Do you invest in stocks and other things? Why? - Posted by HR


#1

Posted by Redline on December 02, 1998 at 19:11:11:

idiot. Ohhh, ok. Now I get it.

Why don’t we talk about YOUR great fortune in RE or the stock market since you’re OH SO knowledgeable? Probably because you’re as clueless in reality as you appear to be on this board. If you have nothing constructive to offer here, then stop logging in.

Now for the sake of not taking up this whole board with inane messages to someone as ignorant as yourself this will be my last reply to you on this thread.

RL


#2

Do you invest in stocks and other things? Why? - Posted by HR

Posted by HR on December 01, 1998 at 16:29:40:

I just met with the 403(b) Valik representative for the corporation I work for. He informs me that I can sock away as much as 20% of my income into tax deferred savings accounts. Valik supports many mutual funds, with no capital gains when I move around in the plan from fund to fund, no tax till I retire, etc etc etc. Typical 403(b)plan. It all sounds good until I start running the numbers.

For instance, I considered socking away $500/month. That would decrease my taxable W2 income $6000/yr, and, assuming a GOOD market return of 20%, my $6000 will return $2400 by years end. Over the course of 10 years, assuming 20% compounded yearly returns (how’s that for generous assumptions?), I have $192,902.

Now let’s look at investing the money into re. My $500/month is worth $4320 at year’s end (6K X .28 tax bracket). Even with $4320, at a BARE minimum, I can do one rehab and make at least 10K. The $500 will serve as my carrying cost money (borrow $50K from my home equity, loan currently is 10%, 10% loan is 1% monthly repayment, 1% of 50k = $500/month). Let’s assume a worst case scenario and I don’t sell it in 6 months, but, God forbid, it takes a year. At the end of the year, I’m still 10K in profit as opposed to $2400 for similar dollars in pretax mutual funds with 20% returns. I’ve been overly generious with the mfunds and undergenerous with myself and the numbers STILL don’t work against re.

Question: why would I want to invest in the stock market? I’m not trying to be disrespectful; I really don’t get it. Can someone help me out?

A more realistic scenario is to consider 10% compounded returns on a 6K annual contribution. That works out to $111, 187 after ten years. Again, giving the benefit of the doubt, let’s tax that at 15% and I’m left with $94,508.95. Over ten years, I can take $43200 (500/month X 12 = 6k/annually x .28 =4320/yr X 10 years) and turn it into more than $95k. I even think I can turn $4K annually (plus annual profits) into more than $164K after 10 years (6K/yr X 20% compounded yearly X 10years = $192,902 X .15 tax bracket = $164K).

I don’t understand why a real estate investor would bother with the market. I don’t have to worry about market swings (and thus have fewer ulcers). I maintain complete control. I trust myself and not some nebulous salesman dressed as a broker. What am I missing?

I recognize that some astute investors hit a rising star stock and make a fortune. Let’s be real: that ain’t going to be me. If the stock market pros can’t beat a long term average of 12%, I don’t expect I will either. I also am not on the in on any companys. I also don’t have a lot of cash, so 10% won’t compound to much before 20 years (I’m 33 years old).

RE is called a get rich slow scheme; not compared to the market! The market is a scheme unlikely to generate any great returns. Why would I want to do this, if I can do better in re? Do you diversify? Why would you if you can get these consistent re returns?

Thanks for any advice!

HR


#3

Re: Wall Street vs. REI - Posted by Eric (NH)

Posted by Eric (NH) on December 01, 1998 at 22:28:33:

HR,

I have been pondering the same issue as have you, as I have been a bull market participant since 1994, although I also began REI eighteen months ago with the purchase of a condo, and sold it last month for a 90% cash-on-cash return. I am scheduled to close on a ten unit building later this month.

While even the more conservative REI books suggest that one can make more money with REI than with stocks, there is something to be said for diversification. In addition, if you plan on doing rehabbing (or even landlording), you have in a sense bought yourself a second job. So while the potential returns may be greater with REI, there is also something to be said for making 10-12% annually, tax-free, with minimal work. Just some thoughts from somewhat who believes in both REI and Wall Street.

Eric (NH)


#4

Do you invest in stocks and other things? Why? - Posted by Bud Branstetter

Posted by Bud Branstetter on December 01, 1998 at 20:47:18:

If an investor put in as much time learning the stock market as he has spent learning real estate I feel they would make as much money or more. Just listen to Wade Cook. It is being done. My son is doing simple covered calls and making 5% a month. What ever you use to generate money the end game is preserving it without expending effort or risk. That is where I feel real estate has an advantage. Notes are backed by real estate. If you follow Fabian’s mutual fund plan he has an 18 year record of averaging 17% annualized growth. I can live with that but it is the deal in real estate that makes it more enjoyable.


#5

Do you invest in stocks and other things? Why? - Posted by Eduardo (OR)

Posted by Eduardo (OR) on December 01, 1998 at 17:08:33:

I used to belong to one of the service clubs in my city along with a popular middle-aged stockbroker. He advised a lot of people in town on their stock portfolios. He knew I was into real estate “paper” and asked me to come by his office for a chat. I went down and it turned out he had a question about how to value a specific mortgage note he had an opportunity to buy. After helping him, I said something about his buying real estate secured notes when he sold stocks and bonds to his customers and he replied, “I can make more money investing in paper than I can in the market.” 'Nuff said! --Eduardo


#6

2 good reasons - Posted by HR

Posted by HR on December 02, 1998 at 07:03:00:

Eric and others,

Thanks for the thoughts. I agree: the best two reasons for me to invest in the market are diversification and the minimal time involvement. That makes sense. I guess the question now is what % to allocate to re and what to mutual funds.

I think this next year I may do a little experiment. I may drop 2-3K in the 403(b) to see what kind of returns I get, and see how I do at the end of '99 with real estate. I’ll look at time involvement, hassles, profits, fun, family needs, etc. and make a decision. I have a hunch, though, that re will come out WAY ahead.

In that case, my mutual funds may just become a minor retirement contingency fund that’s out there if I need it but that I don’t plan heavily on (kind of like social security). I still think re beats the market hands down. I don’t think re is as popular as the market because re investing isn’t as easily “sold” to the average joe and the average person lacks the knowledge to know that this great alternative exists!

I appreciate hearing what folks do regarding investing. It helps.

Thanks,

HR


#7

Re: Wall Street vs. REI - Posted by Mike M. (OH)

Posted by Mike M. (OH) on December 01, 1998 at 22:44:54:

I must agree wholeheartedly. Diversification is a great way to lower your overall risk factor. Successful RE investors know how to recognize a bargain. That’s the name of the game. Buy low sell high. You have ‘options’ in stocks and in RE. Only in RE you can lease and rent your investments to other people. I haven’t yet figured out how to do that with stocks.

I haven’t yet bought my first house. But it was really easy to drop a little in an online brokerage account. I’ve bought a few stocks and made a good 30% or so in the last few months watching my stocks at work everyday.

But here’s the real difference between REI and Wall Street: In REI, you don’t need ANY money to make money. And the return on $0 is infinity. That’s why I’ve started getting back into REI again, because I’m tired of living paycheck to paycheck. When you make enough money that you can basically retire and live off your investments, then your golden. You can make big money in REI pretty fast. After all, we see people here doing it all the time. That’s my motivation.

I believe in REI, and Wall Street. No one ever said diversification was bad.

Mike M.


#8

Re: Wall Street has less leg work - Posted by John (KS)

Posted by John (KS) on December 02, 1998 at 09:55:13:

This is all my opinion;

Dropping your money in the market, you just have to make a few calls, check the numbers a few times, and that is about it.

Dropping your money in RE, you have a lot more work to do, looking for, fixing up, marketing, showing, and selling your properties. Most will put more physical labor into REI, unless you are just the money man with someone else doing the leg work.

The harder “you” work in RE, the better your returns. In the market, you have no real control on your returns. I know there are ways to make better returns with covered calls and other stratagies with extensive research, I was was just adding my $.02.


#9

My head fell off on WallStreet - Posted by Redline

Posted by Redline on December 02, 1998 at 12:25:17:

Right. Investing on Wall Street takes LOTS of learning and practice. A large percent of the population mindlessly plunks down their money into mutual funds and expects to get wealthy in 20 years.
They want someone ELSE to manage their money. That’s plain stupid.

Did you know that 85-95% of mutual funds can’t even beat the S&P 500 year in/year out? So why bother with them?

My advice (as far as stock investing is) dabble in small caps, emerging markets, individual stocks as a hedge - but have your long term money invested in Index funds. They’ll beat 90% of funds out there over the long haul and they don’t take a PHD to understand

RL


#10

Re: My head fell off on WallStreet - Posted by Dan

Posted by Dan on December 02, 1998 at 15:13:53:

Are you serious? Have you ever really invested in the stock market or real estate? I agree that you have lost your head. It is obvious.


#11

Re: My head fell off on WallStreet - Posted by Redline

Posted by Redline on December 02, 1998 at 15:50:57:

Yes, I’m dead serious. Which part didn’t you understand?

The part that 90%+ of mutual funds haven’t done better than the S&P over the last 30+ years? Or …

The fact that people mindlessly throw money into under achieving mutual funds and then expect to get rich while someone ELSE manages their money? Or …

The fact that people MAY know something you don’t and that does not make them stupid or wrong - it just makes you insecure.

I work on Wall Street for an investment bank and I’ve had my realtors license for 1.5 years. I know a little bit about both. You should try learning sometime.

RL


#12

I understand now, youre a realtor, ok - Posted by Dan

Posted by Dan on December 02, 1998 at 17:02:24:

But again have you ever invested in stock or real estate? Why won’t you answer my question? I think I’ve seen you at that investment bank at night emptying those trash cans and sweeping the floor.

You probably know me too. I play football for the Cowbo…uh Redsk… uhhh … forty niners. I own the team and I’m the quarterback. I got into sports after being in the Reser…uhhh Arm… un Navy where I was an Capta… Admir…Uhhh Secretary of the Navy during the Gulf War. It was durng a USO tour that I met my wife Morgan Fairchild… yeah thats the ticket.