I’m in yrush2000’s camp…I have it spread out…Putting all your eggs in one basket is foolish, no matter what the basket may be…The young earning years are the most important career wise,when I’m 45-50 I want just income streams that don’t have to be so heavily time managed…
Was it Ben Affleck in Boiler room that said ,“those who say money isn’t important doesn’t have any”…
The point is, ladies and gentlemen, that: Greed, for lack of a better word, is good. Greed is right; greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms, greed for life, for money, for love, knowledge — has marked the upward surge of mankind and greed, you mark my words — will save not only Teldar Paper but that other malfunctioning corporation called the USA.
I don’t think it’s foolish to put all your eggs in one basket, especially if that basket is real estate. REI is all about the numbers. When I buy a property there will be no doubt in my mind that the property will make money because the numbers are right. I agree that other investments can be beneficial, but I don’t see any problem with putting all your money in real estate. If the numbers are correct, there should be no doubt in your mind that your investment will make money. And that’s with any business, not just real estate.
Serio,
Diversification I feel is best for me,if you feel the need to weigh heavily into one sector more power to you…Historically the equity markets has been a great investment,like real estate…But just like RE the equity markets is not for everyone,why?..Just risk tolerance and lack of knowledge…I prefer a mixture of cash businesses,real estate,equities/closed end funds…I also use options,leaps and other option related strategies…Real Estate is just one way but if you do REI as your fulltime career then a higher allocation is sensible…But I don’t think more than %25 of net worth invested in RE is sensible for a person who has a high paying career (outside REI) and is well versed in the equity markets…I’m not downplaying REI,I have a passion for it but there are good times and bad for every form of investment…Also this scenario depends greatly on the individual and the amount we are talking about…A person with 50-100k total may want to put it all into REI,because it may work best…But once you start talking larger numbers diversification is mandatory for capital preservation reasons…So every situation is different…
put all your eggs in one basket is not good. For decades people thought it was great, as well as companies for retirement accounts. But lets see, talk to all those Florida School teachers who had there penisions tied into Enron stock like many other individuals. Even the employees who were at corp level income, Now they are broke. After all the corp scandles and bankruptcies came about several yrs ago it really became clear on how you think your investments are good till the company goes belly up for lying about its earning.
Keeping your investments spread out provides a safety net. You can still invest it all in agressive investments, but spreading it out will protect you. I do not want to tie all my money up in 1 or 2 investments even with a large return since something bad can happen over night and then I am screwed.
Oh as for the next chapter or corp scandals. Wait for the large financial institutions like Chase, Citibank, World Savings, etc who are pushing out about 30% of their loans on option arms and hydrid loans. And WHY?? These 2 loan products have a payment lower than the actually interest rate which is why they are negative amortization loans. But the banks are recording on the balance sheets as a full interest only payment, therefore over stating its income from these loans… Talk about decieving your shareholders…
Real Estate isn’t nearly as risky as stocks can be because you control the value of your investment. With stocks, you have no control over the value of a particular stock.
People need a place to live no matter what happens in the world. And when bought correctly, there is no doubt in my mind that my investment will make money.
I’m only 18, maybe I’m a little off base and have more things to learn in life, but right now I don’t see the problem in investing all my time and money in real estate. But by no means do I think that stocks, bonds, or any other investment is a bad thing, I just feel like if researched correctly and bought correctly, there is no way my investment will lose.
If no one will pay you 150K for your house, then its value is not at 150K no matter how much you refuse to sell any lower.
I would agree with you that dirt has intrisic (sp?) value and a stock can become worthless and that is why I invest in both.
If you think there is no way your investment can lose, you are setting yourself up to fail. You have to realize there is always risk in anything. You can do as much homework as possible, but you always have to accept the small risk/chance that your investment could lose.
Same with a money market account. Most are not FDIC insured, and I have yet to run accross one whose shares have lost value, because they are safe and very low risk, but there still is the off chance the money can lose value.
That being said, I would probably take a house at 70% FMV anyday than spend than spend the same amount of money on the next sure winner stock…
Joshua… here goes the downside to buying low, especially if your in it to flip.
Comps are mainly based off last 6 months sales, so if I buy in Jan the in June they will be using my sale price as a comp really. Now awhile back I bought 2 homes from an investor to flip. Being the complex I knew I can rent but not for cashflow but could L./O and break even, but flip and make a great profit without rehabbing. Many newer communities in So FL that people bought into and could not afford. But anyways… IN 2003-2005 when this complex was being built the 4/2 at 2800 sq ft was selling for 360K-450K. Re sales started popping up in 2005 for that same house at 600-650K. Since original buyers needed 30% downpayment on a 360K or 108K downpayment leaving 1 mortgage for 242K, these people had tons of equity but had jobs making 40K a yr combined household and taxes and ins alone were going to be 600 a month, throw in $150 for HOA and before the mortgage was paid it cost you close to 800 a month. So what happen, the prices topped out for that model (and this is a middle size unit) at 650K with supporting comps but people like me moved in and bought them for 250-350K. This allowed some original investors to walk away with some cash at closing, others settled for a payoff. Well now in 2007, these homes are only worth 275-350K because so many investors grabbed up the preforeclosures and desperate selling in this community of 1000+homes and in return, destroyed the comps for this community as well as the 3000+ homes built around it within 5miles since all homes and communities are similar.
I got luck and L/O my fast and have cashflow and working to fix their credit so they can buy and i will make about 50K on the deal, but others not lucky. However when I bought, my apprasied for about 575K with a purchase price of 295K but my option is for $360K on the home. Basically the market was killed in this complex and surrounding one by investors and desperate sellers…
Moral here… to many investors in a particular market can kill your investment in a 6month period if there is alot of activity. I learned from this mistake… NO more planned communities unless it is filled with home owners that can really afford these homes, not with families just looking to get a home with a developer pushing great govt grants to make it affordable and 2 or 3 families in 1 home.
I understand market value and that I can’t control how much homes are worth. What I’m saying is, if bought correctly and following my criteria for buying, it is almost impossible for me to lose money in my investment, because I buy properties at 70% of the market value I already have 30% equity in the property. Also, because I buy them that cheap it is a guarantee that I will have a positive cash flow coming in monthly.
Also, banks will not loan money to people for stocks, bonds, or something of this nature. Why? Because in RE if bought correctly, there is little or no risk. The bank makes a nice profit and so do I.
Another thing, people talk about bubbles in RE which do happen, but they are rather small compared to the huge busts in the stock market. No matter what market you may be in, there is a way to make money in RE if bought CORRECTLY.
Finally, because of my age, (18) I’m all about growth, any mistake I make will not be fatal, and believe me I will make mistakes, but with every mistake comes a new opportunity to try again.
The main point I’m trying to make is that real estate is all about the numbers. Because all I worry about is the numbers I should have no reason to believe that I will fail.
I have an idea I’m not the only one who thinks this.
I am definitely not saying you are buying an investment that is as risky as a certain stock, all I am saying is always remember in the back of your head that there is risk involved. The second you think you are in a deal risk free I think you are only deceiving yourself.
Banks do loan money to purchase stocks and bonds. I can trade on margin/credit in my brokerage account right now if I wanted to. (VERY stupid, but I could). Just like in RE investing, with stock and bond investing, you have your low risk “sure thing” deals and your high risk big return deals. The RE market is no different. If you know how to play the game, you can make a ton.
You are right, if you buy correctly, you can make money in every market. But often “buying correctly” can be a 20/20 hindsight deal.
I am young too…just 21. I am right there with you about being able to hand large risk and recover if things go bad.
My only point to you is that nothing is 100%. There is a certain risk factor…just like the stock market has its beta factor, the real estate market has risks. You will never find a deal that is 100%. It doesn’t exist. If if did, everyone out there would be investing in RE.
I went through my phase of being “young” and thinking I was invincible with respect to investing. I lost A LOT of money. Now I know that no matter how sure the deal, there is always some risk involved, that is all I am saying.
If you don’t agree with me, then so be it.
Either way, 15 years from now when we both have fat bank accounts, I will buy you a beer!
a few points… first, not sure which “huge busts” you are referring to in equities, but we have been in a bull market since late 2002- early 2003. Any corrections to equity prices have been met with ultimately higher prices in a relatively short time period. Having said that, if you are referring to the “internet bubble burst”; that was a much needed correction. Equity returns are historically 7-9%. During the internet boom, returns were in excess of 20%… clearly, the correction was a reversion to the mean. If you look back historically, negative equity returns are generally not for a long period of time, relative to real estate. Equity levels were higher within 2 years of the internet bust and even the 1987 crash. If you ask members who have been involved since the 1980;s and before, real estate declines are generally longer. Secondly, good returns in equities are certainly not throwing a dart at a dartboard, as you seem to indicate. I have made a very good living the past 10years on wall street as a trader. I have not lost money in any single year.
There are a lot of parallels one can draw between the most recent “internet bust” and recent real estate markets. Above normal returns have drawn in investors who probably should not be involved. When I used to walk from my subway to my office during the internet boom, I used to buy coffe from a street vendor. I knew that the equity market was about to decline when he told me that he bought $10k shares of an internet company with all his savings. I proceeded to ask him what the company did and he responded,“uh, dunno, they are an internet company.” Which was not really the case. I promptly started selling some cuspier positions in my trading book, knowing that this vendor was probably the norm of the masses buying stocks. Anyway, returns become easy for a few years and when the market turns, new investors do not have the experience to know what to do, and are left holding the bag.
I am a big proponent of REI, but don’t kid yourself-- there is a serious downside risk, and ignoring that risk is not smart. While a big proportion of RE investing is predicated on stable returns, tax advantages etc-- a lot is also predicated on leverage. If you put 0% down, your positive returns are infinite. But, remember that leverage is a two way street. A portfolio of well diversified stocks can be a lot more defensive than owning a single property. To exclude the possibility of a decline, is imprudent at best.
I am definitely not saying you are buying an investment that is as risky as a certain stock, all I am saying is always remember in the back of your head that there is risk involved. The second you think you are in a deal risk free I think you are only deceiving yourself.
Yes, there is risk in everything. However, in my estimation, there is no more risk in running a rental property business than there is in working a 9-5 job. In fact, I’d say that there is more risk these days working for a company who cares absolutely nothing about you except your ability to make money for them. How many people worked for decades for a company and climbed the corporate ladder, only to be fired in their 50’s in a downsizing or because their job was shipped overseas?
How many airline pilots worked for decades thinking that they were going to have a great pensoin, only to have their pensions disappear in the airline bankruptcies? How many auto workers and others in big industry will be facing the same scenario? I choose to trust myself, not rely on a big company to provide for my future.
The big risk in operating a rental property business is that you don’t understand the realities of running a business. Failing to buy at the right price, failing to generate necessary cash flow, and failure to deal property with the tenants are the reasons people fail. If you REALLY understand these principles and actually implement them, then there is very little risk in operating a rental property business.
Saying it and doing it are two different things. The vast majority of people just won’t do the work that is necessary to really learn to run a business. They are looking for a get rich quick scheme and are reckless! That’s why the vast majority don’t make it.
Stocks have historically gone up over time. If you invest in a broad based indexes, you will almost certainly make money over time. There is no question of that. As long as the market is not in one of it’s bust periods when you want to retire, you’re fine.
The beauty of rental properties is that you can rapidly (in only a few years) build a large cash flow and large net worth using little or none of your own money. Please note that I’m not saying that you don’t need any money or credit, I’m just saying that you don’t have to spend YOUR money. This can be done very safely if you understand business. Try that with stocks!!!
Serio - YOU HAVE FIGURED IT OUT! If you follow your plan, buy below 70% of market value and insure that you have a positive cash flow (using real world numbers) - you will succeed. That is what the majority aren’t willing to do.
You can’t compare the stock market and RE market. One is an investment based on speculation, the other is a business based on income. Properties are valued based on their tangible income, stocks are valued based on what someone thinks they might be worth to someone else eventually.
Stocks are all about guessing. I have contracts to tell me exactly how much money I’ll make in 3 days on my properties. The only value-added approaches with stocks is investing in a struggling company you think has potential and hope they do well with the extra capital. You can’t call up the CEO and start ordering them around. Stock trading is simply a long series of the “greater fool” playing out. If bad press gets out about a company, the stock can be worth less than the paper it’s written on. Something so fragile and delicate is not a stable investment no matter how diversified. That just doesn’t happen with RE.
Riding a wave of constantly flucuating prices and hoping you get out higher than you got in is not an investment, it’s gambling. Althought atleast with gambling, you can figure out your probability of winning or losing. You invest your money in a property, then run it like a business to intentionally and predictably increase your returns. That can’t be said for stocks.
Thats right thegreatone and can you believe the government has the nerve to outlaw online gambling? I think they should outlaw online stock trading first because it is the same thing.
I understand what you’re saying, but stocks ARE income based-- income of the company and relative to their peers. I’m not talking about some crappy $2 stock that has never had earnings and some dope thinks its going to $50. Unfortunately, thats what most newbie uneducated stock investors has reduced equity investing to-- pure speculation or gambling. What most equity investors don’t realize is that many stocks are dividend producing instruments, as well as can provide stable, predictable returns. To classify stocks as gambling and speculative, just isn’t right. If a company has stable increasing returns for 20years and produces a healthy dividend yield, then that is guessing if you invest in it? By your rationale, if a prison is newly zoned right across from one of your rentals, you know what you will make because you have a signed contract. Well, what happens the following year? Also, Rehabbing is just, if not more speculative than equities. Investing, whether RE or equities, is about mitigating risk factors. There will always be mistakes and many unforeseen problems, but over the course of time “doing the right things” and with enough reserves to get you through bad times, you should previal. To say that there is less risk in RE is not true, as your mistakes are amplified due to being highly leveraged.
Having said all this, take it with a grain of salt as i am on this site :biggrin
Whether RE or equity investing, if someone does not due their due diligence and learn what they are “investing” their money in, should lose their money.
Danny The Great,
No offense but you clearly are not into the equities markets and have not a good amount of knowledge to making such statements…The term equity markets does not just mean par value instruments or stocks…There are various different forms used and if you were versed in these methods you would quickly see that even in bad markets there is money to be made…With REI your money is not liquid,stocks are %100 liquid (not 401k’s and mutual funds)and easily margineable…REI gives income but so do closed end funds plus you can buy closed end funds at a deep discount(below dollar value) in a similar way Mike buys his homes…Closed end funds have historically backdated information to show they pay regularly and have not missed dividends…Also you can get capital appreciation and also diversify into what ever country/sector you wish while collecting dividends that are usually paid each month…I respect the advice about REI given by the pros here,but just like asking Tiger Woods how to surf at pipeline I wouldn’t ask a RE investor about the equity markets…
I think if you don’t know about how many different areas there are to make money in the markets your better off just not answering…I know RE has made many rich,there is little comparison to the wealth that has been created by the equity markets…
People trying to get rich do real estate ,people with wealth use high yielding instruments,hedging,commodities,closed end funds,get access to IPO’s,have high yielding money market accounts,use variable insurance instruments to use money 2x (infinite banking),the list is endless…There is no comparison in RE to the equity markets…Ask any trader,option strategist,fund manager,knowledgeable investor if he would rather be a landlord…
What benefit do you and NJREstudent seek that you aren’t finding in equities? Why not just use all of that money in the market and keep earning the big bucks?
Im in real estate for capital appreciation and income,trying to lend hard money on first position and fingers crossed that there is default,assigning deals,making %25 + cash on cash with management and real world numbers…
Also Rich doesn’t my name show that I enter the forum/room humble and willing to be taught?..I always appreciate the advice given from the RE pros and I’m a sponge for knowledge…The equity markets is my arena and if I feel I should defend what I feel is not good information I owe it to the forum that helps me in RE…
I also enjoy diversification of my assets…Achieving that for me is what it’s all about…I never like to have all my money weighed into one investment vehicle but at the same time I want to fully understand what I’m doing…Real estate is just as risky as anything else if you don’t do your research…Even if you buy smart you can have fires,tenant problems,a divorce,anything that can ruin your cashflow and then possibly make for an undesireable outcome…Nothing is a guarantee is the only guarantee…Being spread out reduces your risk to being tied to any one freefall sector…
Rich in CT I’m only trying to help others understand the equity side of this conversation a little better…I meant no disrespect,I’m just a student of this forum for REI…Like I said if I can help someone better understand the equity side on investing when bad info gets thrown out I feel it’s owed to the forum for all the help the RE pros have given me…
I don’t feel my posting justified a post such as yours…Would you sk one of the RE pros here why they invest in the stock markets at all if they have so much money from RE?..I didn’t think so…I treat you and everyone here with respect, I expect the same in return…I’m not some 18 year old talking why he wants to put all of his money in RE,when in fact he probably only has a few dollars…
Your damn right I’m not in the equities market, wonder what gave you that idea? I know VERY little about it, just enough to know I’m better off in REI. I don’t base my investments on historical data in a half-assed attempt to forecast future earnings because RE has tangible ways to predict those things. The cross-your-fingers method or pray-to-god method of investing doesn’t work for me. I have no doubt that you can make great amounts of money by crossing your fingers, but I’m more comfortable with math.
Without a doubt, I am unqualified to answer questions regarding equities, that’s why I don’t go on stock trader websites. Evident from your username, you are equally as unqualified to compare REI to equities as you are probably not seasoned in real esate.
There is no comparison in RE to the equity markets
You’ve got that right!
I understand what you're saying, but stocks ARE income based-- income of the company and relative to their peers. I'm not talking about some crappy $2 stock that has never had earnings and some dope thinks its going to $50. Unfortunately, thats what most newbie uneducated stock investors has reduced equity investing to-- pure speculation or gambling. What most equity investors don't realize is that many stocks are dividend producing instruments, as well as can provide stable, predictable returns. To classify stocks as gambling and speculative, just isn't right. If a company has stable increasing returns for 20years and produces a healthy dividend yield, then that is guessing if you invest in it? By your rationale, if a prison is newly zoned right across from one of your rentals, you know what you will make because you have a signed contract. Well, what happens the following year? Also, Rehabbing is just, if not more speculative than equities. Investing, whether RE or equities, is about mitigating risk factors. There will always be mistakes and many unforeseen problems, but over the course of time "doing the right things" and with enough reserves to get you through bad times, you should previal. To say that there is less risk in RE is not true, as your mistakes are amplified due to being highly leveraged.
Stock SHOULD be income based. Just like an oversaturated RE market, idiots jack the price up because they hope good things will happen. The stock market is ALWAYS oversaturated by amateurs with a fat wallet that’s burning a hole in their pocket which makes it very difficult to justify a stock’s price by a company’s earnings.
Residential market value is based on what comparable properties have sold for. If there are active buyers in a market paying X for a property of Y type, you can accurately estimate what the property will sell for (appraisal). This is why rehabbing is not speculative. Sure, they are variables that will effect the value once renovations are complete, but they aren’t as sensitive as a bad newspaper headline about a company’s CEO which makes everyone dump their holdings. Most risks associated with an investment property are available to be mitigated before hand. If there is mold behind the wall, it can be seen with a borescope without tearing apart the wall. Bad wiring is available for assessment by taking off outlet covers and opening the breaker panel. You can know exactly what your buying because the conditions already exist. The ARV is determined based on an active and fair marketplace. All in all, not much risk.