Real estate is tricky at the best of times, but things take a turn for the even-more-complicated when umpteen myths start being branded about.
Unfortunately, due to the vast rewards which are on offer from this industry, you will have come across countless so-called facts which supposedly paint a true picture of investing in this field.
Suffice to say, not every “fact” you stumble across is true and you should err on the side of caution when you note one.
The best course of advice is to follow established industry professionals, like Brian Ferdinand, but failing that we have put together some of the big myths that are regularly put out there which you should look to avoid.
Myth #1 – Avoid areas which are saturated with rental properties
One of the big myths which tends to be brought to the attention of new real estate investors is that a neighborhood can be adversely affected if there are too many rental properties within it. The advice usually follows the path that property values will subsequently reduce because of this.
Fortunately, it’s rarely the case. Market forces dictate how much homes cost and it’s a given that in some areas, the demand for rental properties will just be higher than ones available to buy.
Even if the tide changes, and demand turns to buying in the area, prices are still going to go up.
In other words, ignore this myth completely.
Myth #2 – The best way to make money in real estate is to flip
There have been occasions through history where investors have been quite keen on the concept of flipping. For those unaware, this involves buying a property before selling it on at the first opportunity to net a fast profit.
Some investors, depending on the market, will always swear by this principle.
However, if you look at the market currently, it appears as though flipping is not the way to go. Over the past twelve months, it’s understood that just 5% of properties have been the subject of flipping which tells a story in itself.
Instead, netting the returns from rental income can yield much bigger profits, especially when this is combined with an eventual sale years down the lines when prices have increased.
Myth #3 – Mortgages can be offset against tax
In truth, one could write a whole dissertation on real estate and tax. There are so many different rules and regulations that myths can almost be forgiven in this regard.
Perhaps one of the biggest, and potentially damaging, is the way in which mortgages are used against tax. The general consensus is that you can use the entire mortgage repayment as a taxable expense – but unfortunately this isn’t entirely true.
Instead, you can just use the amount of the repayment which is interest. This is crucially important when attempting to weigh up possible real estate investment options – as this can mean that some investments suddenly don’t become viable.