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Real-estate-investment misconceptions Copyright 1999 by John T. Reed Seminar and home-study course ratings Last update 5/6/00 While reviewing Jay DeCima' 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, www.johntreed.com

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