If you're a newbie investor, take note: When it comes to real estate investing, there are a lot of myths and misconceptions about there -- many with very little basis in fact at all.
Have you seen or heard something that's made you think twice about investing in real estate? Want to be sure you're making the right decision? Let's debunk the most common investing myths.
Myth no. 1: You need big bucks to get started
The amount of start-up cash you'll need varies based on exactly what you're investing in, but there are plenty of options that have very few up-front funding requirements. Fix-and-flip investments don't typically cost much, especially if you get them at an auction or thanks to a foreclosure.
You can also think creatively and bring in a partner to split the costs. As they say, "Where there's a will, there's a way."
Myth no. 2: It's passive income
Some investing options can result in passive income. The truth is, the less work you put in, the less you'll likely make. How "active" you need to be also depends on your exact investment. Obviously, if you're going to be acting as the landlord on 10 different properties, you'll have a lot more work. If you're simply putting your money in a real estate investment trust (REIT) or crowdfunded deal, that's a much more passive approach.
Myth no. 3: It's as easy as you see on TV
Fancy yourself a Fixer Upper fan? While the show (as well as other similar ones on HGTV) offers a glimpse into what home flipping and general real estate can be like at times, it's not an accurate depiction of its full life cycle. These shows don't go into how you find and manage contractors, determine the after repair value (ARV) and perfect bid for a property, or do all the business-related tasks, like accounting, taxes, and more. In reality, there's a lot more to investing than typically shown on TV -- and most of it is the not-so-fun stuff.
Myth no. 4: Raising the rent should only be done between tenants
Though raising a tenant's rent by $500 might push them to find a new property, the truth is most people just don't like moving. If they like the home, the increase is justified, and they can handle it financially, your tenant will likely be willing to stay put and pay a slightly higher rent. As an investor, raising the rents regularly is critical to safeguarding your profits -- especially if taxes and home values are rising in your area.
Myth no. 5: You have to be good at DIY
You always have the option to DIY repairs on your properties or manage your transactions yourself, but outsourcing is pretty standard, too. If you're willing to bring in expert contractors, brokers, attorneys, and property managers, you might not have to lift a finger. It all depends on what you're comfortable with and how much you're willing to spend.
The bottom line
Don't let these common misconceptions throw you off. Real estate investing comes in many shapes and forms, and there are dozens of ways to make it work for you.
Ready to get your feet wet? Use our guides to home flipping, rental investing, and REIT investing to get started.