Most people jump into real estate because of what others say
People will always tell you that “If you have some extra money, you should invest in property. Investing in real estate is the best and safest option”. They will always try to convince you that property prices will rise and make profits.
Unfortunately, that’s not entirely true and if you ask people who invest in real estate, they will tell you that you should think twice before throwing your money into real estate.
This doesn’t mean you can never make money by investing in real estate but rather there are many hidden rocks that most people aren’t aware of that might lead you to lose money.
Performance of real estate in the previous years
Do home prices always rise? Not really, let’s just take a look at some numbers. According to NAR, for 36 years from 1968 to 2004, home prices did actually increase on average by 64 percent which is good, at least it’s much higher than the inflation rate.
Unfortunately, that was the last year of healthy growth. The market suddenly declined and in the following year, the growth was just 1 percent which is not that great. And we all know what happened then, in 2008 the market crashed, home prices just kept declining year after year.
In fact, they fell by more than 30 percent. It took some time for the market to bounce back, but that healthy growth never came back since 2010, home prices didn’t really increase if you take into account inflation.
However, some people still say that even if the prices do not increase much, just rent it out and collect the payment every month and in 20 or 30 years years, the rent should pay off your investment and you still end up with a property that you can keep renting. What a brilliant strategy. Unfortunately, it’s not as great as it sounds.
First, you won’t rent it out for 25 straight years, because tenants come and go and there will definitely be periods where your flat will just be empty and it will still keep draining money out of you, it will be like a hole in your wallet. Secondly, real estate isn’t the type of investment where you just buy and forget about it, it needs maintenance, it needs renovation. And in my experience, people don’t really take care of a rented property as much as their own. So you will have to renovate it more often than if you would have lived there by yourself.
In other words, your real estate investment will never pay off, unless you sell it. Even if the value of the home rises, you are just getting richer on paper. You have to sell that property to materialize that wealth before prices fall down again. Even after these arguments, some people still say that it doesn’t matter, it’s mine,I will just go and live there by myself and when I will not be around I will just rent it out.
In my experience, that’s a horrible strategy because when you buy that home, you buy it based on your own needs that usually don’t correspond with the needs of the market so what ends up happening is that you bought it for yourself and now it’s difficult to rent it out so it just stays there as a liability. Owning a property that you don’t live in and you can’t rent out is a pain in the ass.
That’s another reason why a lot of people lose money when investing in real estate because they are not investing, they are just buying a property thinking that as long as it’s real estate, it’s an investment.
There is high competition in real estate
And lastly, real estate is one of the brutally competitive industries out there because it’s one of the oldest industries in history. So to find a good investment, you don’t only have to know and understand the market deeply, but rather look at hundreds of options before throwing your money.
If you haven’t been in the real estate business, you have no idea how much time and effort it takes to find just one good opportunity.
So if you are thinking that, whatever property you buy, you will be able to rent it out, on top of that, its value will definitely keep rising, you are mistaken, my dear friend.
Don’t misunderstand me. I want you to think before jumping into real estate. Not only think but also do research and seek financial advice to make sure that you are betting on the right horse. The point of this article is to clarify some of the most common misconceptions.
It is highly advisable to take an online course before starting. Remember to first learn then earn. Most online courses are way too cheap and can really come in handy. You can get a good course for less than R300. This is the investment that will really open door to success in your journey of investing in real estate. As Warren Buffett always says “do not invest in something you don’t understand. Learning is highly important.
You can find some cheap courses on Udemy. The good thing about Udemy courses is that they are taught by experienced investors and you’ll be able to learn from their many years of experience. Learning from other people’s failures is highly important.
So that if you ever decide to get into this industry, you know what you are dealing with. If you found this article helpful, make sure you share it with others,