This is a guest post by Julie Broad. Julie is a young real estate investor who achieved a million dollars in net worth by the age of 30. This article shares some of her experiences in real estate investing with more information about Julie at the end of the article.
Think you should always buy the worst house on a street? Are you waiting to get your corporation set up before you buy your first property because you were told that is the only way to shelter yourself from the risks? Or maybe you just don’t think now is the right time to buy, and you are trying to time the market to get in? You’re not alone in believing any of these things… they are said so often they sound like facts. But, they are just a few of the commonly told real estate myths.
If you want to make money in real estate, you have to separate the myth from fact. We’ve taken seven of the most common myths and busted them open to help you get started.
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. There are plenty of places to find funds… partners, parents, friends, extended family, your house, your retirement savings and other private money sources. We’ve borrowed money from a real estate agent, parents, grandparents, and the vendors of several different properties.
At the end of the day, every real estate deal requires some cash. Even if you do a no money down deal that doesn’t 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.
Myth 2: You need a corporation to buy property without risk
Reality: Maybe this works more effectively in the U.S., but in Canada, 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.
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 things like corporations, just find a good property and buy it. Worry about things like corporations later.
Myth 3: Cash flow is the most important thing
Reality: Setting your real estate investing goals and then finding properties that help you achieve your goals is the most important thing.
Never buy in the hope of appreciation – you should always find properties that more or less pay for themselves. But, cash flow may not be the most important thing to you – focus on YOUR objectives. Someone that is making $150,000 at their current job is probably very short on time, but not as short on money. This person may be looking for a real estate investment that will grow their net worth over time without them having to worry about it.
In this case, buying a property that costs $200/month out of their own pocket but attracts a high quality tenant and requires no maintenance is going to be a better purchase than a property that cash flows positively $200/month but requires 5 to 10 hours of their time every month to deal with problem tenants or maintenance issues.
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’ve got a good contractor and you have the money, and you know you can make the ugly house pretty, go for it. 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’s still the ugly house.
And, ugly houses do not attract good tenants, even if they are in good locations. If you aren’t 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’d 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’re taking some big risks.
And buying property at a super inflated price is not a good idea. It will take a long time for you to make your money out of that investment, if you ever do, and in the meantime you will be in a risky situation if the market goes down.
It’s about the deals you make, not the vehicles you use to make them. 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’ll 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’s not easy. There are basic principles to follow which make it simple, but it takes work to learn the basics. It takes effort to find good properties. You have to take the time to research the market you are going to invest in, and then research the property before you buy it. Once you own the property, it becomes pretty easy over time.
Julie became a millionaire at 30 and semi retired at 31…all thanks to real estate investing. Julie Broad has realized financial freedom at a young age, but she’s not stopping. She and her husband Dave are having way too much fun investing in real estate and helping others achieve their early retirement or wealth creation dreams through property. But you should know, real estate investing wasn’t easy from day 1 for them…Julie and Dave went through the “school of hard knocks,” and made some ugly mistakes. They now publish a newsletter to help others avoid a lot of the mistakes they made. You can check out some of their articles and sign up for their free newsletter.