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7 Common Misconceptions About Investing In Real Estate

7 Common Misconceptions About Investing In Real Estate

I never planned to grow up and become a real estate investor. In fact, even after my husband and I began our real estate adventure as “accidental” landlords, I still didn’t really think of myself as a real estate investor. It was just a thing we did. To me, real estate investors were smooth-talking business people, flying around the country to check out properties, posing for pictures while wearing hard hats and cutting ribbons at development sites, and schmoozing with bankers and brokers. I definitely wasn’t one of those. I just lived in a little ol’ duplex and rented out a single unit. Well, soon it became two duplexes, and then four. And now we have multiple units in multiple states. I think I’ve finally come to see myself as a real estate investor, but that’s also in part because my perception of real estate investing has changed. Along the way, the things I’ve learned about investing in real estate have shattered all my pre-conceived notions.

I learned that real estate investors are just average everyday people.

A fellow parent at a school event, the old lady who’s lived in the same house down the street for the last forty years, the long-time owner of the shop on the corner. I learned that investing in real estate can take on all different forms, from those who actively invest full time to busy professionals who invest on the side while never seeing the properties in person. There are people who invest in land, ground-up development, shopping malls, apartment buildings, and even parking lots. In my conversations with other investors, as well as those who haven’t yet invested, I’ve realized that I’m not the only one with misconceptions about real estate investing. Here are the top seven misconceptions, in no particular order.

Misconception #1: You have to be rich to invest in real estate.

I used to think that only the rich could afford to invest in real estate. After all, you have to put down hundreds of thousands of dollars in order to buy a piece of real estate that will be profitable, right? What I’ve realized, however, is that there are countless ways to invest in real estate, not just through buying big fancy homes to rent out. You can invest in crowdfunded real estate for just a few thousand dollars, or you can buy property with little or no money down, if you’re resourceful enough and are willing to put in some work.

Misconception #2: When you invest in real estate, your money is stuck in it for a long time.

Part of the reason my parents never purchased a home was that we moved around a lot when I was little. They, like many, figured that buying a home was for when you were planning on staying in one place for a long time. Many people have the same misconception about investing in real estate. However, if you’ve ever watched one of the many flipping shows on HGTV, you know that you can buy, flip, and sell a property, all within a few short months, and make a healthy profit doing so. Flipping is just one of many avenues of real estate investing, and there are plenty of both short-term and long-term investment options. While you can often make more money in the long run by holding a property, it’s certainly not the only way to make a profit in real estate.

Misconception #3: You should invest locally.

Many people who start out in real estate believe that they need to be physically close to the property to ensure its success. They want to be able to drive to it in case of emergencies, plunger in hand, ready to be the superhero every tenant reveres: Landlordman. However, though it may feel safe to have the asset in your backyard, the market you live in might not align with your investing goals. For example, if your goal is to invest for cashflow, but you live in a low cashflow market where people are investing not for cashflow but for potential appreciation, you probably shouldn’t invest locally, even if it feels safe.

As the experienced investors say, “Live where you want, invest where it makes sense.”

Misconception #4: You have to deal with tenants, toilets, and termites.

If you invest in a rental property and decide to self-manage, then yes. There will be toilets in your future. However, because there are SO many ways to invest in real estate, you don’t have to deal with tenants and renovations unless you want to roll up your sleeves and do so. You can invest in land, notes, syndications, and more, and in every type of investment, there are ways for you to be as hands-on or as hands-off as you’d like.

Misconception #5: You shouldn’t invest now, because the market is at its peak.

Ah yes, THE market. Because all markets must be going up or down together, right? In actuality, each market is at a different stage in the cycle. Some markets are expanding, others are at the peak or experiencing a contraction. And regardless of what stage a market is in, there are ways to make money. Whether or not you should invest in a given market depends on your investing goals and whether they align with that particular market at that particular time.

Misconception #6: Investing in real estate is riskier and more aggressive than investing in the stock market.

I hear this one a lot. It seems pretty deeply ingrained. It seems we’ve all heard a story about someone who has lost a boatload of money in some bad real estate investment. And yes, unfortunately, stuff like that does happen. But let’s think through this one for a second. When you invest in the stock market, you’re investing your money in companies, companies that you don’t work for and have no control over. When you’re investing in real estate, you have direct (or at least secondary) control over the asset. Plus, real estate is a physical asset, so it can’t disappear into thin air like a company could. (Enron, anyone?) As for the risk, you can mitigate risk through conservative underwriting. That is, making sure your plan for the property accounts for unforeseen circumstances. For example, in the syndications I invest in, I make sure that the sponsors have underwritten the deal such that the investment is cashflow positive, even if occupancy drops well below the average for the area. In other words, if 20 of the 100 tenants suddenly move out, the rent from the other 80 tenants will still be enough to cover the mortgage and other costs.

Misconception #7: Real estate investors are sleazy slumlords who are only in it for the money.

Come on, be honest. This one, in some form or another, has probably crossed your mind at some point. It’s crossed my mind. And for good reason. Because real estate investors like this do exist, unfortunately. There are tenants out there who have to endure poor living conditions because the owner of their building cares only about their own bottom line, and not about their tenants’ lives. This is part of our reality. But it’s something we can change.

Every building that’s purchased by a landlord with integrity, conviction, and a good heart, allows us to change the world for the better.

In all my conversations with investors, I have yet to meet a slumlord. (Come to think of it, they probably have their own slumlord meetups, that the rest of us aren’t invited to.) Instead, the investors I meet are in it to make a difference in the world, both for their own families, and for the people who will be impacted by their properties. The investors I meet work extremely hard to provide good returns for their investors, to improve the properties for their tenants, and to leave a lasting legacy through each property they touch. And through this work, they are able to provide safe, clean, and comfortable spaces that leave the world a better place than they found it.

The 7 Actualities of Investing in Real Estate

Given all that I’ve learned about real estate investing over the years, I present to you: the 7 actualities of investing in real estate. Namely, that anyone can do it, for any length of time, from anywhere, at any time, and have an impact on the world. So, whether you’re new to real estate investing, pondering it while watching from afar, or you’re a seasoned investor, I hope that you’re discovering how versatile and diverse real estate investing can be. Best of all, real estate allows you to invest in people’s lives and to have an impact on the world. You get to invest in places where people live, work, shop, and have fun. Places where memories are made. These are the types of investments that are not going anywhere, and these are the types of investments that make me proud to call myself a real estate investor.