Real Estate Investing Myths
With all investment options available, real estate has been the one that buyers usually get emotionally attached to. And with this reason, People tend to rationalize their emotional decisions with real estate investing myths. Let's have a look at the most popular myths and try to debunk them.
Myth: Land Prices Always go up in Value
The price of land in developing economies has gone up 10 times in the last 20 years. As a result, people have come to believe that the prices of land will always rise. In the United States, we can find real estate crashes where prices have fallen to the tune of 40% to 50%. Land prices are connected to a number of actors, one of which is the well being of the economy in general.
Myth: Land is Scarce
The fact that the population of the world is increasing every day and the limited amount of land in the world gives to conclusions that land prices will continually rise since there will always be a shortage of land. It is true that there is a limited amount of land, however, developments in technology have made it possible to make more efficient use of land. Studies show that even in the population of the world were to rise fourfold, there would still be enough land for all humans. Studies also show that the population of the world is about to stabilize. Therefore, the statement "land is scarce and hence precious" is simply not true.
Myth: Buying is Better Than Renting
Buying real estate has, traditionally, been considered a way to make yourself economically secure, with a property to your name. When considering financial aspects there are situations when buying is better than renting, and other situations where renting is the best option. The ideal thing to do purely depends on case to case basis.
Myth: Past Performance Predicts Future Performance
Real estate investors need to understand that there has been a fundamental shift in the last decade. Business arrangements, free trade, and cross border investments had created an unprecedented boom in the economy. If no unexpected economic revolution changes the fundamental economic paradigm, it is unlikely that the performance of the last few years gets repeated in future years.
Myth: Real Estate Investments can be Flipped Easily
An unpopular myth, but still important to mention. With stories of self-made millionaires who owe their fortunes to buying ad selling real estate, it was easy to think that flipping real estate was the way to fortune. But these stories never included the transaction costs that come with any real estate transaction. The properties you flip, the more transaction costs you incur, usually between 2% to 5% of the price of the property in question. Hence, real estate flipping should be avoided.