Why invest in real estate??

[Dan732]

Yes the downturns are great for buys, and some investors have to sell because they were counting on appreciation, rents, low ARM rates, winning the state lotto, etc etc. Also in a down marktet cash is king! Banks are not loose with the money in down markets, creative financing will get shut off. That is why a lot of people can not afford to buy in a down market.

[evergreen]

It all boils down to management. Serious investors should take courses in things like economics.

Like I said though, it is tough to get consistent long term yields on stocks. Getting 1-5% is not too rough but you could get this from other avenues with no risk. Getting 10% growth annually for a decade or more is harder.

Also there is the amount of capital needed. If you want 1000 shares of a solid stock that is $60 per share, you need $60,000 at your disposal.

You could go a more riskier route and day trade (should have 40k+ to even attempt). Now your money is at a greater risk. Sure, you could make thousands in a day (I've done it), but you can also lose thousands in a day.

If you have little capital, you are forced to be a small-time penny stock investor, where the risk is even greater and the rewards are lackluster.

If go to a fund, you will normally be charged if you want to pull your money out (and possible other fees). Typically you want to leave your money in the fund for at least 10 years to see positive gains. If you look at some of the more popular funds you will usually see decent 1 year gains, ok to negative 5 year gains, and 7-11% 10 year annual gains.

But I don't want to get on a debate about stocks. I have managed other people's money and netted them 300% returns in 12-24 months, and done well for myself over the years. Like any other market. There is money to made and lost. Choose wisely.

I won't lie. The market is fun and can be highly addictive, even if you are a very small player (IE $10,000 or less). Nothing like making a good earning before lunch. Of course, nothing like having a really bad day. It is the ultimate play on emotional control. Can you sell your stocks and take a $1000 loss on the day? Or will try to hold and end up losing $3000?

The real money for non-instituational investors is made in between the ticks. Get in, get profit, get out. I will give you an example.

Stock ABC is down on the year. It is going to go up, you know this. It is currently at $5.75 per share. You and a friend have it targeted at potentially $8.00 by years end. You are more experienced than your friend. He buys 1000 shares at $5.75 and is going to wait until it hits $7.50 to sell.

You buy your 1000 shares as well and put in an order to sell at $6.75. Trading is up and down and at 2:38pm the stock hits 7 1/8. Your order was executed. You made $1,250 less fees. Closing bell sounds and the stock is sitting at $6.5. The next day comes and at 11:09am the stock hits $6.25. You buy 1000 shares again. Again you put in a sell order, this time for $7.00. Trading is fierce and for a brief moment around 3:00 pm, the stock goes up to 7 1/4. Your order was executed. You made $750 less fees. The stock closed at $7.

4 months goes buy and the stock finally climbs over $750. Your friend cashes out $1750, what you made in those 2 days. In that 4 months span, you played with the stock some more and had many more hits.

Just a simple example. Many low priced stocks like this don't move that much but they can. The higher you go up the ladder, the more chances there are to move.

For example, a 25 cent move on a $1 stock is 25%, but on a $10 stock, it is only 2.5%, and only 1.25% on a $20 stock.

If you had $10,000 and bought 1000 shares of a $10 stock and got just a 25 cent swing, that is $250. Of course, there is the bid and ask, but I am not going to go in detail on buying stocks. Just as well, you would LOSE $250 with a 25 cent swing.

[BoboTheKing]

From a risk/reward perspective, stocks are a terrible risk. They tie your money up, and they are extremely volatile and unpredictable. If you want to make money, you have to sell them. It may be ok for some, but it's not for me. At least with real estate, you make money and keep the investment at the same time. You don't have to sell your real estate to make money from it. Even when you just buy a residence, and live in it, you make money.

[Dan732]

Great stocks pay dividends. You just have to know how to pick them, just like Real Estate. Right now you can buy a home in Buffalo for about $500, fix it up for 50K and sell it for 30K WOOO HOOO Look at all the money I made! There are bad deals in Real Estate just like any other investment out there.

Remember I am starting to here a lot of people cheering Real Estate as the best investment ever, just like poeple did in the late 90's/early 2000 about tech stocks. I am hearing the market is different, a new economy, you can live in a house, land is limited, Real Estate never goes down, if it does buy more and so on. The only thing that is true about the above statement is that you can live in a house. But primary residences are not investments, it is a place to live, you do not make money every month with a primary residence. You have to pay taxes, insurance, utilities, and mainenance. If it appreciates a great deal, sell it and move to a cheaper location. Your commute might be longer, gas isn't getting cheaper, you might even have to find a new job, schools might be worse, the neighborhood might be rougher. But you made a quick short term gain!

[BoboTheKing]

When I said "even when you buy a residence and live in it, you make money", I didn't mean that you make money as in income. I meant that you make money as in appreciation, without actually buying it for that reason. I don't buy my residence for appreciation, I buy it because I want to live there. The appreciation is a bonus. The bills you pay to live in a house, you pay no matter what. I dont consider utilities, taxes insurance etc as taking away form anything, you have to pay those bills to live. The house will appreciate sooner or alter, they always do. That is what I meant by making money. You make it without doing anything other than something we all do...living in a residence.

As for comparing the stock market to real estate investing, it's apples and oranges, but I know if I can pick one or the other, I'll take real estate every time. Some might disagree, as is their perogative, but the stock market is too risky for me compared to the rewards. I feel you have much more control over your money investing in real estate, as long as you don't run in with your eyes closed. From a leverage perspective, there is no comparison. But the people who want to invest in the stock market, if you think you can make money, go for it. It's just not for me.

[wallacehobbs]

Hi there,

I was just curious as to why you would invest in real estate?  Other than the money, what is the allure or the benefits that really appeal to you or convinced you that real estate was what you wanted to do?

Thanks in advance,

Kris

Hi Kris,

Very nice to meet you.

My short answer would be "Why Not"  :D

I have a passion for Real Estate and Love what I do.

Any really serious full time investor will tell you just like me the money is not important.  It is what we love to do and the money is just a by product of what we enjoy doing.

I also feel Real Estate is the most IDEAL investment.

Here is a good way to remember that.

I = Income from your tennants

D = Depreciation for taxes

E = Equity Build up

A =  Appreciation of your property values

L = Leverage of other peoples money, effort, and brains

Now, its time for you to Take Action and get started!    

[Dan732]

Hi Kris,

Very nice to meet you.

My short answer would be "Why Not"  :D

I have a passion for Real Estate and Love what I do.

Any really serious full time investor will tell you just like me the money is not important.  It is what we love to do and the money is just a by product of what we enjoy doing.

I also feel Real Estate is the most IDEAL investment.

Here is a good way to remember that.

I = Income from your tennants

D = Depreciation for taxes

E = Equity Build up

A =  Appreciation of your property values

L = Leverage of other peoples money, effort, and brains

Now, its time for you to Take Action and get started!    

Jump in kid! Go buy the first thing the nice Realtor lady shows you! It can only go up! The market is different here! They aint making anymore land! Real Estate never goes down! Having Tenants are great they pay on time, keep the place clean, everything is wonderful! So what do you say kid? I have a nice duplex that went up 200% over the past five years, it can only go up!It's a great bargain, because it will go up another 400% in two years, hurry this deal won't last! Don't have the cash, take out a pick-a-payment loan, they are great!

Everything looks great through rose tinted glasses!

[wallacehobbs]

Jump in kid! Go buy the first thing the nice Realtor lady shows you! It can only go up! The market is different here! They aint making anymore land! Real Estate never goes down! Having Tenants are great they pay on time, keep the place clean, everything is wonderful! So what do you say kid? I have a nice duplex that went up 200% over the past five years, it can only go up!It's a great bargain, because it will go up another 400% in two years, hurry this deal won't last! Don't have the cash, take out a pick-a-payment loan, they are great!

Everything looks great through rose tinted glasses!

Wow, Dan.

I hope you are not telling Kris this as being serious.  

What you are saying is not all true.

First:  Investors most times do not buy from a Realtor and pay retail.

Real Estate can as does go down, which does not matter if you are educated in REI.  You make money when you buy and get paid when you sell.

Tennants are only as good as you or your Property Manager screens them.  Don't manage your own properties.

As far as your duplex you are selling, what the NOI and ROI on it and full details on it, and I will let you know my opinion on it.

Also, good deals are like the bus, if you miss one there is another comming.

Dan, "Education does not cost it pays"

Mine is paying me everyday.  I suggest to get all you can and learn all you can.

If  you are serious at all about being a Real Estate Investor  you may consider becomming a member of a local REI club.

You don't know what you don't know.

I do wish you to you Good Luck and hope you are a success.  

Always Expect Success,

[kdhastedt]

Wallace,

You don't read many of Dan's posts, I guess...this was sarcasm...

Keith

[wallacehobbs]

Keith,

Thanks, at the time of my response I did not know that.

You never know what people believe.  I did not want Kris to think it was as roses, but I did not want to cripple Kris with fear either.

After reading the last 10 post from Dan, I see the sarcasm.  :

Which I repsect his right to say what he wishes.

After 16 yrs in the Army, I have protected the freedom of speech and the press many times.

Thank for your feedback and I always look forward to your post.  

Expect Success,

[Valgolas]

Hello, Wallace!

Sounds like you know Peter Fortunato and Jack Miller with that "IDEAL" thing.

Real Estate does have many advantages over stocks that Dan may be overlooking, as you and the others have been trying to point out to Kris.

Everyone needs a place to live, but nobody needs to own a stock certificate.  Housing serves a basic survival function that is not easily outsourced to China.

Real Estate is about the only investment that I know about that will pay for itself, if you buy it right.

Real Estate is also an inefficient market.  That is, each property is unique and the values are in many ways subjective.  It is sometimes possible to find a bargain purchase in real estate because the information on values is not precise and widely know.  Try that with listed stocks.

Negotiation is the highest paid skill in the world.  Use this skill in real estate, and you can make thousands of dollars per hour wagging your tongue.  Try that with listed stocks.


PS:  Thank you for your service to our country!

[TamiSpartan]

Wallace -- thank you for your service to our great country!

My personal opinion is inline with Dan's: everyone should diversify their investments. I worked for an elite money manager for years and I traded everyone else's millions for a living. I took the time to learn what these managers were doing and put my money where they did. That took care of the mutual fund/stock aspect. Then I went to work for a huge corporation, investing as much as they would allow in their 401k and purchasing their stock at a discount for five years until they laid off my entire department.

Then I had to make a decision, and I knew in my heart, I couldn't achieve my financial goals working for someone else. I've always been interested in Real Estate, so that is where my heart went. Before I was laid off, I took some classes, got my RE license (which I did not activate it, but aced the test) and then got myself back into the RE Investment world. (We were doing this fifteen years ago and stopped because we were too busy working for everyone else.) And believe me, you can lose money in real estate, lots of it. I've been there -- a downturn is ugly if you aren't leveraged properly.

Why invest in real estate? You have to want to do this business. If you LOVE real estate before you start, you are patient, know your market, know what you are doing with rehabbing (or very willing to learn fast), you can make some money -- but be prepared for it to be work. I agree with everyone here who has posted that it takes time. If you choose to go into Real Estate you will be earning your money. We are watching TV shows and hearing constantly about thousands of dollars being made overnight (or in 12 weeks instead of six LOL), that isn't the norm.

You can definitely make money -- but you will be earning it -- and, a passion for what you are doing is required. If you don't have it, stay away -- it can get away from you very quickly.

Just my two cents.

[evergreen]

I wanted to add that we also need to pause and clarify here. With Real Estate there are many ways to make money. So it is not right to see that investing in RE is always better than X. For example, investing the X way might be better than say trying to rehab old duplexes in poor areas of the country. Not sure you would even bother.

I think too many people suffer from the IN THE BOX syndrome. They see RE from where they live and assume it is that way everywhere.

Buying stock for dividends is one way to go. Again, you need money. Let's pick a random stock we all know, GE. They paid a dividend of 22 cents per quarter so far this year. At the end of the year, that makes 88 cents per share. The stock is currently at $35 and fluctuated between 31 and 37 over the year. If you bought at $35 and held, you are making dividend money only. 88 cents comes out to a 2.5% gain on your investment. Now, if you had 100k in CASH, you would have 2,857 shares. Your gain for the year would be $2,514.16.

If you owned the GE stock at $35, and it goes to $34, you lose $2,857. Don't forget, you have $100,000 of your cash in the investment--100%.

So, if I own $1,000,000 in GE stock, again it will take me going full boat basically, I will make a cool $28k a year. Why not just buy a CD?

In stocks, to make real money, not the 10's and 20's, you either need to increase your risk (IE day trade) or have a lot of capital to begin with (IE Warren Buffet).

Still, to each his/her own. I think when you are talking about very small amounts of money (IE $20k or less annually), there are many ways to make that in many markets. As you step up, Real Estate starts to stand out on its own, especially when you are talking about building wealth and not just making money.

[ginasands]

THE REAL ESTATE BUBBLE OF 2005?

'What Donald Trump has to say about the latest business
opportunities found in Real Estate Investing.'


Have you ever wanted to become a millionaire?
 
If so - and, if you live in the United States, there is now a
very REAL chance for you to enjoy the same opportunities
as Donald Trump.

You don't need to invest in real estate to be wealthy. But, by
and large it is the easiest, most leveraged way to build real,
sustainable wealth. With mortgage rates at an all time low and
tax laws favoring real estate holdings, now is an ideal time to
profit from the greatest real estate gold rush in history.

Marriage, job changes, divorce, new families, death -- the
average American moves every five to six years. And with that
constant stream of movement across the United States, more
than 12 million homes are bought and sold every year. Many of
these will be great deals that you, yourself, could be profiting
from.

The very same principles that make Donald Trump a fortune
with New York City skyscrapers will work for the average
investor, no matter what size the property.

So precisely what can the small real estate investor learn from
a billionaire wheeler- dealer like Donald Trump?  

According to George Ross, Executive Vice President and Senior Counsel for the Trump Organization (and, of course, Apprentice co-star), one of the cornerstones of Trump's philosophy is
 "Improve any location."  

And that's just what Trump did in his very first real estate deal
on a foreclosure of a 1,200 unit apartment complex in Cincinnati,
Ohio. Without a penny invested, Donald and his father, Fred,  
were able to turn the apartment complex around by doing some
remodeling and taking a tough stance on rent collection.

In the single most valuable lesson in Donald Trump's real estate
career, he learned how the government would assist buyers in
purchasing property with little or no financial backing and how
to get such aid. His passion for real estate grew from there and
he went on to create the strategies and systems that turned his
business into an empire.

"Deals are my art form. Other people paint beautifully on canvas
or write wonderful poetry. I like making deals, preferably big
deals. That's how I get my kicks."

In New York City, the Trump signature is now synonymous with
the renowned Trump Tower, The Trump International Hotel &
Tower, The Trump Park Avenue and the Trump Building at 40 Wall
Street. He also owns golf courses in 4 states, and current projects
include the building of the biggest development ever approved by
the NYC Planning Commission .

Ranked #228 on Fortune Magazine's list of the world's billionaires,
Trump stated: "Real estate is at the core of almost every business,
and it's certainly at the core of most people's wealth. In order to
build your wealth and improve your business smarts, you need to
know about real estate."

The most obvious problem that confronts many would-be investors
is lack of know-how and/or financial resources.  Common sense
would dictate that wanting to make money in real estate is simply
not enough. Knowing how to get it is the real key to success. Like
any other profitable business, it takes a proven business system.

In Trump: The Art Of The Deal, 'The Donald' gives his own assessment:

"If you take care of the downside, the upside will take care of itself.
In other words, if you have a contingency plan for everything that can go wrong, you can't help but succeed."

Real estate represents a tangible asset that can not be deflated.  Real estate will outperform any other investment over time.
again;

"Real estate is at the core of almost every business,
and it's certainly at the core of most people's wealth. In order to
build your wealth and improve your business smarts, you need to
know about real estate."

[Dan732]

"Everyone needs a place to live, but nobody needs to own a stock certificate.  Housing serves a basic survival function that is not easily outsourced to China."

Okay explain this, if there are too many places to live, than why would Real Estate continue to appreciate? Also what good are homes in the USA if all the jobs are in China? That is one heck of a commute!