Homebuyers

Live Out Your Real Estate Investor Dreams: 5 Investor Myths Busted

If you’ve binged dozens of hours of HGTV shows or are someone who tracks every movement of the housing market carefully, you may have fantasized about becoming a real estate investor.  

Maybe you hope to buy a few properties on the cheap, fix them up, and then flip them. Or you might prefer the passive income of becoming a landlord. However, you may feel there are a few things holding you back.

You may think you need to be wealthy, or super-handy, to be a real estate investor. But these are just myths. There are many smaller real estate investors, including those that don’t have deep pockets and have never tiled a floor or knocked down a non-load-bearing wall, who are successful flippers and landlords.

“You don’t need to be rich to get started in real estate,” said Charles Tassell. He’s been investing in Cincinnati-area real estate for about 25 years. “You have to be willing to work.”

Aspiring investors also need to go in with a plan for what they hope to accomplish.

“You need to have a plan. That includes buying it right and having an exit plan,” he said. “In seller’s markets, people often pay too much for the property. That sets them up for failure in the long run.” 

Below are some of the most common misconceptions about real estate investing and the truth behind these myths.

Myth No. 1: You have to be rich to become a real estate investor.

The truth: Many successful real estate investors aren’t wealthy. They’re often regular people who started with a single property or two, found partners, and even house hacked to get started.

House hacking is popular with investors who buy a duplex or triplex and live in one unit and rent out the rest.

However, you’re going to need to research your local housing market, find an affordable property, figure out repair and renovation costs, and then ensure your local resale or rental market can support you receiving a good return on your investment.

Myth No. 2: You need cash to buy investment properties. 

The truth: Many investors use mortgages to buy properties. Using a loan frees up money you may need to spend on repairs, renovations, and anything unexpected.

These can be Debt Service Coverage Ratio (DSCR) mortgages, where you may be able to qualify for the loan based on the projected cash flow of the investment property, or even Conventional loans.

“There are very few people who actually use all cash. That’s not a smart use of your money,” said Tassell. “A mortgage allows you to leverage your money.”

Myth No. 3: You must be handy to be a real estate investor.

The truth: You don’t need to be a contractor, or even know how to use a power drill, to become a real estate investor. While these are helpful skills to have, they’re not essential.

What’s key is being able to find and manage a good team who get the job done at a reasonable price on time. It’s important that you trust these professionals as renovation costs can make or break an investment.

“Hire for the things that you can’t do,” said Tassell.

Myth No. 4: Real estate investing is risky.

The truth: Just like any other investment, real estate investing can be a risk. There is no guarantee that you won’t lose money. That’s why it’s important to have an entrance and exit plan before you buy your first property and do your best to ensure your numbers pencil out.

This means making sure the purchase price and the estimated cost of renovations make sense given how much you can sell or rent the home for in your local market. Your goal should be a positive return on your investment.

“You really need to figure out what type of risk you’re personally comfortable with,” said Tassell. “You have to truly understand the risk going in, manage it, and…minimize it.”

Myth No. 5: You will constantly be on call for tenant problems.

The truth: If the heat goes out in the middle of the night or a pipe bursts on a Saturday in your rental home, it needs to get fixed, fast. But you don’t necessarily need to rush over to the property.

Many real estate investors hire property management companies that take care of these sorts of problems, along with screening tenants, collecting rent payments, renewing leases, and more.

However, they typically cost anywhere from 4% to more than 10% of the monthly rent, according to Tassell.

“A property management company can be an absolute salvation—or it can sink you,” he said. “If you have a 9-to-5 job, you can’t be doing 2 a.m. toilet calls. You have to have someone who can address those calls.”