Whether you have been following the changes or not, the real estate industry is evolving. And that got me thinking: As much as real estate has changed, why do we keep hearing the same advice and real estate tips?
So, I gathered a list of a few real estate tips beginner investors often hear that don’t really hold up.
“Find the best location and everything else follows”
Now, before we look into why this doesn’t really hold up, know that it is a good tip. In fact, I’ve doled it out myself when investigating what the best place to invest in real estate was. The problem is that there is so much that makes for a successful real estate investment that real estate tips that generalize the idea need to be taken with caution.
Yes, the first step to investing in real estate is finding the best location for investment property. But it simply doesn’t end there. Not every investment property in a great location makes for the best real estate investment. If that were the case, every investor in say, Las Vegas- the #1 housing market in the US as of right now- would be successful. You can imagine that is not the case.
On top of that, saying “Location is all that matters” implies that once you find a rental property, you can sit back and enjoy the cash flow. In reality, you’ll have to work hard if you don’t opt for a professional property manager.
And what is the best location? A lot of up-and-coming areas can actually make for the best cities to buy rental property. They might seem like bad locations now, but won’t be very soon and you’ll have a real estate property there to benefit from that upswing.
So, this is one of those real estate tips that has some great general advice behind it but cannot be taken blindly as is.
A better tip: Find the best real estate investment in the best location and manage it well to succeed.
“Wait for a buyer’s market to roll around”
Knowing real estate market trends is important. Real estate investors selling or buying an investment property have to know whether they are conducting business in a buyer’s market or a seller’s market. But should your entire decision about real estate property be based on that? Only buy in a buyer’s market? Only sell in a seller’s market?
Not necessarily. There are plenty of great real estate properties to be found in different seller’s markets. You may even struggle to find positive cash flow properties in a market labeled as a buyer’s market.
The same goes for selling property. Not every investment property is swept off the market just because it is in the state of a seller’s market. If your property doesn’t fit the buyer’s needs at the time, you can forget about those bidding wars you were hoping for. Alternatively, if you have a great investment property in a buyer’s market, the right investor or buyer will be willing to pay for it, no matter.
So instead of holding out for a buyer’s market or seller’s market, use them to adjust your investment strategy. Here are two guides to demonstrate what I mean:
How to Sell a House Fast for a Profit in a Buyer’s Market
Rental Property Calculator: The Competitive Edge You Need in a Seller’s Market
A better tip: Study the real estate market, the investment property, and then make your move.
“Follow the seasons”
There are specific real estate market trends that occur during the seasons to help an investor figure out when the best time of year to buy a house is. No doubt, there’s some truth to saying you should wait for the winter to buy an investment property or sell in the spring. But the problem here is that it’s too general. It can’t be applied to every real estate market, every year, or even every recurring season.
Certain real estate markets are hot all year and never cool down. Others may be buyer’s markets more often than not- which might be a good thing for homebuyers but not necessarily real estate investors.
So just like with the advice on buyer’s markets and seller’s markets, you need to dive deeper and study the trends of the time you wish to buy in.
A better tip: Every real estate market has its own “best time of year to buy a house” and that could change annually. Figure out what it is in your market of interest.
Read about a day where the “seasons” rule is broken: Easter- The Best Time of Year to Buy a House for Real Estate Investing.
“Buy the worst investment property in the nicest neighborhood”
Distressed properties can be a great real estate deal or an investor’s nightmare. There are two reasons why this piece of advice no longer holds up:
- The repairs may kill the cash flow and ROI
- The exact place in that nice neighborhood may be undesirable
So while you may want to consider the investment strategy of buying the ugliest property in the nicest neighborhood, don’t be too quick to jump on the first one you find. Perform investment property analysis, a home inspection, and comparative market analysis. This will help ensure you’re not just relying on old-age real estate tips, but on facts.
A better tip: Take caution with distressed properties that could be negative cash flow investments.
“Buy with all cash and you’ll have the upper hand”
If you’re in a bidding war and a property buyer with all cash in hand comes along, you may lose. Sometimes sellers of investment property prefer not having to wait for mortgage lenders to give an okay for them to get paid.
Does this mean you should wait until you’ve saved up every penny for that rental property down the street? Not necessarily. Rather, you need to calculate cash on cash return. This formula will help you decide if paying in all cash will increase your ROI or if using a mortgage is better.
Besides that, using leverage allows you to buy multiple rental properties, helping you to make more money and create a portfolio. Ultimately, while you may lose out on an investment property because someone else can pay in all cash, it doesn’t always make the best sense for a real estate investor to fund property in this way. Redefine “upper hand” and you’ll see paying with a mortgage can give you the upper hand in your real estate career.
A better tip: A smart real estate investor takes advantage of leverage.
“Multi family homes for sale are not for beginners”
Multi family homes are generally not considered the best first investment property. The typical investment advice is to go for single family homes. So, this is one of those real estate tips that may apply to you, or it may not. There are plenty of successful investors who started out with a multi family home and never looked back. They landed the property financing, managed the multiple tenants, and enjoyed the rental income.
Study this investing path thoroughly and be prepared that it will take a lot out of you as a beginner. However, it can be worth it in the end to start your career this way.
Related: Learn How to Invest in Multi Family Homes for Sale
A better tip: Choose your first rental property based on your finances, time-commitment, and willingness to learn.
“All you need is investor’s instinct and people skills”
This is one of those real estate tips that actually discourages a lot of people from starting a rental business. They think it takes some kind of special, innate skills to succeed. While there will always be gifted entrepreneurs in every field, overall, anyone can learn real estate investing.
Most importantly, this tip holds real estate back in the old ways. It neglects that technology and digital tools have come a long way and are transforming the industry. While a network is a supporting factor for sure, having tools like an investment property calculator or property finder are really all you need.
Find these tools here at Mashvisor with a 7-day free trial.
A better tip: Real estate investing is becoming a tech-based industry. Catch up.
So, should you ignore all of the real estate tips on this list? Not at all. Rather, real estate tips, just like tips on any other area in life, should be taken with a grain of salt. Real estate investing can’t be boiled down to a few simple adages to follow and you’re golden. A successful real estate investor knows to dig deeper into any words of wisdom and apply them accordingly to the unique situation.
Know any good real estate tips? What about some bad ones? Share them with us in the comments below.