Novice real estate investors hear many misconceptions about real estate investing. Common misconceptions range from the perception that real estate investing is a quick way to get rich, investing in real estate deals is easy to do, or only the rich can invest. These myths create a false summary of the real estate investment sphere. Here is what is actually true when it comes to investing in real estate.
Myth 1: Investing in Real Estate Requires Lots of Money
This myth is subjective because “a lot of money” can mean any amount, and it also depends on the type of investor. As a real estate investor, or borrower, one needs to be financially secure before they even consider investing in real estate. There are multiple ways to invest, some requiring more money than others. One relatively low cost method to invest in real estate is through marketplace lending.
Solution: Marketplace Lending
Becoming popular in the late 2000s, marketplace lending grants individuals the opportunity to participate in the purchase of big ticket items such as real estate. Online marketplace lending platforms, such as Sharestates, allow investors to participate in various types of real estate investments starting at a thousand dollars, with annual returns averaging in the eight to twelve percent range.
On the other hand, marketplace lending (MPL) platforms give borrowers access to real estate funding. Their investment property goes through an underwriting process, and the risk of the borrower paying back the loan is evaluated. Similar to hard money lending, borrowers can receive fast money through MPL platforms such as Sharestates. Once approved, real estate developers can receive loans within a quick turnaround time.
Myth 2: Real Estate Investing is Easy
The answer to this question is both yes and no. In a sense, marketplace lending has made it easier to fund real estate deals by pooling investor capital while lowering the barrier of entry for investors. On the contrary, finding the best real estate investments is a demanding task. Becoming a successful investor takes time and effort, with researching and networking being imperative to reaching success. The ability to acquire the best deals greatly depends on one’s ability to research and network.
Solution: Research and Networking
For real estate developers, inspecting the property, surveying the area, and adhering to zoning laws will be important. Before they can consider purchasing the property, performing due diligence and inspecting the property for faults can make or break the deal. If the developer is looking to build a restaurant in an area that is already saturated with restaurants, they may want to consider bringing a different property. Zoning laws and restrictions will also affect the investment. For example, if a property is in close proximity to a school, there may be limitations on the type of property that can be built there.
Before investing in real estate it’s important to keep abreast of current industry trends and market demands. Once up to date in the industry trends, beginning research on factors or rates that’ll affect prospective investments is the next step. Some factors that will affect the investments are mortgage rates, cap rates, and occupancy rates. The investor’s ability to do accurate and diligent research determines the likeliness of success in their investments.
Connecting and partnering with other investors, lawyers, developers, and even prospective buyers is essential. This network can either give knowledge, or partner together in various types of investment properties such as multi-family, commercial, residential, or mixed-use properties. In addition to gaining the experience, investing in different property types help investors and developers diversify their investment portfolio.
Myth 3: Fast Track to Getting Rich
This is the most common myth. Due to false advertisements, many individuals believe real estate investing can quickly get you rich. Forget the advertisements seen online or heard on the radio. Investing in real estate is not a quick way to get rich. In fact, many of the successful or wealthy investors today, have made mistakes in their career. That being said, setting realistic goals helped these investors reach success.
Solution: Setting Realistic Investment Goals
Setting realistic investment goals is key to staying grounded. Being overly optimistic about investment deals can cloud judgement, leading to unnecessary investing mistakes. Know when to step back or pass on an investment, and know there will not be overnight success. Mistakes are inevitable, but setting realistic investment goals will help reduce mistakes, and help reach financial goals.
Hopefully clearing up these misconceptions enlightens novice real estate investors to the realities of investing. Investing in real estate is not a fast way to get rich nor can there be overnight success. Good news is, with marketplace lending platforms investors have access to quality real estate deals, and borrowers receive funding for their real estate investments.