- I don’t have time to invest in real estate.
- There are no good deals left.
- I don’t know if a property is a good deal.
- I don’t know how to get started.
- I live in an area where the mortgage payment is greater than the rental income.
- The prices are too high where I live.
- I can’t sleep at night if I have too much debt.
- I must have 20 percent or more down to buy property.
- I have bad credit. I could never get a loan.
- There is a real estate bubble. The values are going to go down.
- I know someone who really got burned in real estate.
- I don’t want to deal with tenants.
- Real estate is slow.
- I don’t have any money to get started.
- I have credit card debt.
- I’m too young.
- I’m too old.
CAN YOU RELATE?
However, these aren’t real reasons at all. They are merely excuses based on myths.
Let’s examine some of the more common excuses and strip them of their myths.
I don’t have time to invest in real estate.
Time is the only thing that we are all given in equal quantity and proportion. We may be blessed with varying levels of talent, intellect, drive, and physical prowess. But, all of us are given exactly 24 hours a day. The fundamental thing that sets successful people apart is how they use their 24 hours.
If you knew, beyond a doubt, that you could make $20 million over the next 10 years putting in just three hours per week, would you find the time? Life is all about priorities. We know that even modest amounts of time can lead to significant wealth creation. The three hours you spend watching television this week may be costing you millions!
There are no good deals left.
Have you ever noticed that when you have a theory, you will always find evidence to support it? People who truly believe that there are no good deals left will always find evidence to support that theory. If you believe strongly enough that there are no good deals, you will have to settle for lousy deals.
These days, more than ever before, people are mobile. We move because of new jobs, new families, divorce, marriage, death, and just general changes in our life. In fact, the average American moves every five to seven years. This means that more than 8 million homes are bought and sold every year. Many of these will be great deals.
The best news of all is that you don’t need to find the good deals. Because of leverage, market appreciation and tax benefits, most deals are good deals. Just get started.
I don’t know how to get started.
If you’re not in a position to pay cash for a property, start the process with your trusted mortgage broker. Just let them know what price or payment range you’d be comfortable with and they will process a loan pre-approval for you. That pre-approval letter is almost as good as cash. The next step would be to start shopping for the “right” property. An experience Realtor that knows the area you’d like to live in can be an enormous help and in most cases, the property seller pays your Realtors’ commission!
I live in an area where the mortgage payment is greater than the rental income.
We love this myth because we have not just one, but three solutions.
First, if it’s true that the average house in an area won’t cash flow (appreciation has outpaced rental increases), remember that it is an average. Success is not about being average-it’s about finding the extraordinary among the ordinary. If you look long and hard enough you will find a property where the sales price is low in relation to the rent or where the rent is currently below market. In other words, the mere act of bringing rents up to market levels may allow the property to cash flow.
Second, even if it does not cash flow as is, what can be done to the property to increase rents? For example, if you have a two-bedroom, one-bathroom home in an area of three-bedroom, two-bathroom homes, does it make sense to upgrade the property? The increased rents may well more than cover the increased mortgage payments.
Similarly, you might be able to turn a property with negative cash flow into one with positive cash flow by:
Adding a garage or carport.
Adding high-speed Internet.
Painting.
Or … any of countless other things that can be done that have high perceived value in relation to actual cost.
Third, look somewhere else. If you are buying your first investment property, we strongly recommend that you buy it near where you live. That’s because you will be familiar with the area, you might already know some real estate agents, and it will be easy to look at the property. In fact, you might want to buy the first several properties near where you live. But at some point, especially if you live where it’s hard to find positive cash flow properties, you might want to diversify into other areas.
The prices are too high where I live.
What a great problem to have! High prices indicate high appreciation in the past. And that’s one of the indicators for what might happen in the future.
Furthermore, everything is likely to be in proportion. Banks will lend more, seller carrybacks will be higher, and the rents you collect will also be more. The value of improvements will be higher as well. For example, building a $30,000 pool on a $100,000 home might increase the value by only $15,000. But, building that $30,000 pool on a million-dollar property might increase the value by $50,000. Get used to big numbers. Remember, $25,000 sounded like a lot in 1968, but back then that was just the average home price.
I can’t sleep at night if I have too much debt.
Debt can be your friend, or your enemy. Debt secured against assets that decline in value such as stereo equipment, shoes, and cars is risky. But, debt secured against assets that go up in value (and where the asset generates income that more than covers the payment) can build wealth. In both cases, debt means leverage. If the underlying asset goes down in value, you get poor faster. If the underlying asset goes up in value, you get rich faster.
Apart from the extra leverage and financial gain advantages, debt protects the owner while equity protects the lender. For example, if you have a property worth $400,000 and you owe $300,000, you have only $100,000 in equity at risk from frivolous lawsuits, bad tenants, and even foreclosure. However, if you have that same property worth $400,000 and you owe $100,000, you now have $300,000 at risk. High levels of debt give you more leverage and asset protection.
In fact, perhaps the worst thing you can do is to make extra principal payments on your loan. The extra payments don’t help you if you miss a payment-the bank just gets more equity if they foreclose. Additionally, you’ve relinquished the financial boon of leverage.
I must have 20 percent or more down to buy property.
There are many people who think that in order to do a 100 percent financed deal you must get a single loan for 100 percent of the purchase price. If that’s your belief, and you can’t get such a mortgage, then you will indeed feel stuck. However, 100 percent financing does not have to be a single mortgage. For example, you could get a first mortgage of 70 percent and a second mortgage of 30 percent. Or you could be bold and ask the seller to leave some money in. If you get an 80 percent mortgage and the seller agrees to lend you 20 percent (sometimes called seller carryback), then that property is still 100 percent financed.
Furthermore, 100 percent financing does not mean that you must offer the property being bought for 100 percent of the collateral. There is nothing to stop you from borrowing 80 percent against the property you’re buying and borrowing the remaining 20 percent against another property-maybe even your existing home. Even though you are using your home for part of the funding, the property you are buying is still 100 percent financed.
I have bad credit. I could never get a loan.
The better your credit rating, the easier it will be to get a loan. Having said that, very few people have perfect credit. If you have less than perfect credit, you will have to work a little bit harder to get the loan. And any steps taken to improve your credit will make it easier next time.
If you have bad credit now and it is absolutely impossible for you to get a loan in your own name, use the credit of someone else! Perhaps the easiest way to do that is to use the seller’s credit by getting them to stay on the mortgage.
If you have bad credit now, do you want to retire with bad credit? You can get a copy of your credit report and check what is causing your credit score to be bad. If you have too much bad debt such as revolving credit cards, what can you do to fix that? If you have too much open credit (revolving credit cards with zero balances), contact the issuing company to cancel some. That action alone can dramatically improve your credit rating. If you have past-due bills, work out a payment plan that includes removing the bad score from your credit report.
The outcome is to make you fabulously rich through real estate. If you are struggling with $5,000, $10,000 or $15,000 in credit card debt, you’ll never get there. You need to learn to be in control of your finances, and that often starts with your credit cards.
What if there is a real estate bubble? Will values go down?
Chances are values will go down at some stage, but when might that happen? Do you want to forgo catching an 80 percent increase in value to avoid a potential 10 percent downturn? Values do not go up in a straight line. Sometimes they even go down. In general, though, at the end of each cycle, each peak is higher than the previous peak and each trough is higher than the previous trough.
I know someone who really got burned in real estate.
We all know someone who bought a car that turned out to be a lemon. Many of us have bought tickets to a movie that we walked out of. And chances are most of us have eaten at a restaurant and regretted it a few hours later. But that doesn’t stop us from buying cars, going to the movies, or eating out. If you take a thousand people at random who buy cars, go to movies, or eat at restaurants, you will find a lot of dissatisfaction. But if you survey a thousand people at random who have bought real estate, most will be heard to bemoan, “If only I’d bought more.”
Real estate is very forgiving of mistakes. What’s more, you can improve your odds for success by buying smart, financing well, and managing with integrity.
I don’t want to deal with tenants.
Real estate works because you have tenants who make the payments for you. In the long run, it is the capital appreciation that will generate the big dollars. But, in the meantime, it’s because you have tenants who pay rent that you can even play the game. Seen in this light, tenants are your clients. Be grateful for them.
If you still don’t want to deal with tenants, we recommend that you engage a property manager. Hiring a good property manager will enable you to concentrate on building your real estate portfolio.
Real estate is slow.
Isn’t it wonderful that you don’t need to watch your portfolio day by day like you do with stocks, hour by hour like you do with futures contracts, or minute by minute like you do with currency markets? Real estate keeps chugging along, making you richer each year. If you have four people on a cruise boat-a real estate investor, a stock broker, a futures trader, and a currency trader, how often do they have to check in and how frustrated are they when they lose communication with shore? As the cruise goes on, the real estate investor gets more and more relaxed while the other three get more and more frustrated. We once heard of a stock trader who went on a cruise and at the end, found out that his satellite phone bill was larger than the cost of the cruise! Real estate is slow-delightfully slow. It is the slow-but-sure way to wealth.
I don’t have any money to get started.
If you don’t have money to get started, then you’ll have to start without money. Any fool with a million dollars in the bank can buy a property worth a half million. Someone who has no money is going to have to work a little harder and a little smarter to buy that same property. But, it is possible. That’s one of the reasons that we like real estate so much. Try getting started in stocks, bonds, mutual funds, or 401(k) plans without any money. Your sanity will be questioned.
I have credit card debt.
There are three ways you can deal with credit card debt: (1) Let it continue to build and do nothing, (2) put your life on hold until it’s paid off, or (3) learn the lessons from the debt you’ve accumulated and make changes today. A leveraged real estate investment may be the best solution to get that debt under control.
In Conclusion.
For just about every reason you think that you cannot invest in real estate, there are two more reasons why you should. I understand that buying your first home can be overwhelming. I remember walking away from the closing table on my very first purchase thinking that I just committed myself to 30 years of ridiculously high mortgage payments when interest rates were 17%. Little did I know at that time that I could sell the home, make a profit and purchase another, even better home.
Purchasing a rental property is about the same thing with the exception of having renters. We’ve all heard the horror stories with renters but that’s only because nobody really talks about how wonderful their renters are. I’ve built long-term friendships with mine. You can do the same. Just treat them as you’d like to be treated.
If you’re just getting started and would like a little advice, feel free to reach out. I’d love to hear from you. If you have experience with investing in real estate, I’d love to hear your stories.
