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Ask Philip: What Are Some Misconceptions About Real Estate Investing?

Host Philip Michael answers viewers’ questions to help us understand complex money, investment, economic and personal finance topics. In this segment, he discusses real estate investing misconceptions, returns on investments and motivation. Here are a few excerpts from this Q & A. For the full responses, check out the video!

Q. What are some of the misconceptions when it comes to real estate investing?

A. People conflate the housing market with the real estate market, meaning commercial real estate and investment properties. They’re two different things. Liquids include water and Coke; it’s just such a broad category. One of the things that I see the people get wrong about real estate is that it requires a lot of money to get started. In reality, I just posted this on my Instagram, and the title was “How to own an investment property for $3,500.” Now, there’s a thing called FHA; this is how I started myself. The banks will lend you 96.5% of the purchase price, meaning you only have to come up with 3.5% of the purchase price. And I started with $79 that I saved up to $10,000, got the FHA, and here we are. And as you can see, there’s nothing special about me. So that’s what I would say. It doesn’t require that much to get started. So go for it. 

Q. What should I invest in to get a good percentage of return on a monthly basis? 

A. Well, it all depends because one of the best ways that you can get a steady cash yield historically has been through bonds … Now, the problem with bonds right now is that there’s so much money being pumped into the economy that the dollar is losing its value. $1,000 today can buy you 1,000 water bottles. In 10 years, you may only be able to buy you 500 water bottles. You see the problem there? Even though you get the cash yield monthly, if you add that up along with the principal, you will have made less money than you probably came in with. So that’s probably not a good idea in an inflation environment. That said, that is one way. 

Q. I really want to quit my job and start a business of my own. How do I get the motivation to make the leap? 

A. You have to really be honest with yourself and ask yourself what you are really motivated for. Is it that you don’t like your job, and it’s a pain in the butt? Or is it because you have a true passion and want to take your passion and make it your life? Because think about this, contrary to what you may think, entrepreneurship is not glamorous; it is not pleasant. It is not like what you see on Instagram. These people stand in front of their cars, working from a big swimming pool by the beach in Mexico. This is not how things work. It’s a grind; it’s 24, 36, 48 months of living off of practically nothing… Find new people around you that are like you; motivation is infectious. If you’re around doers, you will become one yourself. If you’re around slackers and last-placers, you’ll become that. So, audit your circle and do that.

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