The $3675 Total Kitchen Remodel with before and after pictures!!!!

General Real Estate Investing
41

I usually buy with 100% cash. Holding costs go through the floor and I can close on a property in less than 5 days.

I keep enough money in liquid investments (like stocks) so I can just take what I need when a great deal comes along. It all gets put back and THEN SOME after the home sells. It’s amazing how fast you can add $250,000 in CASH to your net worth once you have a well oiled machine up and running.

Oh, You can actually get MORE leverage buying OPTIONS in stocks rather than the stock it’s self. Case in point, if Wallace wanted to buy 20,000 shares of Ford Monday morning it would cost him about $100,000. Instead he could purchase LEAPS (long term options good until 2010) He could control the same $100,000 worth of Ford stock for as little as $10,000.

This illustrates my point perfectly. Here’s a guy who knows very little about investing in anything other than real estate. Yet he has no problem trashing me for suggesting people consider an investment that has BEAT real estate over the last 100 YEARS!!! That’s not OPINION, that’s a PROVEN statistic.

So let’s look at Wallace’s example… Instead of buying stock with his $100,000. He could do BOTH, which is EXACTLY what I’ve been suggesting he do. He could take $10,000 and buy options on 20,000 shares of Ford stock that expire in January of 2010. He could ALSO buy that house he was talking about. Now here’s the BEST part. While Wallace collects his rent on the home. Our economy should be beginning to show some signs of LIFE by 2010. Ford has some INCREDIBLE cars coming over from Europe at this EXACT time. They get on average 30+MPG!! Ford is now trading in the $4 to $5 range. If they show ANY…ANY…signs of life as far as earnings go…WALL ST> will PILE INTO THIS STOCK!! Wallace remember bought the RIGHT to buy Ford stock at let’s say $7.50 up until Jan 2010. He could easily be looking at a return on that investment of well OVER 1000%. At that point he exercises his option on those 20,000 shares , BORROWS the money to BUY the shares, and SELLS the shares the same day!!!

So…Wallace uses $10,000 to set this up…He waits a year and a half for it to play out. If Ford does what I believe it will the stock should be $10 -$15 by that time. Wallace then borrows $150,000 on a MONDAY to buy 20,000 shares of Ford (it’s called EXERCISING the option) the very SAME DAY, he sells those 20,000 shares at $15 (REMEMBER…his option let’s him buy the stock at $7.50 REGARDLESS of 2010 price) and his account IMMEDIETLY has $300,000 in it ($15 X 20,000 shares). He simply writes a check to his bank for the $150,000 loan, and falls asleep that night $150,000 richer.

Don’t believe it???

Ask RookieNYC, he does this for a LIVING!!!

There’s a whole other world out there…Real estate isn’t ALL of it!!!

42

Other than a brokerage fee I can cash out in a year and make A little under $500 selling 10K of stock that appreciates 5%. If I have a 100K property and it appreciates 5% and then I sell, the realtor alone will take the profit made and then all the closing fees etc… that go along with it will put you upside down. Wallace’s thinking is a lot of the reason why we are where we are at today in this real estate market. Real Estate isn’t liquid like stocks. You can cash out quickly with stock. You just become more leveraged with real estate doing what he is doing. It almost ALWAYS catches up with these type of investors. Especially in a down market like today. I have seen it happen over and over and over again. You don’t make anything till you sell so that 100K property does not net you 5K if it appreciates 5% in it’s first year. Wallace’s thinking will bankrupt(and has) many novice investors and even seasoned investors by thinking this way. Diversity is the key. FDJake is doing it right as am I. You can do both and do both successfully.

Ask some of Trump’s investors how they felt about his “leverage” back in the early 90’s.

43

Wow. This is great stuff guys! I should write this down! Or print the page! Great discussion guys.

44

Fdjake

Do you know about PUTS (I think that was the term used) on the stock market. Awhile back a customer as telling me thats how he leverages his investments most of the time. Said very complicated and few investors understand and use them. I know he is doing something right since he just bought 5 condos for about $3mil cash few months ago and is renting and holding till market turns. All beachfront condos in upscale buildings in SoFL.

45

This is a great testament to why leverage can be great… but let’s not forget about what happens when the value of a house goes down. If I get into a $100,000 property with $10,000, and it goes down 5% in value, am I not in turn losing HALF of my money?

However, as they say, you make your money when you buy, correct? So really I would hope to get the $100,000 house for $65,000 using only $6500 of my own money. Then if the value goes down 5%, I’ve still got tons of equity. :cool

I think fdjake is doing things right by diversifying and investing in BOTH real estate and stocks. They both have their pros and cons.

46

I think fdjake is not diversifying ( using the general definition). Its more like he’s focusing on specific stocks and RE. There are so many ways to make money. But I’ve learned there’s NO harder worker than MONEY when its focused and used properly.

47

Or, assuming Ford stock is trading at $15, Wallace could,

  • Sell the option position itself before expiration and collect the same profit as buying the stock at $7.50 and selling at the market price
  • Short the stock at market, then exercise his option to cover the short
  • Sell half of his option position, then use the proceeds to exercise his option on the other half. Hold the stock for future gains. Almost like getting his stock for free
48

Great points Dave, I was trying to point out how he could use BORROWED money (like in real estate) for a SINLGE DAY to LEVERAGE his way into a big profit. Everything you mentioned would also work, and thus, provide even MORE alternatives!!

My point is you certainly have a BOAT LOAD of alternatives available to you with this type of investment.

People…this is how WEALTH IS BUILT…To say this stuff is a “MYTH” is incredibly short sighted.

Wallace…

Do you actually KNOW ANYONE who owns 60 single family homes???
I’ve been investing in real estate for 20+ years and don’t know ONE person that owns anywhere near that many single families. There’s a reason for that… THERE’S FAR EASIER WAYS TO MAKE BETTER RETURNS with much less BS!!!

Every person reading these forums should be ACTIVELY educating themselves for the NEXT phase of their investing life. To say “I stopped reading” or to stop LEARNING is a HUGE mistake.

Take what you’ve learned from buying real estate and apply it to stcoks. You’d be AMAZED at the similarities…

Did you buy your first property by giving your money to a BROKER and blindly let them pick out the home for you??? Of coarse not…We all know that’s a recipe for failure. Then WHY do people do this with stocks???
What you DID do was a TON of research, made a few mistakes, LEARNED from them, and FINE TUNED your approach on the next property. Why couldn’t you do the EXACT same thing while investing small amounts in stocks??? As you learn and make money you increase the amount invested. EXACTLY the same thing we’re all doing with real estate.

People like Wallace assume that you have to go in with $100,000 to make it worth while. All that wil do is assure you a loss. How do you think you would have done investing in real estate if you had $500,000 to buy your first property?? I know I would have made $500,000 worth of mistakes instead of the $25,000 in mistakes I made on my first purchase. Just to clarify…I made a small profit on that first property, but could have made much more if I had known what I know now.

So…IF, and for some people it’s a BIG if…IF you become successful investing in real estate at some point your going to want to DIVERSIFY. Having your entire net worth in ANY single investment class IS NOT GOOD… So with that in mind…wouldn’t it make sense to START watching these stock scenerios which occur in cycles OVER and OVER(just like real estate) and making mental notes of those events.

Perfect EXAMPLE…

HOME BUILDERS!!! Think they’ll be in the single DIGITS for the rest of TIME??? They WON’T, Neither will all these BANKS that are getting their @sses handed to them now. Simply LOOK at the CURRENT changes going on in banking!!! It’s right there IN FRONT OF YOU…Banks are going back to lending money the way THEY ONCE DID. You know, with 20% downpayments on mortgages, and making sure people can actually PAY THE LOANS BACK, Getting REAL COLLATERAL. At some point they’ll start actually MAKING MONEY AGAIN…The seeds are already in the ground…The U.S. Goverment has PROVEN to us all that they WILL NOT let the banking system in this country fail…no matter what steps are required… So basically…where’s the RISK??? Yet, NO ONE is buying these stocks. I shouldn’t say NO ONE, because some VERY SMART people who NEVER appear on CNBC, or in the Wall St. Journal ARE BUYING, they just do it quietly…

It’s all there right in front of you. CAN YOU SEE IT???

49

Maybe not optimal diversification in the true sense. It’s slipping my mind how many sectors you need to be more or less equally invested in to be considered fully diversified. But, he is NOT putting all his eggs in one basket which is, by definition, diversification.

This is a great discussion. I’ve been turning over in my mind how I can use my head to get creative to generate cash flow for myself and I feel like reading your posts is really speeding up my financial education. I have dabbled in stocks with limited success in the past few years, but my focus was always on the numbers without much thought given to what is really going on in the world around me. However, I’m starting to look at my current holdings in a different light. For example, I bought Pfizer a few years ago because I looked at their free cash flow and they seemed WAY undervalued. Since then, it’s been a dog… but if I look at the long term and think about how many baby boomers are nearing retirement, I almost want to buy more shares. Maybe I’ll set up a drip account and stick in $50/month. Worked well for me with Exxon while these gas prices have been going up. :beer

50

Gigo, diversification is NOT putting your eggs in one basket. Diversification means to spread your money around to different sectors. What truly successful investors seem to do is FOCUS their money in SPECIFIC stocks in various sectors. When a financial advisor recommends diversification, they usually mean things like mutual funds that have various stocks in certain sectors. Each fund has varying amounts of “risk”. What I’ve learned is that many advisors are simply salespeople. They’re peddling what their bosses are telling them to peddle. When I defined diversification, that’s the definition I was talking about. Fdjake’s version of diversification and the genrally accepted version are two different things.

51

I like your way of explaining it, phlemboy. I think we were both driving at the same point actually, which is to diversify, but to be very selective in what you choose to invest in within each sector. Just as you have to understand the market around you so that you can choose the RIGHT property that will make you money, you also have to understand the world around you to choose the RIGHT stock that will make you money, and so on and so on for any investment you make. Doing so in multiple areas can reduce the risk and offer multiple avenues to make money.

52

OK good Points I all the way around, but lets keep this in mind.

  • This is a Real Estate Investing forum not a stock forum. So most people here do not invest in the stock market is my best guess. I posted a link about to 10 other forums where you can post about stocks and network with other like minded folks.

  • Stocks - No matter what Fdjake or anyone else in the world says unless you own
    the company or you are on the board of directors you have no control over it?

  • Most any other investor (full or part time) will tell you they really like Real Estate and that is why they do it. You can see it, feel it, improve on it etc.

I am glad stocks are working so well for you fdajake. That is awesome as I respect entrepreneurs. If I knew all the tricks and knew stocks inside and out maybe I like you would invest in “Sure Things too”. I follow stocks but do not get excited about them.

The bottom line is ANY type of investing is RISKY no matter what it is. Knowing all you can about an investment can cut back on some of this risk but not all of it.

Also getting Back on Topic - Did you sell the house yet with No Dishwasher in it?

Do other homes in Blue Collar USA, have them or not?

53

You never mentioned where you found the property.
Care to enligthen us as to how you find your properties?

54

Wow! Nice job. So are you retailing the house or are you wholesaling it?

Mike

55

How do you borrow the money to exercise your option if you don’t have collateral for it?

56

House is SOLD…A whopping 8 days on the market, with 2 people really chasing it, and the final price? $2000 OVER asking!!!

The buyers comment??

“This is the ONLY home we’ve seen were we DO NOT have to make a SINGLE CHANGE to ANYTHING!!!”

This home came from my direct marketing

You can actually have MORE control with stocks than real estate. Case in point…Did YOU control the last time a tenant trashed one of your units??? WHY NOT?? The FACT is… a landlord has almost NO CONTROL over what goes on in THEIR property once a tenant moves in. Oh you can evict them but that takes MONTHS. When I want to EVICT one of my stocks for poor behavior I HIT ENTER on my computer key board and it’s SOLD in SECONDS. Better yet, want even MORE control??? Put in a TRAILING STOP, which moves your sell point up as your stock moves up in price. I can be on a boat and come home and find a stock I own has been sold and a nice profit locked in. Oh…I almost forgot…THE BEST PART!!! My last stock sale which was for $75,000 cost me a WHOPPING $7 in commisions!!!

That ain’t a typo…$7 to sell $75,000 worth of stock in 2 seconds time!!

Now let’s say you own a rental that’s performing badly, needs work, and has a history of problems…Let’s not BS each other…WE’VE ALL HAD these properties at one time or another…GOOD LUCK selling that bad boy. Now to me THAT is NOT control. REAL control is the ability to move an investment quickly if you NEED to. Real Estate, ESPECIALLY NOW!! Is one of THE MOST NON-LIQUID investments on Earth. It USUALLY takes MONTHS for the transaction to close. Even the house I posted here won’t actually CLOSE for another 30 days. A LOT can happen in 30 days that I have ABSOLUTELY NO CONTROL OVER. As a matter of fact THIS is the worst time in a real estate transaction. Inspections, UNDER WRITING, final legal work. There’s about half a dozen ways ANY real estate deal can fall through.

I have NEVER had a stock of mine NOT SELL/CLOSE. They SELL, even in a FALLING market you can UNLOAD at ANYTIME, usually in SECONDS!!!

Again…THAT’s control.

To answer the “How do you borrow money for the stock purchase with no collateral?” You borrow it anyway you can!!! Home equity, a friend, a relative, Credit card cash advances, Think about it…your sitting on a $150,000 profit in the scenerio I laid out. If you can’t BORROW enough money to buy a stock that is trading at DOUBLE the price your paying for it. SOMETHING IS WRONG!! It most cases your BROKER will GLADLY loan you the money to close this transaction. It’s a NO LOSE for the brokerage.
Again…If the stock is at $20 TODAY…but your option allows you to buy it at $10 TODAY, who on this planet isn’t loaning you money on a 100% PROFIT???

Let me simplify this for you. Cooper Tire is currently trading at about $11/share. I purchased options on this stcok about 4 weeks ago. They were trading at .10. As of the close yesterday, those option were trading at .80…So…My $10,000 investment, as of yesterday is now $80,000.
This morning I will hit the ENTER button on my computer and SELL those options.

I didn’t have to CLEAN OUT those options.
I didn’t have to PAINT those options.
I didn’t have to put Granite counter tops on those options.
I didn’t have to do ANYTHING to those options.
My sale commision on this entire transaction was $25!!

I’ll net over $40,000 on the sale of this home for 4 weeks worth of work.
I’ll net over $70,000 on the sale of those options for the same 4 week period.

In case anyone here thinks this is just talking…I sent RookieNYC an email 4 weeks ago laying out this EXACT trade and the reasoning behind it. I ALMOST posted it here. I had literally typed in the first paragraph then just stopped. I’ll call that the “Wallace effect” (go somewhere else with your stock investment ideas)

57

fdjake. I took your advice and went to Barnes & Noble and tried to order some of Dave Dremman’s books. They were having a hard time with their computer so I took a look at the “investment section”. My problem is trying to find the right books to read. There’s so much to choose from. Also, I don’t know which is the best online site to buy & sell stocks. I’ve heard Scottrade is good. I’ve also heard ING Direct is good too. I’ll be ordering Dave Dremman’s books today. Do you have any other suggestions of books or websites for beginners? Thanx.

58

I like Amazon and Half Bay and most time I buy them used and they look great.

A Lot of folks buy a book such as Real Estate Investing, Read it and shelf it without
taking any Action.

I spoke to a lady yesterday who told me she had been a “Real Estate Investor and had read over 33 books in the last 14 years”

I said WOW and I ask how many Deals she had done…

She said None Yet but she was still reading how to do it… :rolleyes

59

Yea, I wish I had a dollar for every “investor” I’ve met over the years who are just scared of PULLING THE TRIGGER.

Amazon is tough to beat. You can buy Dave’s books from them used for a lot less then new. No bidding, no BS, and have them in a week.

Just read Dreman… Believe me, I’ve read enough of them for every person on this site. Dave Dreman is a CLASSIC contrarian investor. He does exactly the OPPOSITE of what the popular thinking is doing and has made BILLIONS for his investors. As a real estate investor you’ll immediately see the similarities. Buying great companies for reasons that make sense isn’t a hard concept to grasp. Figuring out who will build the next Iphone IS!!!

60

I find the concept of which you have more control over (real estate or stocks) interesting. It totally makes sense that you don’t have control over your tenants not paying or trashing your property, but that you are able to sell your stock if you’re not happy with it. So for distressed rentals vs. distressed stocks this makes sense to me.

However, wouldn’t the opposite be true for undervalued properties vs. undervalued stocks? If a property is undervalued, you can buy it for pennies on the dollar, rehab it to its ARV, and make an instant profit. With stocks, you can buy for what you conceive as pennies on the dollar (i.e. stocks that are down from their 52 week high), but there is nothing you can do directly to force the market to see its true value. In other words, you can’t have “forced appreciation” on stocks. I think the subject of this thread is case-in-point.

Definitely gonna check out Dremman… I love this concept of learning to read between the lines with what is going on in the world and apply it to finance. I’ve always been so focused on numbers that I haven’t stopped to look around and see what’s dictating them.