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Real-estate-investment misconceptions

Posted by John Reed on

Misconception

Example of who said it

The truth

Detailed explanation

Wraparound mortgages increase the lender's yield

DeCima page 252

You get the same yield and more flexibility with a separate second mortgage that has the same yield as the wraparound would have. The buyer/borrower gets the same total payments as the wrap and also has more flexibility.

my How to Structure your Mortgage book

Get good price or good terms when you buy

 

There is no profit in terms.

My book How to Structure your Mortgage

Seller financing is best

DeCima page 18

Different types of financing each have their advantages and disadvantages

 

My book How to Structure your Mortgage

Never buy a building with a foundation problem

 

Buy buildings with foundation problems if the discount at which you can buy the property significantly exceeds the cost to repair, which it often does.

"Profit opportunities in bad foundations" in my book Deals That Make Sense

Never invest absentee

 

You can successfully acquire and manage property absentee, you just cannot build or renovate absentee.

Chapter 32 of my How Manage Residential Property... and my Checklists for Buying Rental Houses and Apartment Buildings

If you do "win-win" deals you are a good person

Robert Allen in Nothing Down

The "win-win" concept is meaningless. All negotiations have both elements of mutual interest ("win-win") and elements of a zero-sum game. In the zero-sum game portion of the deal, only one side can win.

Page 45-6 of my How To Buy Real Estate For Little or No Money Down

Agents try to get the highest price because that's what their commission is based on

Almost every agent who ever lived

Agents just want a commission. They will lean on either party to get agreement. They are not going to risk their whole commission for 25% of another, say, 2%.

 

Hire a good property manager to manage your properties

Robert Allen in Nothing Down

The property-management industry has few happy customers. Neglect and kickbacks are near universal in the fee-paid property-management industry. Manage it yourself or hire your own salaried managers to do it.

Numerous articles in my newsletter

High-priced properties appreciate faster

DeCima

No price category appreciates faster consistently. It would be mathematically impossible because that category would eventually cost too much for anyone.

Numerous articles in my newsletter, price figures published by NAR, Census, and other organizations

The three most important things in real estate investment are location, location, and location.

 

The three most important things in determining property value are location, location, and location. The most important thing in real estate investment is the magnitude and probability of profit in the deal. There is generally more profit in less desirable locations.

Numerous articles in my newsletter

Real estate always goes up in value over the long run 

 

Real estate appreciation rates vary from property to property and are sometimes flat or negative even over the long run.

Factors such as political upheaval, environmental laws, regional economic downturn, tax reform, down zoning, and rent control can and have caused long-term flat or negative appreciation rates to particular properties.

Buying for nothing down is a real coup

Robert allen in Nothing Down and a zillion other people in the guru business

The vast majority of nothing-down deals are illegal or immoral or money losers or, most likely, all of the above.

My book  How To Buy Real Estate For Little or No Money Down

Agents steal all the best properties before the public gets a crack at them

 

The vast majority of agents are too dumb or cash poor to invest in real estate

 

Bankers are rich and greedy

 

Banking is a relatively low-paid occupation and bankers, as a group, are far more security-conscious than ambitious. This knock on bankers exists only to rationalize fraud against them or to blame the messenger when one is turned down for a loan.

 

Buy land. They're not making any more of it.

Will Rogers

Actually, the end of communism and socialism in many countries has dramatically increased the amount of private land available to be purchased. Base closings have done the same thing in the U.S. Existing raw land has often lost value because of down zoning or other laws. The Internet reduces the importance of land. Drive across the U.S. once and you will observe that “they” made a heck of a lot of land the first time around so whether “they” are making any more of it is not yet of any significance.

Numerous articles in my newsletter


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