Posted by MichaelR (NoVA) on December 21, 1999 at 17:35:02:
Just a thought…
The same thing holds in any investment situation. If you only have the knowledge to make money in REI during an upturn in the market, you may, in fact, lose your shirt in the downturn.
People who understand their investments and how to use them make money whether the market goes up or down (assuming they don’t wait out certain market phases), and always have…regardless of the venue.
Regards,
Michael
Okay, you win. The stock market is better. - Posted by Stacy (AZ)
Posted by Stacy (AZ) on December 21, 1999 at 15:21:19:
I had a conversation with a friend today who invests exclusively in the stock market. We’ve had heated debates in the past about real estate investing versus stocks. I usually hand him all the" theory" I know about the inherent risks in stock market investing, and we usually end up at logger-heads, each convinced the other is wrong.
It’s not that I think putting all your eggs in one basket is a good idea. Diversifications is a wise strategy. However, my ideas of how much to “emphisize” stock investing in anyone’s portfolio are much different than his. He invests exclusively in stocks, and mainly for the long term. I currently invest almost exclusively in real estate, mainly for the short term.
Today he told me about how his past year of stock investing has gone. It has done extremely well. Most of his stocks are in self-directed IRAs, so his tax bite is very small, now. Anyway, after hearing about the phenomenal year he’s had, and comparing it to my year, I feel a little like the wind has gone out of my sails.
I’ve spent countless hours researching properties, speaking to title people, realtors, buyers, sellers, appraisers, loan reps, performing due diligence, driving all over town…all the things RE investors must do (while also working full-time), and have made a pretty fair return. He, on the other hand, reads the newpaper, listens to business news reports, and buys stocks on the internet. And he made three times the return I did. I know the theory. But these are the hard facts. I have other friends that are doing very well in the stock market; his case is not all that special.
It makes me wonder; Am I in the wrong game?
Certainly is food for thought.
Stacy
Sounds a lot like the tortoise and the hare to me… - Posted by peyton lewis
Posted by peyton lewis on December 24, 1999 at 11:00:53:
as in, the one in the stock market portraying the hare. 1929-1932 was an interesting time period in history. But what most people don’t realize is, there were actually a few millionaires made during this same time period. Guess what? When everyone else felt the sky was falling, those guys were out there buying real estate…dirt cheap…and offering interesting long term leases to credit tenants in commercial buildings.
Control your destiny, don’t let it control you…
Re: Okay, you win. The stock market is better. - Posted by Redline
Posted by Redline on December 23, 1999 at 14:11:43:
I’m with Rob and Piper on this one …
Trust me, I work for an investment bank in NYC and even the shoe-shine boys here have stories about making $50,000 in an afternoon off an internet stock. Maybe they have. Hell, I myself have made an 85% return on an internet fund since June of this year. Not bad. Also if you invested $10,000 in Qualcomm (QCOM) in Dec of 98 you would now have about $170,000 this year. Even better! If you’d invested - would it have made you a genius? Not at all - It would just mean you were in the right place at the right time. The market is hotter than it’s EVER Been = but like all good things it too will eventually come to an end.
Personally, I believe there are more ways in total to make money in RE in both UP and DOWN markets for the long term.
I myself plan on making money in RE long term - but I also will have money invested in the markets in things I don’t have to think much about (index funds, good blue chips, etc).
Good luck,
RL
Re: Okay, you win. The stock market is better. - Posted by JPiper
Posted by JPiper on December 23, 1999 at 09:05:57:
I could have written a book on this question?.fortunately for you I decided not to.
One thing though is clear. You?re not comparing apples to apples?as Rob mentioned below. Flipping with no money invested is an infinite rate of return. How did you compare that??? All this presupposes that you have money to invest in the stock market. As other have mentioned, it does take cash.
If you really wanted to make a valid and objective comparison, you need to think about how you compare. Understand that the last 5 years in the stock market is the top period in history. If you and your friend believe these types of returns will continue indefinitely into the future you?re both on drugs. It?s worth pointing out that approx. 70% of all stocks are BELOW where they started in January of 1999. The implication is that your friend has thrown caution to the wind and is heavily invested in technology, internet, etc. Come back in 5 years and tell us how your friend is doing. Just for a standard, Warren Buffet is by far the most successful stock investor that any of us know. He?s made about $50billion in the market for himself. If I?m not mistaken his compounded annual rate of return is 25%. Something to think about when you start looking at your friends ?returns?. There?s an old saying in the stock market ?Genius is a rising market.? There?s a lot of great stories out there?.the question is whether these are truly long term stories or whether these stories simply reflect a VERY unusual period of stock market history.
Now compare these rates of return with the buy/hold strategy in real estate. Use a market that has had exceptional rates of return. Now you?re comparing apples to apples. One thing for sure?I can remember a time not so long ago when EVERYONE was playing the real estate market?.and NO ONE was playing the stock market. Chasing the hottest market around is a good way to loose you?re a*s?..hopefully you don?t need to learn that particular lesson.
By the way, one result of diversification is AVERAGE performance. Something to ponder. Bill Gates doesn?t look too diversified to me. Perhaps you need to rethink some of your financial beliefs.
All in all, if you really believe it?s possible to make HUGE rates of return by reading the newspaper and watching a business show on TV, then go for it. Just keep in mind that the market you?ll be investing in has literally no relationship to historical measures of value?..book value, dividend yields, PE ratios, etc. And one of the areas you?ll need to invest in for performance is the internet area?.and area where most of the companies have never made a dime. Is it a new era? Let me know in a few years.
JPiper
The people who MAKE the money on WallStreet are… - Posted by Oliver Stewart
Posted by Oliver Stewart on December 22, 1999 at 22:09:38:
issuer’s of stock (IPO) and brokers (not all or most).
The companies take the Other People’s Money and fulfill there dream or fail. Either way they ususally come ut way ahead. Before Rich Dad, Poor Dad there was Liar’s Poker. Read it. It’s Great. Both are just vehicles to get you where you want to be. The sad part most people don’t know where they want to be. They just want to be RICH.
Let’s not forget the advantages of having a corp… - Posted by Chris (FL)
Posted by Chris (FL) on December 22, 1999 at 12:40:33:
and all the good pre-tax things that it brings. And let’s keep in mind 1031 exchanges - I know of no equivalent in equities. Also . options on R.E. in one’s self directed roth IRA , where one may attain staggering % gains tax free.
I like Ben’s point as well; in real estate , one is an active participant that has some controll over the outcome. You are the dealmaker. With stocks , one bets on the ability of dealmakers to execute their plans with your knowledge as an outsider. And if one does get a nugget of inside information , one may get into hot water if one acts on it.
Also , someone made a good point that it’s hard to play stocks and win anything meaningfull with no money or next to no money down.
On the other hand , if one has capital , there’s nothing like buying a block of a quality business and pretty much forget about it for a number of years. The liquidity is a BIG plus as well.
What’s better in my non-expert opinion ? Well , I prefer to think of each as complementing the other , but if I had to choose to participate in one to the exclusion of the other - I’d pick real estate.
My .02 - Posted by Mark (SDCA)
Posted by Mark (SDCA) on December 22, 1999 at 10:18:44:
There are 2 basic reasons why I think REI is the best investment there is:
Leverage- Where else can you get 10:1 leverage any day of the week and better than that if you really look for it. Leverage on the stock market is pretty much limited to 2:1 unless you get into options. And when was the last time you got a margin call on a rental property?
Tax Advantages- The stock market is at best tax neutral. With depreciation, buy and hold REI is better than that. Far better than that. Here is my one piece of advice for you. You say you are in REI mostly for the short term, and I have read some of your posts. It sounds like you are doing great with your flips. Buy something to keep. I think buy and hold r.e. is the best wealth building machine there is.
Cheers,
Mark
Apples and Oranges - Posted by Rob FL
Posted by Rob FL on December 22, 1999 at 08:06:20:
Both are a good way to invest, I made decent $ in both this year. And with the creation of the internet it is so easy to buy and sell.
As Robert Kiyosaki said on one of his tapes, IRAs are not really an investment, they are actually a savings account. Your friend can’t take the money out of an IRA until he is 59 1/2 unless he wants to pay a hefty tax penalty. How many Christmas presents can your friend buy with the money in his IRA ???
The big difference between the stock market and RE is (1) how you make $ and (2) control. In the stock market the only way you usually make money is by having money. You have to be able to afford the stocks or the mutual fund before you can buy into it. With RE you can do flips, L/O, MH, etc. with little if any of your own money. Also stocks only make $ by virtue of capital gains (unless you own a TON of them and a dividend gets declared). On the other hand RE can make money in 101 different ways including rentals, notes, rehabs, flips, L/O, foreclosures, construction, etc. And your money isn’t always just capital gains, you can earn money from CASHFLOW. Every year at Christmas time, wife and I take a “Christmas bonus” from our rental properties and notes. It is a nice feeling to know that thanks to RE deals done in the past that it is December 22 and Christmas is paid for. How much cashflow did I get from my stock market account? Zero. The only time it makes money is when a stock gets sold. No monthly cashflow.
While your friend keeps investing in stocks and gets the pot of gold at age 59 1/2, you and others here can get the pot of gold within a few months or a few years. I plan on both. I have a 401K with my job and this bull market has sent it through the roof, on the other hand I don’t feel like waiting 30 more years to collect it. I would rather have cashflow and cash in the bank today as opposed to a pile of cash 30 years from now.
The main difference… - Posted by Ben
Posted by Ben on December 22, 1999 at 07:42:46:
in RE you have influence over the outcome. This is absolutely crucial if things go wrong. With stock,
unless you plan on doing a hostile takeover of the company when your shares are underperforming, you are pretty much stuck watching your investment go south. I
invest in both but admit I am powerless in the stock market when things go sour.
Re: Stock or RE - you still buy low sell high - Posted by Millie I.
Posted by Millie I. on December 22, 1999 at 24:27:12:
How well you do in RE or stock has a lot to do with your level of expertise in the area (knowing when to buy and sell ).
Some people make a lot of money in stocks while others are losing. Same thing happens with real estate. It’s not what you do, it’s who you are and how you approach it.
If I remember your background correctly Stacy, you should have no trouble doing very well in both. Your biggest investment is your TIME, the better you know your market ( stock or RE ), the better the results.
I invest in both stocks and RE, most of my time is spent in RE, so my stock investments are less aggressive, but I did well this year.
Have a Merry Christmas,
Millie I.
Re: Okay, you win. The stock market is better. - Posted by DD
Posted by DD on December 21, 1999 at 23:13:05:
The characteristics of the stock market are uncannily similar to the days/months before 1929. Hmmmm…
Re: Okay, you win. The stock market is better. - Posted by Peter
Posted by Peter on December 21, 1999 at 22:55:46:
Stacy…As you know the stock market is up and down.
I have both REI and stocks. My stocks earnings this year have pasted my REI earnings. I earned $200,000
with NO headaches like tenants n toilets…but as you know all good things must come to an end eventaully.
happy holidays and happy investing !
if you don`t need life time cashflow…stocks are better (nt) - Posted by al
Posted by al on December 21, 1999 at 21:44:24:
nt
As my friend says… - Posted by Tim Jensen
Posted by Tim Jensen on December 21, 1999 at 21:40:13:
The grass is always greener on the other side of the fence…until you have to mow it!
Re: Okay, you win. The stock market is better. - Posted by Eduardo (OR)
Posted by Eduardo (OR) on December 21, 1999 at 20:19:11:
Stacy–
“I know a guy who trades in diamonds and made oodles of money last year. I guess I’ll sell my stocks and bonds and get into precious stones.”
“But, I talked to a lady who said she makes tons of money on e-bay auctions. She goes around to garage sales and flea markets and buys cheap junk and sells it on the internet. She made $XXXXX.XX last year.”
“Then there is this guy that buys cars wholesale in Vegas and takes them to Oregon and resells them…for tons more.”
“And, the one that looks up names on Unclaimed Property sites and tracks down missing owners and heirs and takes a cut of what they recover.”
“And,…”
Get the point? It doesn’t matter what you do so long as A. You know what you’re doing (this literally takes years to learn no matter what it is), B. You enjoy it, and C. You make money doing it. As far as this last is concerned, I’d rather make fewer dollars with sense of confidence and sureness that I know what I’m doing and nobody can fake me out than be greedy and pour my money into something on someone else’s recommendation with no sense of control over what may happen next. Good luck! --Eduardo
Re: Aren’t we forgetting something!!! - Posted by Ron-Va
Posted by Ron-Va on December 21, 1999 at 17:21:29:
Unless I am mistaken.
It takes money to make money in the stock market. Forget the argument of which is best, they are both good for now anyway, when things turn in the stock market, if they do, you can have this argument again.
But with this real estate business I did a deal with $0.00 and did a quick flip on a small property and made $1,500.00 with very little time invested and will complete another next week and make about $2,500.00 again with no money invested with no risk.
Can you do that in the stock market??? If you can put me down for oh… say a million shares.
My thoughts, but don’t forget to keep our minds open to all avenues that is what makes us money.
Happy Investing, (Stock or real estate)
Ron
And when the Market stumbles… - Posted by Bassman
Posted by Bassman on December 21, 1999 at 16:43:42:
and people start losing there shirts(and houses) the people with the knowldge how to handle Real Estate situations will overcome. no matter what happens, good market , bad market, the person who knows how to handle themselves in turmoil always prevail.
I,m glad for your friend, but… all good things must come to an end. The market always makes adjustments,always.This stock market is highly inflated
and will make a course adjustment sooner or later.
If you have money that you can afford to lose, play the market also.But don’t rely on it to make you a Billionare.
Just my thoughts.
Scott
Re: Okay, you win. The stock market is better. - Posted by Thom
Posted by Thom on December 21, 1999 at 16:24:29:
In July of 1999 I had $15,000 in the stock market. I pulled that money out, I placed another $5,000 with it and bought a 4 unit apartment house.
Today: 4 plex worth (on paper) $50,000 more that I bought it for, plus I have a $600 a month positive cash flow. (not bad for a $20,000 investment) The stock that I sold is worth $2451 less than it was when I sold it. (moral: stick with what you know)
I like Real Estate better! - Posted by David
Posted by David on December 21, 1999 at 16:23:08:
I do. I even know somebody who has made a million on microsoft and I still say I like real estate. I have bought/sold/rented/remodeled/subdivided/etc real estate for the last 24 years.
I like the self control. I like controling my own destiny and I like being in control rather than a flea on the tail of the dog microsoft. The market has enjoyed the longest bull market in history, the the day of reckoning will come some day. Real estate has cycles too. But in 1980/1981 when interest rates were 15-18%, I was still buying, selling and renting real estate. People still needed places to live even when 50% of the real estate agents quit the business, In fact there were some fantastic deals for buyers then when everybody wanted to sell and nobody wanted to buy. So even if there is a real estate down turn I’ll still be there and here. When the stock market goes down you have little choices of what to do. Just hang on to that tail for the ride.
David