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Monday, July 15, 2024

Real Estate Investing Myths

Buying real estate is a huge financial commitment. It is probably the costliest purchase we make in our lives. Hence, most people tend to research extensively before buying a house, office, or shop. The boom of the internet has made researching real estate investments easier since you now have all the information you want at your fingertips. Unfortunately, it has also helped spread some myths about investing in the sector. In this article, we will talk about some common myths about real estate investments in India and debunk them to help you make an informed decision.

If one wants to avoid getting entangled in the emotional aspects of real estate investing and make financially sound decisions, it is imperative that these real estate myths be recognized and dismissed. In this article, we will list down some of the foremost real estate investing myths and try to debunk them.

Real estate investments are high-risk investments

Every investment has some element of risk associated with it. However, if you compare real estate with other investments like stocks, mutual funds, gold, etc., then the risks are much lower with real estate. This is because the real estate market is less volatile than the stock and gold markets.

Land Prices Always Go Up in Value

This logic is prevalent largely is developing economies which have witnessed unprecedented boom in the real estate sector in the past decade or so. The price of land in these economies has gone up 10 times in the past two decades. As a result, people in these countries have come to believe that the price of land always rises i.e. the real estate always goes up in value.This is far from the truth. If one were to consider developed economies like Japan and the United States,

Real Estate Investment is only for the rich

We don’t know how or why this myth evolved, dissuading people from investing in real estate. If you are rich, then you can buy a house/office with ease. However, even if you don’t have the required funds, you can opt for a home loan where a financial institution lends around 80% of the property value. You can repay this loan over a long period via affordable installments.

Real Estate Investments Can Be Flipped Easily

This is not a very popular myth. However, before the subprime crisis broke out in the United States, stories of self made real estate millionaires who owe their fortunes to nothing but buying and selling real estate on borrowed money were common.These bloggers propagated the virtues of flipping i.e. buying and selling real estate several times in a very short period. The idea was to book the profit arising from the price differential and converting it into cash. However, what these self-proclaimed gurus forgot to mention is the huge amount of transaction costs that are associated with any kind of real estate transaction worldwide.

Buying is Better Than Renting

Property buyers all over the world have an emotional connection with the real estate that they purchase. From traditional times, buying real estate has been considered the “adult” thing to do for a person. This decision has no financial backing and is rooted in the thinking that having a property to your name somehow makes one economically more secure.

Smaller cities are not ideal for real estate investments

While traditionally, most companies had offices in metropolitan cities only, the demand for real estate in these cities was very high. Hence, real estate investors would not consider smaller cities like Pune for buying a house/commercial space. However, in recent years, there has been a shift in the trend with companies looking at Tier II and III cities for opening offices since metro cities are overpopulated and oversaturated. This has resulted in an increase in the demand for properties in smaller cities too. Also, with most of these cities being in the initial phases of their development, the avenues to earn high returns are aplenty.

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