June 24, 2010, 11:17 am

Common Real Estate Misconceptions

by: admin    Category: Investment, Market and Risk
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Last week I shared why I felt that real estate isn’t the greatest investment. Once I was finished with the article I realized that I a lot more left to cover as it pertains to real estate. Today I wanted to address some of the common misconceptions that young people believe when it comes to real estate:

Renting is throwing money away.

Just because you rent it doesn’t mean that you’re “throwing money away.” You’re paying money to have a shelter for you to live in. Are you throwing money away when you eat food? This axiom that views renting as a “waste” needs to be challenged. Your home base shouldn’t be considered throwing money away.

Throwing money away is when you buy more home than you can afford, when you move out of your house before you’re ready, or when you put down a very small down payment on a large mortgage. Don’t ever let anyone make you feel bad about renting. Generally speaking, the difference between renting and owning can be a couple of hundred dollars a month. I’m sure you could find a way to invest that money.

Real estate always appreciates.

There’s no guarantee that your property will always go up in value. Anything can happen to the area as a whole. We all know that real estate is all about location, location, and location. The location of your piece of real estate will determine whether it goes up or down in value. There’s no hard fast rule dictating that your property will go up X amount in value over X amount of time.

Low interest rates=buy now.

Just because interest rates on mortgages are low it doesn’t mean that you should purchase a property the next chance that you get. Sure low interest rates help if you’re in the market for a new home. Those that are currently trying to pay down debt or are slowly building an emergency fund, would likely be better off sticking to those goals instead of jumping into the world of real estate.

The funny thing here is that some of my intelligent friends that work in banks are attempting to get into real estate just because they can obtain low interest rates. The harsh reality is that many of them haven’t considered factors such as: how steady their work is, savings/assets, or flexibility when it comes to making real estate decisions. Low interest rates are very beneficial, but they’re simply one piece of the puzzle here. Make sure you can come up with a decent mortgage down payment and that your credit score is solid first.

Your home is an investment.

Your home can turn out to be an investment. However, when making the decision between renting or owning, this should not be your primary criteria. It’s one thing if you purchase a home because you can see yourself settling in the area or because it’s an ideal spot for your family situation. It’s another thing if the purchase is made solely because you feel the property is a greater investment than having your money in an online savings account. What kind of a online savings account requires you to paying closing costs or lawyer fees? Yes, you can make lots of money on your primary residence, but it just isn’t the greatest investment in the world.

As I write this I’m typing away in my condo, so please don’t think that I’m negative on real estate. I just wanted to express my concerns with some of the common real estate misconceptions that I’ve been hearing from friends in the last little while. And yes I’ll soon be writing about the many positives of real estate.

What are some of the other misconceptions about real estate that I may have missed here?

Image Source: simhur

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I appreciate that you said that renting isn’t throwing money away. I actually have this kind of thinking, and I’m trying to save money for downpayment..

[…] think that I’m against real estate. In my last post here, I wrote about some of the common real estate misconceptions. It’s not that I’m against real estate. I simply wanted to stress all of the factors […]