Real estate investing is the new thing. More people are investing to make extra cash and create a safety cushion for the future. That means a lot people are doing their homework, researching about real estate, and are bound to come across some controversial topics.
However, is everything we hear about real estate investing true or false? Let us quickly talk about the major controversial topics and theories roaming the real estate world.
#1. Section 8 Real Estate Investments
For some families, finding decent, safe, and affordable housing is a challenge. Since most areas of the United States do not have rent control laws, affording private rentals in good areas can seem like an impossible goal for some renters. As a result, many families live in high crime areas or in substandard housing. To cope with this, the U.S. government developed the Section 8 program, which helps low-income families, the elderly, and the disabled to afford the cost of living, and provides motivation to landlords willing to work with local housing authorities.
How Section 8 Program Works
Each year, every state receives a block grant from the federal government to cover housing assistance costs. The state uses an amount of this funding to cover the cost of the Section 8 program and to pay for part of the tenant’s rent and utility costs. Usually, the housing authority will pay around 70% of the tenant’s costs. Of course this controversial real estate investing topic has its good and bad.
- Decreased poverty rate: With the high cost of finding an apartment for rent, many low-income families end up spending the majority of their income on rent. With assistance from the Section 8 program, a smaller income can stretch further and families can do more with their budget. In turn, this helps families get out of the poverty cycle.
Related: Best Places to Invest in Real Estate Based on Cost of Living
- Decreased rime rate: Some traditional public housing facilities, especially in urban areas, become basic grounds for crime. Placing tenants in privately owned rentals will keep families out of danger and decrease the overall crime rate.
- Increased opportunities. Families who participate in Section 8 housing programs are frequently able to move out of poor areas and into neighborhoods with better school systems and better job opportunities.
- Problems with accountability: Multiple areas of a public agency watch various aspects of a Section 8 program. Complaints about Section 8 programs point to a lack of accountability and a lack of consistency, contributing to problems such as lost applications, a backlog of inspections, and delayed payments to landlords.
- Private housing vs. public housing: Those who are against Section 8 say that a developing mixed-income community, supported by Section 8 housing, brings down property values and increases crime rates. They say that poverty hasn’t been solved by Section 8; it’s instead just been moved from the housing projects into higher-income neighborhoods.
2. Controversial issue of Airbnb investment property
Why is Airbnb under attack from the authorities?
Airbnb real estate investing provides an online platform to allow individuals to rent out their homes, rooms or apartments to visitors. However, Airbnb been controversial for a very long time. The controversies range from illegally subletting or letting short-term rentals to affecting the housing and rental prices in big cities to tourists disturbing neighbors. For example, in New York owners or tenants cannot legally rent their apartments out for short periods (less than 30 days) unless they are also living in the property. There is also a tax issue in many cities, those renting out accommodations are required to pay a hotel or tourist tax.
Related: 4 Ways Airbnb Rental Properties Are Affecting the Housing Market
How has Airbnb responded to the attacks?
Airbnb has continued to argue the benefits they provide to cities and their residents, such as the financial benefits home rental offers to hard up citizens. In New York, Airbnb has been battling hard through the courts, as well as engaging in aggressive campaigns that have seen launch a city-specific website that states “New Yorkers support Airbnb”. However, New York City officially banned Airbnb in October 2016.
Advantages of Airbnb:
- Saving money: If you’re willing to share a stranger’s apartment you’re going to save some cash over staying in a hotel. The savings per night might not be massive but it definitely adds up.
- It’s more convenient for a medium-term stay: Some people might disagree but staying in a hotel for a month or even a couple of weeks is dreadful.
- It’s every introvert’s dream: With the rise of self check-in and self check-out options coming to more and more places on Airbnb, it could become an introvert’s dream. For example, you don’t have to talk to anyone at a reception on arrival or on leaving. And room service won’t bother you in the middle of the day.
Disadvantages of Airbnb:
- It’s illegal in some cities: With the unknown legal status of Airbnb in some cities and in some cases you’re being put into a tricky situation. You won’t be able to live comfortably knowing that it’s not legal.
- Not convenient for a short-term stay: Especially if you’re visiting a city just for one day or sometimes two. This applies mostly to business travel. It’s just too much hassle.
Hotel amenities are missing: You won’t get hotel-type service or amenities, such as room service or a concierge to help you out when you’re staying in someone’s home. And you won’t typically have maid service, although this is available for some rentals. If you’re not the self-reliant type, short-term rentals may not be for you. And if you really like your privacy, renting a room in someone’s house, with homeowners coming and going, may not be you.
Related: The 6 Best Cities for Airbnb Investment
Let us now generally discuss two controversial real estate investing theories that everyone seems to talk about.
3. Prospect theory
Prospect theory argues, in part, that individuals make financial decisions relative to some reference point, suggesting that identical persons might otherwise act differently based on the price they paid for an asset. To explain the irregular treatment of gains and losses, also known as “loss aversion theory” or the disposition effect, prospect theory suggests that an individual’s value function is concave in gains but convex in losses. In addition, it argues that the function is much more sensitive to losses relative to equivalent-sized gains. While prospect theory has collected considerable attention from economists, statisticians, and psychologists alike, much of the evidence in its favor remains experimental.
4. Odd lot theory
Odd lot theory is a theory within the discipline of technical analysis. Unlike large institutional investors, small investors tend to trade in smaller, “odd lots.” Odd lot theory derives its name from these odd lot real estate investors who buy less than 100 shares. Odd lot theory states that small independent investors are generally wrong about the timing of equity trades, and thereby serve as a contrary indicator of future stock price movements. Odd lot theory predicts that when the volume of odd lot purchases spike, the market is due for a downturn. On the other hand, odd lot theory states that under bear market conditions, following a mass sell-off of odd lots, the market is about to recover. Odd lot theory has failed to be carried out by analysis of market data and has fallen out of use by most investors. Another reason for the decline of odd lot theory is the tendency for small investors to invest in mutual funds rather than shares of stock.
Didn’t think real estate investing could be controversial, huh?