5 Common Real Estate Misconceptions That People Accept As Good Advice
Buying or selling property is not something one would do every day. You might do it once in a couple of years, once in a decade, or perhaps even once in a lifetime. Despite most of us entering the world of real estate infrequently, we tend to assume we know how it functions based on our own experience, the experiences of friends and family members, from the stories we have been told or based on learnings obtained from research or reading.
However, for everything we think we know about the industry, there are a healthy number of myths that circulate about how the property market actually works. Heeding these unwarranted facts can hurt your chances of doing well in the real estate scene.
1) Paying Rent Means You Are Throwing Money Away
Let’s be clear, owning a property is a financial liability and it is one that removes money from your income every month to cover your mortgage loan. Believing that rent is throwing away money on the other hand is like saying that the RM 400 you paid for renting your seat on a flight to Bangkok was a waste of money and you should have purchased the plane instead. In a lot of cases, renting makes more sense because when you actually sit down and do the math, buying entails costs that often aren’t very obvious such as maintenance costs, opportunity costs, time, untenanted periods as well as other costs that might be unique to a particular situation.
Always remember to study the cons that property marketers and financial institutions might not so willing want to highlight before making any real estate related decision.
2) The Market Will Only Continue To Go Up
Like the weather, the property market too is one that is seasonal. When the market is good, it can really be rewarding (and also an opportune moment to reinforce false claims), and when it is bad, it can really set the scene for some very trying moments for property owners (for those who can recall, think of the 2008 mortgage crisis in the U.S that had severe consequences globally).
This does not mean we have to worry about being caught off guard; because the upside to all this is that things happen very slowly in the real estate market (imagine a ship trying to make a U-turn). If you pay enough attention to market trends and keep abreast of what is happening, you would have a good feel of what is about to happen and avoid being caught off-guard when the time actually arrives.
3) Buying Something Cheap Is The Best Way To Get Started
Finding cheap properties might seem like the perfect go-to strategy for a novice investor, but the perceived lack of risk could lead to impulsive buying which would end up with the investor owning a bad decision more than anything else. Cheap properties are cheap for a reason. Factors such as location, demand for rent, rent to mortgage repayment ratio, and appreciation capacity should also be factored in before making such decisions.
Good investors always plan ahead, knowing their budget and the strategy they tend to deploy before making their move. Focus on finding a property that fits your strategy and criteria and make sure they check-off all ticks on your list and not just the price alone.
4) Buying Properties That Are New Is An Expensive Option
A good number of property investors feel they need to ‘see’ and ‘touch’ a property before they decide whether or not to make a purchase. The need for it to be ‘real’ and ‘established’ is very important to them. Perhaps the uncertainty of purchasing something that hasn’t even began to materialise or is not fully completed is a scary thought for them to begin with, which leads to the assumption that it is an ‘expensive’ risk to take. Good investors know that there is nothing really to fear especially if you go into making such commitments well informed and sufficiently prepared.
Once you do so, there is actually a lot of positives to be reaped from buying new properties, for example early bird discounts. Savings also can be made on formalities such as legal fees and stamp duty. Incentives for first home buyers as well as the privilege of lower down payments and better financing rates are amongst some of the other great benefits to be enjoyed. Sometimes, there might even be special tax benefits in certain situations, plus tenants also might be more willing to pay higher rent for newer properties.
5) Buying Landed Property Is A Sure Bet
Finally, we kept this one last and for good reason- because the answer is a most definite NO. Nothing in life is a sure bet, so why should this be any different. Perhaps this misconception came about due to the fact that the older generation of property owners (those who bought their properties about 15-20 years ago or more) have all seen a sizeable jump in their property value. While this might have been a proven fact for some time, moving forward, property investment today like everything else is so much more different than what it used to be a few decades ago and if anything, it has become more multifaceted. Hence advice from proper parties as well as substantial research on the investor’s part should be carried out beforehand.
Word of caution though, not all advice you read online is legitimate and some may not be applicable to you or your current situation. Always strive to obtain advice/information from different sources so that you have a more realistic picture of the situation at hand.
Asking The Right Questions
Lastly, if there’s one thing you can label as timeless good advice, it probably would be ‘asking the right questions’. When in doubt, one should always begin by asking “Why should I buy this property?” and crosscheck if the answers match your personal goals and aspirations. If you are unable come up with satisfactory answers or you are struggling to make up something which you know deep down is a load of hogwash, then perhaps you need to reconsider your options at the very least. A perfect buy is one that is in an area that has the potential for future growth, good rental returns and a steady demand for rent.
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