What Do Investors Need?

General Real Estate Investing
1

Hi,

In the last few months, I have gained interest in real estate investing and started frequenting this forum and a few others (reading, not posting). I am a 24-year old HVAC technician from Las Vegas with good credit and money to invest. However, after looking into it, I discovered that it would probably be more profitable to offer some type of product that catered to these investors rather than to invest myself.

There are thousands of investors out there who all think they are going to become rich buying/selling real estate. Thus, good opportunities are few and far between. As some say, during the gold rush, it wasn’t the gold prospectors who became wealthy. Rather, it was the guy selling them the gold pans and tools who became rich. My question to real estate investors is: what type of tool or service would make your real estate business operate more efficiently and profitably?

I think I may have a pretty good idea, but I would like to get some opinions. About 6 years ago, I became interested in stock, futures, and forex trading. I researched the topic and started to develop my own systems. However, in the long run none of these systems were profitable. The problem with liquid securities is that they are far too efficient. Profitable opportunities are reserved for those with insider knowledge or extremely complex genetic algorithms run on supercomputers. The small retail trader doesn’t stand a chance in the long run.

About 3 months ago, I gave up on trading after losing a small sum of money. I then shifted my focus to real estate. Over the years, I was able to develop quite a few indicators that were supposed to help me profit from moves in exchange rates. I took these same indicators and applied them to housing data. I found that when compared to liquid instruments, real estate data was much easier to forecast. There are simple long-term trends and cycles are extremely easy to decipher.

My idea is to create a database of real estate prices from all over the country, broken down my zip code. I will then apply my indicators to these prices in order to forecast a change in prices in that particular area. Subscribers can pick and choose certain areas and an alert will be sent to them when there is a forecasted change in direction.

Would anyone be interested in a service like this? If so, how much would you be willing to pay for it?

I appreciate your input.

2

I don’t know myself but you are on the right track. :bobble You can provide RE investors alot of services. 1. Providing the property service like Myhousedeals.com and others. 2. Providing a skip tracer service. The ideas are endless. When you do it. Please let us know, so we can support you. :

3

This is intriguing. What are the guidelines for prognosticating? How will you factor in local job growth in my zip code? How will you know about local conditions such as crime, adverse weather, or population shifts?

Have you tried this in your own area already? Does your program work in your area?

Real Estate markets are so local that I am unsure of how you would evaluate them. Yet big box retailers come in and do whole analyses before they invest. This could work; I might be willing to pay $25.00/zip code if it was of value to me.

4

I’ll give you one that I would pay money for…

My local newspaper has a weekly list of homes that have sold and their SELLING price. Notice I didn’t say ASKING price. This is the REAL information investors need. ACTUAL SALES PRICES.

The problem is they publish just the address, the buyer, the seller, and the price. I can enter every one of those homes into zillow or the local town or cities tax data base but THAT TAKES TIME!!

Now…if you could attach a PHOTO along with the same published data… THAT IS VALUABLE. Maybe a front and back picture of the house, and a quick condition report.

As far as I know, other than MLS data bases from realtors, NO ONE has a quick, easy, and completey updated data base like this. I know you can get this info from the MLS but you need to have access at the realtor level. I don’t have time for that. They don’t have time for it, and I would have to constantly ask for it week in and week out.

This information, in a FALLING market like Las Vegas is PRICELESS.
I know I would hit that site with every property I got a call on.
The KEY to this is being VERY specific regarding LOCATION. As we all know, a few streets can make a HUGE difference in price.

When you buy a car you can go to a data base that shows a picture of similar cars, prices based on condition, options, mileage. This is lacking in the housing market. I know how to obtain this info, but having recent sales with a PHOTO of that property would make putting THE NUMBER on potential deals much easier, and a LOT faster. You could actually compare a home that recently sold to one you are being offered. Again…I KNOW this info is available on the MLS. But…there’s a REASON it’s not easily accessable…REALTORS want you to go through THEM to get it!

Just a thought.

5

Jake

why dont you just a realtor for them ??? I have my buyer agent get me comps all the time she even emailed me a group of them before. I plan on asking her for some on the house i just purchased so i can get an idea of what is being bought and the price its going for.

6

This quote is priceless… genetic algorithms… Sure sounds like serious… :O)

It seems you found a pot of gold… Why don’t use it to make money investing instead of sharing the secret with others?

Aegis - I hope you don’t get upset with my comments… I just don’t think your post was serious… :O)

Have a good weekend!

7

It looks like you have never heard of neural networks or machine learning and how it’s applied to exchange rates or options to find arbitrage opportunities. This is what big banks do and it’s profitable for them. However, unless you have direct access to the interbank, a computer powerful enough to retrain the price data for these patterns, and the ability to still turn a profit without leverage, you aren’t going to make very much money. Those opportunities are simply reserved for big players.

As far as the cyclical nature of RE vs Other instruments, you need to look at the data for yourself. Pull up a daily chart of EUR/USD (Euro Dollar against the US Dollar) and apply a simple moving average or even a stochastic formula (15,3,3). You won’t have a clue as to what’s going on with the price action. This market does not follow price patterns like most liquid instruments. Often times, there are no double tops/bottoms or higher highs/lower lows without first taking out a point of support and resistance. This is not always the case with real estate with the exception of certain REITs because they are more liquid.

Now apply the same indicators to real estate data. There is no comparison. The trends are much smoother. Does this mean you will be able to pick the tops and bottoms for every local market in the country? Nope. Hundreds of stocks/commodities system vendors can’t even make that claim. And neither can I. However, it can help you get in near the bottom of the peak and exit near the top of the peak. You don’t have to catch the tops and bottoms. You only have to catch the meat of the trend to make a lot of money.

Why wouldn’t I use this analysis myself to find profitable opportunities? I never said I couldn’t. However, I can’t be everywhere all the time. Most markets in this country are probably going to continue to fall for the next few years. However, in some states like Texas and Georgia there are markets that keep trending upwards. I know there are profitable opportunities there but I am not going to pick up and move to another state to rehab/flip properties. I’d rather keep my business local. And as of right now, NV, CA, and AZ aren’t looking too good.

What I would be offering is simply a tool, and something a million times for useful than the junk I’ve seen on infomercials. Perhaps you didn’t take me seriously because you have not done your research into this matter. Or maybe you haven’t been able to find a good deal lately and you are a bit upset. Whatever the reason may be, I suggest you look at the technical indicators and compare them to stock and real estate data. You might be surprised by what you find.

8

I think the real value of this type of service is going to be with its ability to help investors who buy properties all over the country and tend to follow the money. This service could help people find properties in places they would not typically look. They may not hold a license or know a realtor in that particular state.

I’m not exactly sure how I would process the fundamental data into the equation (weather, population, crime, etc). I’m not sure weather would make for an appropriate input because it can’t be forcasted long-term. I will have to break each input down into weights and use them to forecast an output (projected price).

Thanks everyone for your input.

9

Paralysis by analysis. You are making it so much harder than it needs to be. Start small, then think in terms of what you have stated about. Good luck. If you do it once yourself you will know what investors want.

10

Are you talking about something like this?

http://www.pmi-us.com/media/pdf/products_services/eret/pmi_eret08v2s.pdf

11

Aegis - I am not really upset. I just thought your original post was funny. I have just started - actually yesterday was my first day looking for houses… So I am not really upset yet… Ask me in a month or so… :O)

You are probably right… To be honest with you I wouldn’t even know how to “look at technical indicators and compare them to stock and real estate data”. Right now I am focusing in being able to “look at houses and identify good deals”… Somehow I believe that identifying good deals is more relevant for me rigth now… :O)

What really triggered my post was your statement that predicting where real estate is going is easy and straighforward… I though it was funny that you would say that… Somehow I don’t think it is that simple… But this is only me… And to be honest I wouldn’t pay to get this type of information… Again because I don’t think anyone can really predict it…

But I still wish you good luck in your endeavor… And please keep us posted on how it goes…

Have a good evening!

12

There are already some decent technical analysis softwares … like Amibroker, Quotetracker etc. In some of them, you can plug in your custom “algorithm” and create your own curves.

Question is, where are you going to get the data from? Your projections will be as good as your data. While getting macro level data may not be that difficult, it is the distributed and micro level data that holds the key to the real estate market. As far as I know, there isn’t any globally reliable “eSignal” type data on which you may run your stochastic analysis to give very reliable forcasting. Your data source is the key. I have myself thought about it quite a bit in the past.

Last but not the least, in the stock market, technical analysis does not replace traditional analysis; it just complements. Same I would imagine in the real estate world.

13

Neural networks? Stochastics? Supercomputers? Genetic Algorithms?

Paralysis by analysis, indeed.

There is a ton of local, national, and worldwide data out there and many sources to access, process, slice, and dice the information. I hate to sound like the guy who wanted to close the patent office, but I’m not sure we need one more.

My simple answer your original question asking what investors need is: Deals, Time, and Money. The order of importance is different for everyone. Fill one or more of these and you’ll make money in real estate.

14

Jimmy Rogers made all his money on Wall St. investing/trading. Here’s an interesting quote from Jimmy on “newly minted traders/investors.”

“When people first start out investing, they worry about losing their money so they wait…They wait for things in a given market to set up. What that’s means is, they wait for a specific stock to get really over sold. They do extensive research on that companies prospects for a turnaround, then they invest. In my experience most of these patient investors make money on their first 4 or 5 trades. Then it happens…They start to believe they actually KNOW SOMETHING. They now think it’s EASY!!! At that exact moment they get KILLED in the market.”

I still believe this is one of the most reveiling insights I have ever read regarding investing.

All the techno babble out there is not what makes you money. You make money when you are patient and invest in things that the MAJORITY of people would never go near. In the 18+ years I’ve been investing my own money, the biggest scores for me were ALWAYS the stocks that when I told people I was buying them, they looked at me like I had lost my mind. To this day I STILL will tell people at parties exactly what stocks I am buying (if the subject comes up) I always feel a real sense of security when they give me “the look” at that point I’m pretty sure I’ll have a winner on my hands. It usually takes a few years for everyone else to realize the stock was a good buy. I end up selling to those people!!!

The way I learned this was by doing EXACTLY what Jim Rogers described. I would watch company after company, get KILLED on wall St. Now these weren’t crap businesses, they were OUT OF FAVOR. I intially would make a small investment, watch it everyday, and then the head fake would come.

What’s a head fake??? A head fake is some bad news that REALLY sells newspapers for the Wall St. Journal. I would sell my stock for a small profit and be glad to be out. UNTIL…the very reason I bought in the first place started happening. These companies would do exactly what I had thought they would… THEY TURNED AROUND. I sat and watched at least 5 companies in the late 1980’s do this. If I had just bought the stock, forgot I owned it, and let what was going to happen…HAPPEN. I would have made a TON of money.

I LEARNED from that…I paid a BIG TUITION for that knowledge. I EARNED it. It was THE best education I ever received. I learned more by watching these stocks than by reading any book ever written on the subject. I have since made up for lost time. This isn’t fancy, exciting, filled with all kinds of indicators and graphs, it’s BASIC.

Tom Baldwin is a Billionaire Bond Trader. He started out with $25,000 that he had saved working in a meat packing plant. He went to the Chicago Board of Trade and leased a seat for $2500/ month (at the time) If that wasn’t ballsy enough, his wife was pregnant at the time. Within 2 years he was a millionaire.
His quote???

“It’s as hard as YOU want to make it. You can make it hard, or you can make it simple. I like simple. Nothing ever changes on the floor of an exchange or on Wall St… You have panic, optimism, hope, fear, and greed. The key is LEARING what market your in and doing the EXACT opposite of what everyone else is doing.”

I find that particularly true as a real estate investor in this market. I love watching peoples reactions when I tell the I just bought a house to flip!! They look like I told them I enjoy drinking bleach on occasion. We all know that NOW is one of the best times we will ever see to buy property. Is it going to get worse???

I SURE HOPE SO!!!

Be a contrarian…it much more profitable than being a member of the herd!!!

When Wall St. thinks it’s a good investment…SELL IT!!!

15

That all sounds well and good, but it’s much easier said than done. It’s like saying all you have to do is buy low and sell high.

I know this is a real estate forum, but there is a huge difference between trading and investing. As far as the equities markets go, the days of profitable value investing are long gone. Fund managers run scans for undervalued stocks everyday utilizing fundamental data, yet very few of them can beat buy and hold. 40-50 years ago, that type of analysis was done manually. Those who put the time in could find those types of deals.

Today, things are a bit different. Technology has made liquid markets extremely efficient. They will only become more efficient in the future. Those who don’t adapt will die. Relying solely or even mostly on traditional analysis is a loser’s game because that information is already priced into the security.

You’re likely to see a lot more George Soros than Warren Buffetts in the future.

16

While I agree that the US equity market is likely one of the most efficient markets in the world it is not 100% efficient, imo. I work with institutional investors every day; some run quant strategies, some are technical analysts, but most still utilize fundamental analysis to make buy and sell decisions. This is not to say that they beat the market every year but their skill and efforts do uncover opportunities. Sometimes they find hidden gems and sometimes they simply recognize that the market is too optimistic/pessimistic about a certain stock.

The large cap universe is very efficient since so many fund managers chase these stocks. But if you focus your efforts in small-mid cap land and concentrate on industries or companies that you can understand then there are opportunities to be had. You don’t need supercomputers or an MBA/Phd to successfully invest in equities.

17

Markets won’t/don’t change because markets are PEOPLE, not computers. Your buying into one of the most widely held misconceptions about Wall St…THIS TIME THINGS ARE DIFFERENT.

THEIR NOT!!!

Look no further than home builders stocks for a PERFECT example of this.

These stocks have been killed, and in my opinion, there is more bad news ahead for these companies. The next indicator to watch is jobless claims. They have been slowly moving up, just last month broke the 60,000 mark. As higher oil prices move through the economy watch what happens to those jobless numbers. I believe we’ll see them climbing to over 100,000/month within the next 6 to 9 months. Between the jobs being lost on Wall St. to the continued bloodshed in Detroit, or the impact of Oil prices on EVERYTHING, it adds up to VERY BAD news for the home builders. These guy’s are already reeling, start taken substantial numbers of JOBS out of an already weak economy and they’ll hit bottom.

You don’t need a super computer, neutral networks, fibonacci numbers, or any other indicator to buy these stocks during a HISTORIC HOUSING BUST and just HOLD THEM!!

You state that the days of buying and holding are over…How who you know??? You stated that you tried trading and after losing a small amount of money you GAVE UP??? The guy’s who make REAL money buy stocks in industries that get HAMMERED for a reason that is FIXABLE. As sure as you are reading this, a time will come in the future were people won’t even REMEMBER this housing bust!!

Think I’m wrong???
This EXACT scenerio played out in the late 1980’s with the EXACT same results. I built homes prior to THAT bust, the only reason I didn’t get wiped out was I ran out of LAND to build houses on. When the new real estate BOOM came in 2001-2005 almost NO ONE remembered the lessons of the 1980’s. People couldn’t buy houses fast enough. Take a minute to think about how different things are in 2008 compared to 2005??? We’re talking about JUST 3 YEARS HERE!!!

What’s different??

Gone are the days of…

70 people showing up on DAY ONE of your open house and you getting 30 offers all higher than the last.

People buying homes with NO INSPECTIONS because they didn’t want to LOSE IT!!!

Real estate agents TOO BUSY to even make appointments to show homes. They simply advertised a time…be there or lose out.

NOTHING CHANGES…Because people have short memories!

If you can’t see the logic in buying SOLVENT Home Builders stock during this bust… You SHOULD give up buying stocks…5 to 10 years from now NO average American will care, or remember this bust. Friends will be buying homes, cars, and all the other BS Americans throw money at. NEW Home Building is NOT ENDING in America, these companies have HUGE economies of scale, when the market is NORMAL they are EXCELLENT at building and MAKING MONEY building homes. My guess would be a well thought out entry into these stocks could EASILY return an investor well over 500% in a 10 year period. It’s usually considered GOOD to be getting a 100% return in that same period.

IT CAN BE …THAT EASY!!!

Maybe what you need is a different method. It sounds to me like you were TRADING…Trading is not the same as INVESTING.

18

One primary difference between the equity and real estate markets are the relative inefficiencies. Acting on inside information is illegal in the equities market and legal, in fact encouraged, in real estate. The best deals come from personal relationships and from those “in the know” who are willing to share with you. None of this can be programmed.