Whether you’re new to the business of real estate investing or are a seasoned pro, second-guessing yourself can become a disheartening part of the process. Moreover, there are countless real estate investing myths floating around that can plant doubt and get in the way of important, game-changing decisions.
Real estate investing myths can hold you back from taking chances and making it big in real estate. Today on the blog, we unpack some common misconceptions about real estate investing, why they exist, and the facts behind them.
5 myths of real estate investing: at a glance
- You have to be rich to invest in real estate
- You need to have experience to invest in real estate
- You have to be wary about raising rents
- You should wait for a buyer’s market to invest in real estate
- Real estate investing is fast and easy money
Myth #1: You have to be rich to invest in real estate
While it’s true that most real estate investment opportunities do require some degree of capital, it’s completely untrue that you need to be wealthy or have a large nest egg to invest in real estate. One of the greatest things about real estate investing is that there are tried-and-true ways to break through common barriers to entry, such as lack of capital. This means that anyone can make it big in real estate given the right opportunity.
The reality: If you don’t have a ton of cash on hand, you still have options!
- Team up with an experienced team of real estate investors by investing with a Real Estate Investment Group (REIG). REIGs tend to work with multiple investors to make large-scale investments—for instance, the purchase of an income property, such as multi-family apartment building. With this option, the REIG can contribute your capital to a larger fund and you will receive a return or dividend when the investment earns profits or is sold.
- Secure a silent partner/money investor. Silent real estate partners are investors who want returns, but lack the time, knowledge of the industry and/or market, or desire to participate in the decision making and day-to-day management related to commercial real estate investing. While they may not be involved at a ground level, silent partners add distinct value in that they are full shareholders, meaning they share in any profits, as well as any losses and tax responsibilities.
- Adapt the buy, rehab, rent, refinance, and repeat strategy, also known as the BRRRR strategy. While this strategy can be risky and very involved, it is also tactical and can end up being very lucrative, setting you up for future investments. With this option, you’ll need to do your market research to find neighbourhoods that are up-and-coming and have proof of future demand for real estate. Then you’ll want to find a piece of real estate that can be acquired for a nominal amount but needs upgrading. From there, it will be up to you to rehab the property to (a) raise the appraisal value and then sell it, or (b) rent it out to tenants.
- Consider financing options through your bank or third-party lenders. With this option, you’ll need to make the initial investment in the form of a down payment, but conventional loans and other financing can help to lighten the financial burden in the meantime.
- Inquire with your seller about a vendor take back mortgage. A vendor take back mortgage enables the seller of a property to become the lender, forgoing traditional manners of financing. This method is usually used in cases where (a) the buyer doesn’t qualify for traditional financing, or (b) the seller wishes to incentivize or expedite the sale.
Myth #2: You need to have experience to invest in real estate
Another one of those barriers to entry that we mentioned in Myth #1 is lack of experience. Without experience, you may not have the confidence necessary to approach game-changing investment opportunities. For example, an investment opportunity in an untested market could end up being one of the best opportunities in your portfolio, but it could also appear risky to an untrained eye.
The reality: The solution to inexperience is to do your homework so that you become more knowledgeable, confident, and savvy. This means conducting market research and market analysis (to discern where/what demand will be), as well as industry research to supplement the experience you’re lacking. Reading books written by successful investors, listening to podcasts and attending conferences hosted by successful investors, and networking with other real estate investors will help you to avoid common mistakes that investors have made before while developing a better sense of what makes a successful real estate investor.
Myth #3: You have to be wary about raising rents
If you’re invested in an income property, such as a retail space, a multi-family dwelling, or an apartment building, rent collection is likely your main revenue source. Depending on the current market demand, losing tenants because they can’t afford your rent or choose to look elsewhere for a better rate can seriously hurt your bottom line. Naturally, as a property owner, that knowledge may lead you to approach rent increases with hesitation.
The reality: Raising rents based on the market is not only tactical, but it’s fair. For landlords and property owners, rents have to make fiscal sense and make up for taxes and other expenses, which interact with inflation. That said, rents should be raised in a manner that’s reasonable and justifiable. So, it’s critical to know and abide by your local landlord-tenant laws, which will dictate how much you are able to raise the rent each year. From there, the best way to handle rent increases is by gradually raising rent each year, so that your tenants know what to expect and aren’t caught off guard by a sudden spike in their rents.
Myth #4: You should wait for a buyer’s market to invest in real estate
So long as you’re in the right financial situation personally to invest in real estate, there’s really no right and wrong time to start investing. Of course, there are buyer and seller market conditions to consider, but a seller’s market doesn’t necessarily mean that it isn’t a good time to buy and vice versa.
The reality: While buying in a buyer’s market is definitely tactical, buying in a seller’s market can be tactical also. The key is to always do your market research and market analysis. Let’s look at Sault Ste. Marie for an example.
According to data from Zoocasa, the sales to new listing ratio (SNLR) is 94 percent, which suggests a seller’s market. That said, given that the city has affordable real estate and is poised for market growth in the coming years, it’s also a great time to buy real estate as well. Similarly, markets throughout Ontario are reflecting seller’s conditions, but it’s also never been a better time to invest in real estate. Regardless of whether the market favours buyers or sellers, it’s crucial to understand and consider the values and the margins in every market, so that you are buying at appropriate prices and understanding your ultimate repositioned value for each asset.
Myth #5: Real estate investing is fast and easy money
Real estate investing is often viewed as transactional in that you’re presented with an investment opportunity, you make your investment, and then you cash in your returns. This is rarely the case. While you can definitely jump into opportunities quickly, one of the most misleading myths is that real estate investing is fast cash. Cashing in requires legwork.
The reality: Though real estate investing can produce passive income, sussing out high-potential opportunities and seeing them through to profitability is anything but passive. And more often than not, real estate is a long-term investment of your time and energy. As such, real estate investing should be treated as you would a business. This means developing a long-term strategic plan and staying actively involved to make sure your plan stays on track. One way around this is by investing with strategic partners or with a REIG. This way, you can either divide and conquer the work involved or entrust your investment with a REIG. In any event, it’s important to have realistic expectations from your real estate investment and the expected ROI.
Invest with Crescendo Equity
The great thing about real estate investing is that anyone can get their foot in the door. That said, it helps to be backed by an experienced team of investors. So, get in touch to find out how you can get in on the action and invest through Crescendo Equity. Crescendo Equity is made up of a team of dedicated senior real estate investors committed to identifying high potential assets, repositioning them for maximum cash flow, and offering exceptional investment returns to partnered investors. Find out more about how Crescendo Equity makes real estate investing simple by visiting our website.