The Daytrading of the New Millenium?

General Real Estate Investing
1

A few years back, during a long bull market in stocks, many folks used to do fast and frequent stock trades (daytrading) to make money in the market. Others bought and sold longer term. Still others bought and held…and watched their paper gains spiral upward. It didn’t much matter what you did with stocks, you probably made money. All ships rose with the tide.

Then the market fell. The daytraders couldn’t make money in a falling market. Maybe then they realized that they couldn’t have lost in the rising market, but that it was the market and not their genius that drove the gains. Money flowed out of the markets. Before the market declined, I heard many people say “I have done well in the stock market and I plan to make a living managing my stock investments.” Where are they now? What happened to that plan?

Now I fully understand the differences between real estate and stocks. We must have shelter, but we can survive without owning any Merck stock. I am not a fan of the stock market. I am a huge fan of real estate investing. Even real estate speculation, within reason, makes sense to me.

But…when I see newbie after newbie planning to quit their jobs and get into real estate investing fulltime, I think back to the days of stock daytrading. It was fun and easy.

For the same reasons,REI seems so cool, and it’s a lot of fun. You have seen the shows on TV, right? Buy a house, make some decorating decisions, have others do the work, sell quickly, make $50,000, then find the next one. Or you can just put a few preconstruction houses under contract in a new development. By the time they are completed you can sell them for a gain of 20% or so.

When this market flattens out (or in some places backs up), REI is not going to be so much fun. Many investor/speculators are going to lose a lot of money. Some will never recover. Money will flow into the Next Big Thing. There will be no “Flip This House” shows on TV, no 60 Minutes or 20/20 segments on real estate investing. There will be a handfull of new posts on this board each day.

And yet there will still be real estate investors who succeed at what they do. They will work hard at their craft. They understand that 50 foreclosure notices filter down to 1 deal. They understand that it takes hundreds of conversations to track down another deal. They will not be looking for lists which they can buy from others in order to find properties. They will not be buying properties 1000 miles away. They will be doing hours of WORK, in their own back yard, in order to find their own deals. They understand that there are hundreds of unprofitable deals available for every profitable deal. That’s not a problem, because they know how to evaluate a deal and identify the good ones.

In other words, they will work. They will do mundane tasks systematically, even when it is not fun. They will do a fundamentally sound deal, and then another. When the daytraders have moved on to the Next Big Thing, the investors will still be out there, just doing deals.

Where will you be?

2

Ahem, Brother!

Raj

3

I think Raj meant “Amen Brother!” and to that I second it.

4

Yep, those poor typing skills are showing up again! :slight_smile:

5

I believe that with any market, long term vision and goals always come out on top in the end. It’s the same with the stock market and real estate market. Daytradding can be appropiate at times but should not change the focus of having solid long term stocks. the same is true with Real Estate. Flipping is very appropiate at certain times and certainly in the correct market with correct enviroment, but should be to build a long term property portfolio. Long term for the win ;D

6

Real estate is your best investment.

If you had purchased $1,000.00 of Nortel stock one year ago, it would now be worth $49.00.

With Enron, you would have had $16.50 left of the original $1,000.00.

With WorldCom, you would have had less than $5.00 left.

But, if you had purchased $1,000.00 worth of Beer one year ago, drank all the beer, then turned in the cans for the aluminum recycling REFUND, you would have had $214.00.

Based on the above, the Fed’s current investment advice is to drink heavily and recycle.

It’s called the 401 Keg Plan!

Da Wiz

7

You need to update your “research”, Gary. Over the last year (March '05 to March '06), Nortel (NYSE: NT) is actually up a fraction from just under $3.00 a share to just over $3.00 a share…I actually have some NT stock because they bought out the company that Iused to work for (PEC Solutions)…

:wink:

Keith

8

I agree with the comparison. So many states are seeing investors in foreclosure that they’re starting to pass laws that prohibit flipping. Too many people are jumping on the bandwagon without realizing that it’s not a quick and easy way to get rich. You have to run it just like a business. There needs to be partners, marketing, your customer base, etc.

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I think another thing is that novice “investors” see the shows and see how profitable flipping can be and think if they can do it anyone can. You need to be in the right market to flip, the average investor can’t go to any market and make a flip profitable, hence novice investors beign foreclosed on. In my experiance there is no such thing as get rich quick

10

I think another thing is that novice “investors” see the shows and see how profitable flipping can be and think if they can do it anyone can. You need to be in the right market to flip, the average investor can’t go to any market and make a flip profitable, hence novice investors beign foreclosed on. In my experiance there is no such thing as get rich quick

The thing that really bothers me about those shows is that they just do some simple math and don’t add on all the fees afterwards to obtain a true profit number. They leave out realtor commissions, and tax like long/short term gains, plus the registry of deeds around here collects a stamp tax that the seller pays so if it’s their first time buying they may not know about it til they sell. No mention of it all on the show, keep it simple and show the high projections.

11

Steve,

Excellent, excellent post!!!

Your post is right on and it has already started. I saw that the big internet brokerages have had a large increase in investors in the last quarter. They do a lot of careful research and found that in this case the increase in brokerage accounts were largely due to people bailing out of the REI fad. Combine that with an increasing oversupply of houses and we’re headed down. Fasten your seat belts and bring a lunch because it is a long way to the bottom (about 2 years by my count). Speculators will soon be a thing of the past and real estate will be back to normal. I can’t wait!!!

Mike

12

Great insight! It is true that those that are successful at REI are those that work on it and don’t give up at the first sign that it gets too hard. It is not easy and it is not for everyone!