6 Real Estate Investment Myths Debunked

by admin on April 7, 2014

Misconceptions about real estate investment can be responsible for sizable lost opportunity costs in some cases even more so than choosing the ‘wrong’ investment property or market fluctuations. So what common myths about real estate investment are hurting investors today, and what’s the truth? Below is a list of 6 common real estate investment myths that we’ve taken a shot at debunking!

Myth #1: Rising Interest Rates Will Hurt Real Estate Returns

The scaremongers in the media continue to warn of the impending doom of rapidly rising interest rates. Some may fear this could take the wind out of the current real estate rebound, but historical statistics show the opposite. Mortgage interest rates have moved upwards since last year, and historical cycles predict that they will continue to increase over time. However, this may not happen as briskly as some fear. Looking at the following historical mortgage interest rate data from Freddie Mac we actually see the most active times in the U.S. property market along with the most rapid sprints in property appreciation. Note the average rate in 2000 when the last housing boom really began to take off was almost double what it is today.

Myth #2: REITs & Direct Real Estate Investments are the Same

REITs have gained a lot of attention over the past few years. This increased popularity is certainly a combination of media attention and the appetite for yields and desire for hands-free passive income real estate investments. However, publicly traded Real Estate Investment Trusts (REITs) are really nothing like direct real estate investments, even in the form of partnerships or crowd-funded projects. Although direct real estate investments and REITs both offer the potential for truly passive income, publicly traded REITs also suffer from the extreme volatility of the stock market.

This is contrasted with private partnerships and crowdfunding projects which can offer superior security, fewer administrative costs that can eat up returns and confidence in investing alongside sophisticated investors that aren’t in and out of the market daily. In case you missed it, we wrote an in depth post about the differences between REITs and direct real estate investing in the past.

Myth #3: Now that the U.S. Property Market has Recovered there is Less Money to be made

This is far from true. In fact, the new foundation of certainty and increased liquidity in markets are making it even easier to make money in real estate. “Making your money when you buy” is smart, but this doesn’t always mean investing in dirt cheap, highly problematic, distressed bank owned foreclosures. Berkshire Hathaway’s end of year 2013 performance report and accompanying shareholder letter from Warren Buffett reveal the prudent investor is not only increasing his foray into the real estate market, but is increasingly focusing on locking in cash flow from rental income as a favorite strategy.

For investors really set on foreclosures, RealtyTrac data brings welcome news with both pre-foreclosures and auctions up by double digits in January 2014. According to the data compiler the top 4 U.S. states for foreclosures now are: Florida, Nevada, Maryland, Illinois and New Jersey.

Read More: RealtyShares

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