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Real-estate-investment misconceptions

Copyright 1999 by John T. Reed
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Last update 5/6/00
While reviewing Jay DeCima’s book Fixin' Ugly Houses for Money I was reminded of how many misconceptions float around real estate as if they were gospel. I decided to put an article about it here.

COLUMN HEADINGS: Misconception Example of who said it The truth Detailed explanation

Wraparound mortgages increase the lender's yield
DeCima page 252
You get the same yield and more flexibility with a separate second mortgage that has the same yield as the wraparound would have. The buyer/borrower gets the same total payments as the wrap and also has more flexibility.
my How to Use Leverage...
Get good price or good terms when you buy

There is no profit in terms.
My book How to Use Leverage...
Seller financing is best
DeCima page 18
Different types of financing each have their advantages and disadvantages
Chapter 9 of my How to Use Leverage...
Never buy a building with a foundation problem

Buy buildings with foundation problems if the discount at which you can buy the property significantly exceeds the cost to repair, which it often does.
"Profit opportunities in bad foundations" in the 6/88 issue of my newsletter
Never invest absentee

You can successfully acquire and manage property absentee, you just cannot build or renovate absentee.
Chapter 32 of my How Manage Residential Property... and Chapter 6 of my Residential Property Acquisition Handbook
If you do "win-win" deals you are a good person
Robert Allen in Nothing Down
The "win-win" concept is meaningless. All negotiations have elements of mutual interest ("win-win") and elements of a zero-sum game. In the zero-sum game portion of the deal, only one side can win.
Page 139 of my How to Use Leverage...
Agents try to get the highest price because that's what their commission is based on
Almost every agent who ever lived
Agents just want a commission. They will lean on either party to get agreement. They are not going to risk their whole commission for 25% of another 2%.

Hire a good property manager to manage your properties
Robert Allen in Nothing Down
The property-management industry has few happy customers. Neglect and kickbacks are near universal in the fee-paid property-management industry. Manage it yourself or hire your own salaried managers to do it.
Numerous articles in my newsletter
High-priced properties appreciate faster
DeCima
No price category appreciates faster consistently. It would be mathematically impossible because that category would eventually cost too much for anyone.
Numerous articles in my newsletter, price figures published by NAR, Census, and other organizations
The three most important things in real estate investment are location, location, and location.

The three most important things in determining property value are location, location, and location. The most important thing in real estate investment is the magnitude and probability of profit in the deal. There is generally more profit in less desirable locations.
Numerous articles in my newsletter
Real estate always goes up in value over the long run

Real estate appreciation rates vary from property to property and are sometimes flat or negative even over the long run.
Factors such as political upheaval, environmental laws, regional economic downturn, down zoning, and rent control can and have caused long-term flat or negative appreciation rates to particular properties.
Buying for nothing down is a real coup
Robert allen in Nothing Down and a zillion other people in the guru business
The vast majority of nothing-down deals are illegal or immoral or money losers or, most likely, all of the above.
My book How to Use Leverage...
Agents steal all the best properties before the public gets a crack at them

The vast majority of agents are too dumb or cash poor to invest in real estate

Bankers are rich and greedy

Banking is a relatively low-paid occupation and bankers, as a group, are far more security-conscious than ambitious. This knock on bankers exists only to rationalize fraud against them or to blame the messenger when one is turned down for a loan.

Buy land. They're not making any more of it.
Will Rogers
Actually, the end of communism and socialism in many countries has dramatically increased the amount of private land. Base closings have done the same thing in the U.S. Existing raw land has often lost value because of down zoning or other laws. The Internet reduces the importance of land.
Numerous articles in my newsletter

John T. Reed, a.k.a. John Reed, Jack Reed, 342 Bryan Drive, Alamo, CA 94507, Voice: 925-820-7262, Fax: 925-820-1259, Email: johnreed@johntreed.com

CONSUMER WARNING NOTICE: I recently saw Russ Whitney on a late night TV infomercial and then attended one of his "free" seminars. Unfortunately I believed all of their LIES and FRAUDULENT CLAIMS and I paid thousands of dollars to go to his "training camps". Needless to say I was clearly ripped off, cheated and lied to by Russ Whitney and his employees (band of thieves). My mistake was not searching the Internet to find out more about Russ Whitney and his company's HORRIBLE reputation for fraud, deception and illegal activities. Had I searched online I would have found out about THOUSANDS of customers being cheated, HUNDREDS of investigations by the Attorney General into the fraud of Russ Whitney and his company's, and that Russ Whitney himself is a CONVICTED VIOLENT FELON and spent years in PRISON. I saved the cached pages from the major search engines of the John Reed lawsuit with Russell Whitney and the TRUTH and FACTS that Reed discovered during his investigation of Whitney. I am posting this information on real estate discussion boards so other people do NOT get cheated and ripped off like I did.