resources tailored specifically to homebuyers’ markets while Investment Realtors know rental potentials, market values, the potential ROI in addition to the investment real estate market.
You need to already be rich to invest successfully in real estate.
While it would be preferable if you already had plenty of cash in the bank and are able to buy a rental property outright without the need for finance, you most definitely do not need to be rich to invest in real estate. Evidence from financial institutions and realtors’ associations show that just under half of buyers pay cash and the remainder pay a deposit and will use finance to fund the purchase. This suggests that you certainly don’t have to be rich to aspire to build a property empire, though you should be aware that there are risks attached to borrowing money on an investment property. One of those risks is that you will need to make sure that there is sufficient rental income to cover the mortgage costs, and additional property expenses. Having the expertise of an Investment Realtor and qualified real estate professionals can help you decide what options are right for you including how to mitigate some of these risks.
Too many rental properties can affect the neighborhood.
Some investors worry that if they are buying in an area that becomes saturated by rental properties that it might have a detrimental effect on the neighborhood and property values. While this is a justified concern, market forces tend to take care of this argument and some evidence suggests that when buyers return to neighborhoods in numbers, this has the effect of pushing property values up then encouraging investor landlords to sell at a profit. So, you shouldn’t be too concerned about the issue of too many rental properties, though having a Licensed Investment Realtor with real-time data can address any concerns around specific areas.
Flipping is the best way to make money in real estate.
For those not familiar with the concept of flipping, it is when you buy an investment property and quickly sell it again at a higher price for a quick profit.
Property flipping was definitely a widespread activity over recent property booms especially given the popularity from media and well meaning suggestions from residential realtors. Buyers, along with their realtors would watch the market rise in value each month and then sell often within 12 months or so for a higher price. While this concept can be very lucrative in bull housing markets, long term wealth building strategies have shifted this paradigm and have investors understanding longer term investment real estate concepts. Today, the typical investor will now hold onto a property for at least five years before considering selling, thus you can reasonably assume that at present, flipping is not really the best way to make money on property. Though property flipping can be profitable if you buy at the right price, like a foreclosure for example, carefully considering your overall goals and current financial situation with the help of an expert investment realtor can help you determine the best option for your return on investment.
The ins and outs of Real Estate Investing require time and expertise and should be treated as important as any investment decision. Having the right team to answer your questions with access to the right resources and expertise will allow you to understand and make decisions that are right for your future. Find out how a RIF Team member can assist you with your real estate needs.