Real Estate Investing: Separating Myth from Reality

For many, real estate is seen as either a guaranteed return on investment or a losing proposition of too many expenses to realize a sufficient profit to make it worth your while. Some say real estate is more stable than the often volatile stock market, providing an actual physical asset which – at least in theory – helps reflect the amount of money property is said to be worth. Others argue that the maintenance costs, yearly taxes and sometimes other levies such as association fees cut into much of the profitability we see on paper for a particular property. In between these two opinions is much of the truth.

Real Estate Is A Sure Thing

While many people have realized a seemingly guaranteed profit from investing in real estate, those stories are trumpeted because they are successes. Some of the less heard stories include people who break even on their investment or, worse, lose money. There are also those who experience the “slow bleed” of expenses that make their investment less and less profitable over time, especially if the investment is not generating income. As with everything else, every investor should know the risks before they invest their money or commit to a long-term payment which will impact their financial future.

Significant Capital Is A Prerequisite

Many potential investors are immediately discouraged from investing in an otherwise ideal real estate opportunity because of a lack of liquid funds. Unlike stocks or bonds, you don’t need a large amount – or in some cases of truly great credit scores – any amount of capital to invest in real estate. Sometimes, there are people with money ready to invest who need an expert in real estate and will provide a share of the proceeds of a sale as compensation for the expertise. More traditionally, some lenders will provide financing for the right deal without the need for a significant down payment because of their view of an investor’s ability to repay.

Cheap Deals Are Good But They’re Mostly Gone

Many believe that only cheap deals are good and those deals are no longer left. First, many cheap deals may be cheap for a reason – from structural issues to declining values in the neighborhood – current owners may be looking to offload an asset whose time in the profitability sun has passed. Second, there are still deals to be found if owners are looking to quickly sell an otherwise good property for a variety of personal reasons – from too much debt to inheriting the asset and not knowing how to manage it – which could make it an otherwise attractive purchase.

On Rental Properties, You Can “Set It and Forget It”

Some rental property owners boast of properties that are so easily maintained that they can collect a monthly rent check and not worry about re-investing the profit into their property. The reality is that many properties require not insubstantial maintenance be it re-painting the exterior, replacing appliances or interior flooring and cabinetry, or other facets, these bills can quickly add up given the sometimes high turnover of tenants necessitating a refresh of the property for the next people. Additionally, some properties may sit unrented for months or years generating no profit or appreciation for its owner.

Real estate investing can be exciting and profitable but it comes with risks that every investor should be aware of. Savvy investors should consult objective sources and criteria before making any decision to invest.