3 Common Myths About Investing In Real Estate, Debunked!

There are many myths about investing in real estate, which has led some to dismiss it as an option before learning anything it has to offer. Others have started down the road only to be paralyzed with indecision and fear by warnings received from well-meaning, but ill-informed family and friends. Sadly, this held them back from starting a path toward financial independence. 

Many of these misconceptions come from what we’ve had instilled in us by our financial system. They have become so adopted and ingrained that some see these myths as “common sense.” The myths seem logical on the surface, so we simply believe them and don’t make the effort to dig into the details or the source of where they originated.  

There is an excellent book on this subject written by Garrett Gunderson called Killing Sacred Cows. In this book, Garrett explains several financial myths (sacred cows) we are taught and debunks them one by one using a common-sense approach that’s easy to understand and pretty funny as well! It’s a book that will help you understand why these myths have been propagated for so long and also help you develop the mindset of an investor.

In my investing career, I’ve had the opportunity to disprove numerous myths that have been propagated about investing in real estate. I’ll discuss three today and why they shouldn’t hold you back from pursuing financial freedom.

For you visual learners, there is a video recap at the end where I elaborate on these as well!

Myth #1: Investing in Real Estate is Risky

This is probably the #1 most common myth out there. I can’t tell you how many times someone has said this to me. Actually, there is some truth to this. If you don’t know what you’re doing, ANYTHING can be risky. Stocks/bonds, mutual funds, ETFs, 401k’s, oil and gas can all be risky if you don’t take the time to understand them.

When comparing all of these asset classes, however, real estate is the least risky asset class to invest in. It has the lowest volatility of any asset class and it’s usually high volatility that kills a lot of stock players.

Real estate also has the highest risk-adjusted return and the lowest Sharpe ratio of any asset class. For those of you unaware, the Sharpe Ratio is simply a risk-adjusted measure of return that’s often used to evaluate the performance across asset classes. The ratio helps to make the performance of one portfolio comparable to that of another portfolio by making an adjustment for risk.

Real estate gives unmatched economic cycle protection that you just can’t find in any other asset class…especially the stock market. 

AAA+ life insurance companies both lend and invest in this space. Historically, the foreclosure rate in multifamily is less than 1.6%. Single-family homes and mobile home parks are even lower. When is the last time the value of an apartment complex went to zero? Myth #1…busted!

Myth #2: You’re always fixing toilets or getting calls from tenants

I personally have never worked on a toilet unless I was actively flipping a home and I wanted to. I can’t ever remember taking a call from a tenant and we’ve had thousands of tenants!

If you passively invest in real estate in a syndicate, you are several layers removed from any of this activity. If you are more active and own real estate in a general partnership or joint venture, it’s imperative to get good property managers involved.

I rely heavily on property management companies to take care of the day-to-day running of the asset. This frees me up to work “on” the asset, not “in” the asset. Your role then is to manage the managers, not the tenants.

Good property management is paramount to your success…and keeping you away from tenants, toilets, and trouble. Myth #2…busted!

Myth #3: You need a lot of money to get started

Money definitely helps, but creativity and some decent negotiation skills go a long way when breaking into real estate. There are many levers to pull financially as well.

The first three deals I did taking down over 350 multifamily units required very little money out of pocket after strategically negotiating with the seller and the banks that were involved. I paid more for my car that year than I did for the 350 units I purchased. I’m not saying this is the norm, but it’s definitely possible.

If you don’t want to deal with banks, negotiations, and large multifamily assets, there are other options as well to break into real estate for very little investment.

I will caution you to vet the low entry requirement investments where you don’t have to be an accredited investor very, very hard. There is likely a reason they are trying to get $500 from tens of thousands of investors vs. going through an accredited investor network.

With the proper due diligence, however, these networks can be a good way to see a lot of deal flow, look at different waterfall structures and get your feet wet investing in real estate.

You can also start your real estate journey with very little capital by wholesaling.

I generally advise people with more time than money to wholesale. You can wholesale virtually anything and never take possession of it while making nice arbitrage on contracted price with seller vs contracted price with your buyer. Once you increase your capital from wholesaling, you can start investing in larger deals and continue to cascade up to larger and larger properties. Myth #3…busted!

Next Step Toward Financial Independence

Reprogramming your mindset is the first and most important step in your journey toward financial freedom. Hopefully, the discussion above cleared up some of the common myths about real estate investing you’ve heard, and empowers you to begin on a path that could very well lead you to a life you never dreamed was possible. I know it did for me. 

One thing I highly recommend to folks thinking about beginning this journey is to read voraciously. As physicians, we’re already pretty good at that. It really is the easiest way to learn from others who are much further down the road than we are and it’s a great way to learn the space. It’s by far the cheapest form of education as well!  

Some of the books I recommend reading are:

  • Rich Dad, Poor Dad by Robert Kiyosaki
  • Rich Dad’s Cashflow Quadrant: Guide to Financial Freedom by Robert Kiyosaki  
  • Killing Sacred Cows: Overcoming the Financial Myths that are Destroying your Prosperity by Garret B. Gunderson
  • Tax-Free Wealth: How to Build Massive Wealth by Permanently Lowering Your Taxes by Tom Wheelwright
  • The Lifestyle Investor: The 10 Commandments of Cash Flow for Passive Income and Financial Freedom by Justin Donald

As you read these, you’ll start to change your mindset and deprogram from what our financial system has tried to instill in us our entire lives.

Accelerate Your Path

The next step in accelerating your path to financial freedom is to find a coach, mentor, or mastermind group to learn from and build your network.

When I was starting out, I completed a mentorship with some of the best operators in the space and they taught me everything they knew. I not only benefited from their wins but I also learned from their mistakes. I also was able to start to create and expand my network by leveraging theirs. By increasing my network, I increased deal flow and access to better deals. Your network is highly correlated with your net worth.

Jim Rohn famously said, “You’re the average of the five people you spend the most time with.” I think this is even more true when it comes to your investing circle.

Expand your network and raise your average!

If you’re ready to accelerate your path toward financial independence, schedule a call with me today! it’s my passion to share with you this “investable universe” I’ve discovered and help you win back time!

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