Stock Vs Real Estate

[obaco]

Real estate is great but stock can still be good. I have a friend who bought 50,000 shares of UPL (Ultra Petroleum) in 1998 at 46 cents and today it is worth more than $3.5 million. Cool $3.5 million. Are there deals in real estate that can give such a return? I know that you can made quick tens of thousands $$$ in real Estate but over time, good stock bought cheap can provide tremendous upside.

BTW, this is an awesome site!!!

[jbaldwin]

You're friends story is a great story, but for each one of those there is a huge number of people who have rolled the dice and lost.  Don't get me wrong, it can happen in RE also, but I would argue that the chances are much, much slimmer.  The one thing about RE I love is the fact that I'm controlling my own money.  Even if you are a day-trader you are putting your money in the hands of another company's manager, that kind of scares me.  "Are there deals in real estate that can give such a return?"  Of course!!!  Donald Trump bought one of his properties for $40mil and today it's worth over $400 million, that dwarfs what you're friend was able to do.

"...over time, good stock bought cheap can provide tremendous upside." - Yeah, so can RE!!  Anyone who is realistic about things knows this isn't a get rich quick business.

[phlemboy]

What I like about RE is the fact you can get someone else to pay for 80-90% of the cost and reap the full 100% of the rewards. Especially when its paid off. With stocks, you have to put in a lot of your own money continually over time in a volatile area. RE is stable. That's why banks like to use it for collateral. If I plunk down $10,000 on a property and it generates $200/ mo. cashflow, that's a 24% ROI!! What if I got the same casfflow with 100% financing?? Infinite ROI!!!!! Yippee!! It's appreciation is relatively predictable. Also, you have direct control over management and improvement. You can roll up your sleeves and put some sweat equity into it. O.K I'm done... I'm there's more....

[obaco]

The key is diversification. I am sure some of the folks in BUSH country seeing their house values drop wouldn't agree with you. Real estate can be good when there is a boom. The stability is great and the leverage is the best. However, do not put all you eggs in one basket. I see real estate as a commodity like gold, copper, silver, uranium, etc. So diversify and you will be fine. I play all and enjoy the peace of mind. In terms of return, they all have their flavours, you can buy hundreds of thousands of good quality stock that worth millions in a year. It all depends on luck!  Do not close your eyes on stock yet. Remeber Warren Buffet! He made his billions from $10,000 he started with in stock investing. He still lives in the same house at Omaha.

[Bluemoon06]

Real estate is great but stock can still be good. I have a friend who bought 50,000 shares of UPL (Ultra Petroleum) in 1998 at 46 cents

obaco Why in 1998 did your buddy put $25,000 into UPL?  Can I use the same rational today and that rational will tell me to put $25,000 into another stock today so that I will get out $2million in 2, 3 or even 5 years.

I can tell you with each house that I buy how much it is worth.  I look at every other house just like it in the same neighborhood has sold for in the last 2 months and that is what this one will sell for once it is fixed up.  I know how much it will take to buy it and fix it up so I know when I buy the house how much I will make and if I should buy it or not.

With stocks nobody knows which stocks are going up.  Because nobody understands how stocks work.  So instead of saying we have no idea what these stocks are going to do we came up with this smart sounding word…diversification.  Diversification is only used when you have no idea what to do.  It is taking the shotgun approach and buying a bunch of it in hopes that more of it will go up than go down.

But if you know how to pick stocks that go up let me know and I would gladly buy stocks instead of these houses. 

[obaco]

I agree. The key here is diversification. George Bush has messed up the economy so badly that everything is crumbing even real estate that used to a safe cover. I was witching a TV show the other day where some residents in a new subdivision where crying because similar houses they bought 2 years ago are now being auctioned half the price by the same builder. Just because you have being so lucky in your REI deals, some people are sitting in negative equity and having sleepness nights right now. Again, the key here is diversification. Buy some good quality stock and also lots of real estate. The sky will be your limit!

[Bluemoon06]

some residents in a new subdivision where crying because similar houses they bought 2 years ago are now being auctioned half the price by the same builder.

Hi obaco The problem is they are talking about new houses.  You can’t invest in new houses unless you are the developer.  The value of a new house is not the price the houses are selling at it is the price that are being built for.  If a new neighborhood is selling houses for $100k they are building them for $70k.  The value of each house is actually $70k.  You see real estate is all about replacement cost.  If a house just like yours in the same neighborhood sold for $100k last month and $100k the month before the only way to replace that house in that neighborhood is to buy one for $100k.  In a new neighborhood you built a house for $70k and although you sold it for $100k, you can build another one just like it for $70k.  The value of that house is $70k.

Investments are all about control and that is why I like real estate as opposed to stocks.  I can control if I am going to make money or not with real estate.  In stocks nobody can tell if a stock is going up or down.  I don't need to diversify because I know what I am doing.  People only diversify if they have no idea what will work.  People don’t take several wives to make sure they end up with a good breeder.  They are attracted to a woman that has bilateral symmetry, good secondary sexual characteristics faces with features closer to the population average.  Why because those are indicators that she is likely to produce strong offspring.  If a person can’t attract a person with these features they diversify.  They play the field in hopes to pass their genes to the next generation.

[allagash]

With stocks nobody knows which stocks are going up.  Because nobody understands how stocks work.  So instead of saying we have no idea what these stocks are going to do we came up with this smart sounding word…diversification.  Diversification is only used when you have no idea what to do.  It is taking the shotgun approach and buying a bunch of it in hopes that more of it will go up than go down.

Bunch of bull.

A well chosen fund manager uses diversification at a much more sophisticated level than this.

-Mike

[obaco]

You can also make money in bad market by shorting stocks. Can you short a real estate?

[rookieNYC]

A well chosen fund manager uses diversification at a much more sophisticated level than this.


Very true......People should simply buy an index fund..Stock/mutual fund choosing is endless and mind boggling...The average investor will never hit it right choosing a particular stock/fund..I DO NOT believe *any* story I hear about these 0 to 1000 stock tales...

obaco
  Yes you can short real estate..You short sectors..If you had any inkling to what you are talking about you would know homebuilders,lenders,banks,reits,indexes,etf's,cef's and a gazillion other REAL ESTATE related equities were available for you to short...Which one to did you short at $100 and let me guess you covered it for a cool $1,000,000 before you came here....NICE PLAY !!!!!!!

[obaco]

Don't get me wrong. I am heavily invested in real estate and have made lots of money in RE than stock. Regardless, I still believe that an investor should play both to minimize risk.

[Bluemoon06]

With stocks nobody knows which stocks are going up.  Because nobody understands how stocks work.  So instead of saying we have no idea what these stocks are going to do we came up with this smart sounding word…diversification.  Diversification is only used when you have no idea what to do.  It is taking the shotgun approach and buying a bunch of it in hopes that more of it will go up than go down.

Bunch of bull.

A well chosen fund manager uses diversification at a much more sophisticated level than this.

-Mike

I am sorry, I guess I don't understand what diversification is.  Could you please explain it to me?

[allagash]

This Q & A with Fortune and Ken Heebner of CGM Funds is as good a definition I can think of:

http://money.cnn.com/2006/06/12/magazines/fortune/heebner2_retirementguide_fortune/index.htm

-Mike

[Bluemoon06]

This Q & A with Fortune and Ken Heebner of CGM Funds is as good a definition I can think of:

http://money.cnn.com/2006/06/12/magazines/fortune/heebner2_retirementguide_fortune/index.htm

-Mike

Good try Mike, I am an engineer, when I was in engineering school we could figure out when a professor or instructor got to a subject that they didn’t understand because all of a sudden they got really complicated and when you asked them to say it in plain English, they couldn’t.  That is why when a person says it is not as simple as that, they are either disingenuous or they really don't really understand.  The definition of diversification from the dictionary is the act or practice of investing in a variety of securities, so that a failure in or an economic slump affecting one of them will not be disastrous.  If it quacks like a duck it is a duck.  The only reason you would diversify is if you have no idea which stocks are going to go up and which are going to go down. 

It stands to reason that if there is somebody that knows which stocks are going up they would never diversify they would only buy the ones going up.  The reason they diversify is that they have no idea which ones those are.  There are free tools on the internet that can allocate my portfolio across a variety of industries and companies (and do just as well as this Heebner guy).  So why do we need these fund managers?  They are not investment guys they are allocators…allocators of my money.  That is why the only people getting rich in stocks are the professional salesmen (stock brokers and allocator fund managers.)

[allagash]

So your free internet tools will beat these 3 yr, 5 yr, 10 yr returns for CGM Focus:

http://money.cnn.com/quote/mutualfund/mutualfund.html?showpage=perform&symb=CGMFX&sid=44268

Yeah....right.

-Mike