For as popular as the real estate investing industry has become, there are still certain aspects that remain shrouded in mystery to those on the outside. It seems that everyone has an opinion, or at least a theory about what works and what doesn’t. Keep in mind, however, that the freedom of the business is partially to blame. There are simply so many ways to go about running an investment business. While it is important to listen to as many people as possible, especially when you are just starting out, you should be weary of false information. Not everything you hear is accurate. There are many myths passed down from one investor to the next that are incorrect, and downright wrong for that matter. Before you go changing your business based solely on something you hear, you should know the facts. To that end, don’t let these real estate misconceptions prevent you from investing:
1. I need money to get started: The prevailing thought for many new investors is that you need your own money to get started. Having a sizable amount of capital is a help, but it is far from a requirement. The real estate business is unique in that it offers a handful of ways to be involved, even if you can’t fund the deal yourself. A common way to go is by starting on the wholesale side of the business. You scout the deals, put them under contract and find an investor to assign it to. That way, you accelerate your learning curve while still making money. Another way to fund deals is by finding a partner to work with. This could be anyone from a friend or family member to someone you meet at a networking event. It is entirely possible for you to handle the real estate side of the transaction while your partner funds the deal. You won’t make nearly as much profit, but you don’t need startup money on your end. Extra capital may allow you to find deals quicker and close smaller deals, but it is not a perquisite for getting started.
2. I need to be licensed: One of the reasons why real estate investing is so great is that anyone can do it. While it is advisable to have a base of knowledge and an education, it is not required. Anyone can make an offer at any time. Your real estate agent needs to pass a class, a state exam and stay updated with annual continuing education requirements. As an investor, all you need to do is have an updated prequalification to get the ball rolling. After you close a deal or two, you may want to start an LLC or consider other methods to establish your company as a business. Even that is just a recommendation, and not a requirement. There is no class to pass or license to obtain. You have as good a chance to get your offer accepted as someone who has been in the business for a decade. It is advisable to stay updated on local rules and regulations, but there is nothing preventing you from getting started whenever you are ready.
3. My lack of experience will hurt me: A seller rarely has any idea who they are selling to. Sure, they see the name on the contract, but it usually doesn’t have an impact on the transaction. The point is that anyone can buy a property. All experience does for you is give you a better idea which types of deals to avoid or which areas to stay clear of. There is no substitute for experience, but oftentimes bad experiences will block you from pursing deals that make sense. Instead of taking action when you know you should, you think about all the negatives rather than moving forward. On your first couple of deals, you stick to your plan and look solely at the numbers. In a weird way, a lack of experience will actually help you from time to time. It doesn’t matter if you have closed 100 deals or are looking for your first, you have equal chance at getting your offer accepted.
4. I need a bank loan to purchase: The real estate business has undergone many changes over the past decade or so. One of the biggest changes deals with how investors purchase properties. In the past, you relied on lender approval for almost every transaction. Since the mortgage collapse, no longer is this the case. There are still several traditional loan programs, but more options have entered the picture. There are more local hard money lenders than ever before. What was once a niche industry has exploded in the last five years. There are also many more people who are looking to get involved in the business. This has led to an increase in private money partnerships. Bank loans will always have a place in the business, but they are no longer the only way to fund transactions.
5. My market doesn’t work for investors: Almost every market is a good one for real estate investors. When people say this, they are usually referring to the amount of competition in their market. Being a successful investor is not easy, but it shouldn’t be easy. If your market is lacking deals, you should look at other options that are available. What you will find is that if you shift your focus or think outside the box there are many ways to find deals. They may not be what you originally thought of, but they are available. What more could you want? Foreclosures or short sales may not be in abundance, but there are still options regardless of what market you are in.
These are just a few of the many misconceptions about the business. The more people you talk to and the longer you are in the business, the more you will hear. Mind your own due diligence on everything you hear, and don’t let anyone steer you away from something you really believe in. In other words, don’t let these real estate misconceptions prevent you from investing.