The Myths of Real Estate Investing

7 months ago

The Myths of Real Estate Investing

Real estate investment, out of all investments has an emotional element attached to it. That is one of the predominant reasons why people tend to rationalize their emotional decisions with few myths about real estate investing. These myths associated with real estate investing should be pruned in order to make a more rational real estate investment decision. In this article, we would elaborate on these so-called real estate myths that many times blur our judgment and impede us to take an astute decision. 

Perpetual Scarcity of Land 

One of the most common myths in real estate is that land is scarce and so the price will always go up as there is a fixed amount of land and there is a disproportionate rise in demand due to population growth. So the myth that is spread by the real estate agents, salespeople and the proponents of real estate are that the price of land would perpetually rise as there will always be a shortage of land. 

The above opinion is completely untrue as we explain below. It is indeed true that there is limited land but the rise in population is leading to the scarcity of land and surging the price higher is a wrong postulation. Technological development today is making it possible for more people to stay on a small piece of land. Many studies have been conducted in this area and they all state that even if the population of the world has to rise four-folds, there would be no scarcity of land and enough land would still remain for the humans to live and thrive. Hence the perception that land is a scarce commodity and hence precious and it will always rise in value is just a myth that may not hold good in all situations. 

Land prices would always surge in value 

Land prices would always rise is a myth without any economical basis. In developing countries, this statement may be true in few areas where the growth has been higher for which there is a common notion that is being circulated that land prices would always rise which is not the case. In developed economies like the USA or Japan, you would find examples of land prices dropping by even 40% to 50%. In many countries, the prices of land have plummeted and have remained so for more than half of a decade. So the prices of land always appreciate in value is a mythical statement. The price of land is connected to many factors out of which economic growth is a factor that surges the value of the land. 

History predicts the future performance 

In most cases, a bullish future scenario is predicted based on the past performance of a real estate market. With the unprecedented changes that the world has undergone in the last decades with outsourcing, cross border investments by multinationals, and free trade there is no guarantee that the past would repeat itself as it would all depend on the global economic trends. So the investors who would bet based on the myth that the past would repeat in the future may head towards a shock. 

Flipping is easy in real estate 

The real estate gurus have propagated a view that in a market of growth flipping properties can make you a millionaire and it is quite easy. On the contrary, getting a buyer and selling it at a higher price is always not possible which is a hassle and along with that each time the transaction cost would amount to somewhere between 2% to 5% of the property which would drain time and money. In practice, flipping of properties would cost the seller more and should be avoided. 

Buying a property is better than renting 

Buying is always not profitable than renting and it certainly depends on the situation one is in and the market conditions which have to be weighed in order to make the decision. However, there is always an emotional attachment linked with owning a property which makes people feel that buying is better than renting which may not be practically true.