Real estate investment is a time-proven strategy for building wealth, particularly in the long-term. However, we see a multitude of misconceptions about investing in real estate. While some of these ideas are ultimately harmless, they become limiting beliefs that can hinder your ability to succeed and reach your full potential as a real estate investor.
As humans, we’re great at logic. (Okay, some more than others). Typically speaking, we can draw conclusions based on the information presented to us. We can form correlations and strategies based on these logical expectations. However, just because something makes sense doesn’t mean it is true. There are many ways in which real estate investment subverts our expectations. Recognizing the truth allows investors to recognize more opportunities, more effectively use their money to grow wealth, and opens up avenues that they didn’t see before.
So what are the essential truths in real estate that subvert our expectations?
3 Truths Would-Be Real Estate Investors Must Recognize
It doesn’t have to be a full-time job.
One of the biggest misconceptions about investing in real estate is that it will turn into a full-time job. A common picture of real estate investment involves a) being an HGTV-style full-time flipper or b) being woken up by 3 am maintenance calls as a landlord. However, this is far from the only way to invest in real estate effectively.
Sure, there are REITs and other types of real estate stock investing (as well as the emerging crowdfunding model) but these types of real estate investments don’t offer the same level of control or sense of ownership afforded by true real estate investment.
Be sure to check out: 5 Major Myths About Investing in Real Estate You Might Believe
Turnkey real estate is the solution. In this model, the owner steers the ship — deciding how to grow and compose their portfolio while hand-picking their properties and markets. A turnkey partner allows investors to defer the time-consuming work of investing in real estate, such as locating and acquiring properties in ideal markets and neighborhoods, as well as finding quality residents and caring for the property in management and maintenance capacities.
Because a turnkey provider handles these aspects of the business, the investor is free to pursue their other passions — be it an existing career or a dream retirement. Successfully investing in real estate doesn’t have to demand your undivided attention: not when you have the right partner.
Cheap deals don’t make more money.
If you’re trying to profit off of a real estate deal, it only makes sense to look for the most affordable option. Right? Not necessarily. While we all love a good deal, the keyword is good, and rarely are real estate deals as good as they seem. A low purchase price can be masking a slew of expensive issues. By the same token, affordable services simply can’t offer the same level of care and quality as a less affordable one.
There’s a temptation we all share to cut corners in order to maximize profits. Investors may be tempted to compromise on quality for the sake of saving money. Quality of service and solid investment properties are not the areas in which to compromise.
While you may find yourself spending more on the front end, high-quality services are more than worth their while when you realize how they grow the long-term value of your property, reduce resident turnover, and create value in keeping investing in real estate a headache and hassle-free venture.
Your house isn’t a real estate investment.
The notion that your home is an investment has been one of the ideas fueling the inclusion of homeownership within the American dream. We think that because property appreciates, we’ve made an investment. It’s critical that we recognize that a personal residence is not a real estate investment. Not only does it lack passive income, but you may or may not intend to sell it — which is where appreciation matters in a real and tangible way.
A personal residence is never kept to the same quality and maintenance standards as a rental property. Your own tastes and desires in renovations, too, may not match up with what a consumer wants. It’s very easy for homeowners to hurt their home values over time in these ways.
Don’t rely on your personal property — or even a single investment property — to generate future wealth. Instead, build up a diverse and specialized portfolio that optimizes both your passive income and appreciation potential.
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