Residential Property Investment : The Biggest Misconception Of Real Estate Investors

real estate investments

It’s true. Away from the micro-trends, every financial market self-corrects itself in the long run. However, what’s not true – at least not entirely – is that the price of the asset will always increase in the macro picture. It’s a big misconception.

The market does adjust from disequilibrium to equilibrium in the long-term. But then it’s not always guaranteed that the price of that particular asset in question would rise. The basics of demand and supply come into play. The price of the asset gets influenced by its shortage or surplus. When it’s surplus, the price will decrease. And when in shortage, the price will surge. Basic economics!

This is something that many real estate investors must keep in mind, the majority of who, with long-term purview, assume that the value of their properties would deliver them big profits. It’s not true. If you have invested in a poor apartment, in a locality that hasn’t seen any movement in real estate trends for years, it sure is a bad move and won’t necessarily yield you optimally even decades from now.

Optimum Returns

Even if your bad investment doesn’t return with direct loss, you’re losing still if you factor return optimization. Remember, building a solid portfolio isn’t about investing in most number of properties. It’s about utilizing whatever capital you have in properties that promise maximum returns. So, when you’re putting your money in low-yield properties, while sure you can enjoy marginal returns, it won’t be optimal. You would rather invest that sum in properties that promise more return.

This is where residential property investment becomes quite tricky. Even more when you factor the mortgage and maintenance cost. Whatever marginal return your property is yielding, in rent and appreciated value, it could very well go in paying the mortgage and maintenance cost, leaving you with no profits.

The Truth

So, if you’re a real estate investor, understand this simple fact: Even when you’re in the game for a long-term, you’re not guaranteed any significant return. When the market self-corrects, it might not necessarily be for profit. And in that mix, when you include various other factors and the concept of optimal return, you might very well be ending with big losses.

This is why, before starting, pondering over the best places to invest in property is so important. This is why hiring top real estate investment properties company is important — more so for the beginners who lack sufficient experience.

So, enter the market and play the game with the right approach. Understand the existing market misconceptions and shape your strategies and plan accordingly.