Alternative real estate strategy

[petemfa]

Some of the best investments I have ever made have been in stocks that are in industries that are getting killed at a particular time in an economic cycle.

Oh, and I can pick some dogs too so keep that in mind.

But lets look at something here.  The home builders are getting hurt.  We all know that.  Take a look at their share prices, most have pulled back from the mid $60 level to the low $30's.  In 2000 these stocks were all about $10/ share, so they have a ways to go yet if you believe in the "return to mean theory"

Let's say in 2 years or sooner, those stocks are at that $10 level.  You buy them and forget you own 'em.  No calls at night complaining about leaking pipes, NO MORTGAGES!! no property taxes, NO TENANTS, no repairs, no advertising, no evictions.  5 to 8 years from now you want to sell?  Click that enter button!  No realtors, no inspections, no closing costs, no negotiating.

We're all real estate people here.  It's THE  best investment going no doubt.  Your not going to wake up one morning and find out the President of your 2 family cooked the books.  But think about it........
We are very close to some kind of stock market event/pull back (my opinion only)  If that does happen, it could be a very nice time to enter these stocks for long term investment. They will never provide the leverage real estate does, but there's going to be a lot of money left on the table very shortly in these stocks.   

Just a thought.

[Rich_in_CT]

Warning-  I don't know that much about stocks and generally don't follow the market.

.....but it does sound like a very sound theory for someone that has some extra cash to outlay.

[Jeffelite]

Might as well short the stock all the way down to 10, then ride it all the way back up.

[d_sbrown]

Well, duh.  Buy low and sell high .  The trick is in the certainty.  In and out investing, trading, shorting futures, etc. all can make alot of money...  if a person is right.  But you will find that without exception that there are very good reasons for a market to be where it is at any given time.  ( at least for most people ).  If a person is one of those that can consistently ( 60% or so ) KNOW where the market is going, then you can easily end up rich just by hitting the enter key a few times at the right time.

Buy low, sell high is the simple essence of making money, but the reality of knowing when is the top or bottom is much more difficult, and requires not just a gift for seeing what others don't, but the intestinal fortitude to take positions even when the you've lost you shorts on the last several deals.

my 2 cents,  and some trading experience.

DB

[petemfa]

Db your right, 100%

As a guy with some trading experience you hit the nail on the head.  Lose your shorts a few times and you learn or move on.
Here's what I have learned...............

I have no idea who will create the next ipod, xbox or Google, but I do know that companies that are in cyclical businesses get hammered in a down turn, and they usually bounce off the floor a few times as they put in a price bottom.  If I could predict this stuff on a regular basis I would be typing this out aboard my Gulfstream.  (not in my life time)  But if you enter these stocks a little at a time you CAN take bites out of that bottom. If I wait for housing stocks to break into the teens, 8 years from now when people, as they always do, forget this bust those stocks will be in the $50's again.  At that point does it really matter if you got in at $13 or $18?

Watch them.............That's all I'm saying.  Put it in the file upstairs and check them once a month or so.  They have some ways to go yet.  But, my opinion is they WILL get to those teens I'm waiting for.

Excellent insight on your part about the mental games trading and investing play on you.

[Steve Smith]

I prefer to keep most of my net worth in real estate and businesses which I control. 

Consider that a solid but unspectacular company trading on the NYSE may have a P/E of 15, and a solid small business may be purchased at a P/E of 2 or 3.  And with the small business YOU have much more control.  Use your judgement and your plans to increase earnings.

As for the "alternative real estate strategy", that is just a roll of the dice.  You are an outsider in the stock market.  There are many insiders who will always have more knowledge than you.  Don't think for one second that you can outsmart that market.

[aletoledo]

I think the number of successful stock investors is a very small minority. I think there is a big difference between investing in stocks and real estate.

1) we as investors control 95% of the deal in real estate. Stocks are manipulated by a select few.
2) real estate uses leverage to maximize profits. Stocks offer small amounts of leverage and require you to commit all your capital.

in the end I think I personally lost 40% of all the money I invested in the stock market trying to gauge the ups and downs. My 401k and 529 plans (run by insiders) have all gained about 20%. Perhaps its just me, but I see no way to "manage risk" in the stock market, as I do in real estate.

[Bluemoon06]

I prefer to keep most of my net worth in real estate and businesses which I control. 

Consider that a solid but unspectacular company trading on the NYSE may have a P/E of 15, and a solid small business may be purchased at a P/E of 2 or 3.  And with the small business YOU have much more control.  Use your judgement and your plans to increase earnings.

As for the "alternative real estate strategy", that is just a roll of the dice.  You are an outsider in the stock market.  There are many insiders who will always have more knowledge than you.  Don't think for one second that you can outsmart that market.

Steve is right, I am pretty good at picking stocks and I pick winners all the time.  But I NEVER make any money.  When you buy stocks you pay a commission and when you sell you pay a commission.  Those commissions take up all the profit.  Nobody knows anybody that got rich by investing in stocks…it just can’t be done.

[NJREstudent]

I prefer to keep most of my net worth in real estate and businesses which I control. 

Consider that a solid but unspectacular company trading on the NYSE may have a P/E of 15, and a solid small business may be purchased at a P/E of 2 or 3.  And with the small business YOU have much more control.  Use your judgement and your plans to increase earnings.

As for the "alternative real estate strategy", that is just a roll of the dice.  You are an outsider in the stock market.  There are many insiders who will always have more knowledge than you.  Don't think for one second that you can outsmart that market.

Steve is right, I am pretty good at picking stocks and I pick winners all the time.  But I NEVER make any money.  When you buy stocks you pay a commission and when you sell you pay a commission.  Those commissions take up all the profit.  Nobody knows anybody that got rich by investing in stocks…it just can’t be done.

How can u pick a winner and at the same time not make money?  If you're buying stocks and commissions eat up all the profit, you have not done your homework.  That would be similar to rehabbing a property, yet the real estate agents commish eats up your profit.  You are working for too little money!  The biggest problem in equity investing for mom and pop investors is that they buy a stock and try to trade it over a short time preiod.-- over time, you will lose to the big boys trying to trade.  THIS IS NOT INVESTING!  However, if you invest over a longer time horizon, there is a greater likelihood of gaining.  Most new equity investors hold onto their losers for way too long and do not let their winners run long enough.

Nobody knows anybody that got rich by investing in stocks…it just can’t be done.

Challenge.  I know lots of people who have done it and I know lots of people still doing it.  I have taken a very conservative approach to my stock/bond investments, yet I still have made double digit returns in the past several years.  The problem is that stocks are not easy for the layperson to understand.  If investing in equities is a zero-sum game, isn''t someone getting rich by taking your money?

In any market, there will be winners and losers.  In real estate, its the same.  How is it that you're able to buy highly discounted distressed properties?  Because someone levered themselves and made a mistake-- whether its a retail owner or a new investor. 

Just as a side note, leverage is not always a good thing.  In equities, (assuming you go long), you will rarely lose more than your initial investment.  However, in real estate, its very possible to lose more if you make an error.

Having said this, I'm not saying that either is better.  I'm not turning this into a equity vs real estate discusion.

[dd564]

I'm not sure if a couple of these posts are sarcasm or just idiots.

I'll assume sarcasm.  Wow.

Anyway, I've been keeping money in stocks instead of housing because our market is not at a point where you can successfully use leverage and make money.  The risk is too high for a measly extra $100-200 before expenses.  I'm not going to drop $10,000 or even $5,000 on a property when the best I can do is maybe make a gross profit of $2,000 a year if I don't need to make any repairs.  I make one significant repair, or I'm without one tenant for 6 weeks, my ROI is zero or negative.  Straight interest I'm guaranteed 5% and there are no repairs to make.

Now once we filter through more of this housing bubble bursting I'll finally be able to find some real cash flowing properties.

[Bluemoon06]

How can u pick a winner and at the same time not make money?  If you're buying stocks and commissions eat up all the profit, you have not done your homework.  That would be similar to rehabbing a property, yet the real estate agents commish eats up your profit.  You are working for too little money!  The biggest problem in equity investing for mom and pop investors is that they buy a stock and try to trade it over a short time preiod.-- over time, you will lose to the big boys trying to trade.  THIS IS NOT INVESTING!  However, if you invest over a longer time horizon, there is a greater likelihood of gaining.  Most new equity investors hold onto their losers for way too long and do not let their winners run long enough.

Nobody knows anybody that got rich by investing in stocks…it just can’t be done.

Challenge.  I know lots of people who have done it and I know lots of people still doing it.  I have taken a very conservative approach to my stock/bond investments, yet I still have made double digit returns in the past several years.  The problem is that stocks are not easy for the layperson to understand.  If investing in equities is a zero-sum game, isn''t someone getting rich by taking your money?

In any market, there will be winners and losers.  In real estate, its the same.  How is it that you're able to buy highly discounted distressed properties?  Because someone levered themselves and made a mistake-- whether its a retail owner or a new investor. 

Just as a side note, leverage is not always a good thing.  In equities, (assuming you go long), you will rarely lose more than your initial investment.  However, in real estate, its very possible to lose more if you make an error.

Having said this, I'm not saying that either is better.  I'm not turning this into a equity vs real estate discusion.

The reason that I pick winners all the time and can't make money is that I can’t put enough money on the actual winners to make up for the loss in the losers.  For example, I can know that retail stocks are going to go up and so I buy Federated, Target, and Wal-Mart.  Federated goes up 10% Target goes up 6% but Wal-Mart has a news report that they hired illegal aliens and their stock does down 4%.  That dilutes my profit. So I break even or gain only a little.  Then I pay out the commissions and I break even or lose.  You see you can’t just pick a stock and put a lot of money on it.  You have to diversify.  Everyone knows that diversification is a loser’s strategy.  It is designed to spread out your money so that you are sure to have some winners and some losers.  If you picked only winners you would have a money machine.

I have money in stocks (mostly my company’s stock and mutual funds) but the reason the fund is so large is because I put a lot of money into it. 

Now stocks are not bad, they are a great holding place to make sure your money keeps up with inflation.  But as far as making you rich they can not do it.  There are over 3,000 companies listed on the New York stock exchange.  They no longer move up or down based on their profitability but by the emotions of the people buying them and you are trying to make money based on those emotions.

When I say nobody knows anybody that made a lot of money in stocks is because nobody makes a lot of money in stocks (except for the brokers).  Everybody you know that has a lot of stocks put a lot of money in stocks...the stocks didn’t make them the money.

[Bluemoon06]

I'm not sure if a couple of these posts are sarcasm or just idiots.

I'll assume sarcasm.  Wow.

Anyway, I've been keeping money in stocks instead of housing because our market is not at a point where you can successfully use leverage and make money.  The risk is too high for a measly extra $100-200 before expenses.  I'm not going to drop $10,000 or even $5,000 on a property when the best I can do is maybe make a gross profit of $2,000 a year if I don't need to make any repairs.  I make one significant repair, or I'm without one tenant for 6 weeks, my ROI is zero or negative.  Straight interest I'm guaranteed 5% and there are no repairs to make.

Now once we filter through more of this housing bubble bursting I'll finally be able to find some real cash flowing properties.

What dd564 says is true.  The stock market is a great place to park money so that it keeps up with inflation but he is not any good for making you any money.

Now dd564 I always say that real estate is local.  I don’t know how to make real estate make money in all markets.  But in my market, you can actually buy a house for $101,000 and put $6,000 into it and make it worth $140,000 that cash flows $150 to $200 after expenses on a property per month.  There is no bubble here.  I would suggest you invest where the bubble is not.

By the way, if you ask me I will tell you how to not lose your ROI on a major repair bill.

[Thoward]

I'll bite....... how do you not lose your ROI on a major repair bill?

[Bluemoon06]

I fix up the property when I buy it.  I mean that I take out the original loan with enough money in it to make everything new.  New appliances paint carpet everything.  New things don't break.  If they do they are under warranty or they are broken.  If the tenant has broken it they pay for it out of their deposit.  I also get a home warranty.  I had $200 worth of A/C work done for $45 last week using BFS Home Warranty.

[petemfa]

NJRE student made THE best point of the thread.  If your "picking winners all the time" and not making money somethings wrong.

Also the commision you pay on a stock is a joke compared to what you pay a realtor.  I bought 5000 shares of Merck shortly after Vioxx was pulled, the stock was $20- $21/ share, my commision?  $7.  That's it, it's called Scottrade.  Again NJRE student hits the nail on the head,  I sold it at at $41-$42 if I had done as he said a double would be a triple because the stock is at $52 now.  My commision at time of sale?  $7 and that's for 5000 shares. 

Some of the comments here sound like my 89 year old Grandfathers.
If you think the stock market is completely controlled by insiders you have absolutely NO understanding of how our economy functions.

I'll give you all a freebee right now.  Someone please remember this, it's 5 years out, buy it now and forget you own it....................

FORD.   $8/share  Do some reading about how Alan Mullaly turned Boeing into a CASH COW after 911.  This guy is in the process right now of doing the same for FORD.  Laugh all you want, I've seen this movie twice before.  Anyone remember Chrysler in 1990 $9/share DEAD as DEAD can be.  Bob Lutz and co.  turn it around.  2 years later  $90/ share.  Times are different and nothing ever repeats the same way, just watch it. 

Buy when there's blood in the streets!