According to 2004 Forbes 400 list, Buffet's wealth was 41B, and Trump's 2.6B. uhmmm, 41B vs. 2.6B, I wonder where's the proof. And Trump even had more dough to start his empire than Buffet some 40 odd yrs ago. As a matter of fact, all top 10 on the Forbes list got their wealth from stocks.
wow, this argument keeps getting more and more ridiculous. assett classes go in and out of favor. just because an investor made money one way in the past, it doesn't prove that it's the best way to make money now or in the future. saying that the top 10 on the list got their wealth from stocks is irrelevant doesn't crown stocks as the best asset class. there's a lot more to it. the forbes top ten either started their own companies or bought controlling stakes. this allows them to shape the course of the company. The top ten richest people didn't just buy index funds, which are in a sense just "stocks". now if you're saying does it offer the most potential to own stock AND control the operations of a company? then the answer is probably 'yes'.
Having done both stock market related investments and investment real estate for years, I think I have a good vantage point to comment on both. First, let me say that usually when these threads start they are started by folks who have little to no knowledge regarding investment real estate. For instance, one of the typical assumptions about real estate investment is that the investor buys the property with the idea that it will appreciate, at which point he sells. Nothing could be further from the truth. Here's a simple recent example: I bought a house about one month ago for $31,000. This property, when fixed up, has a value of approximately $110,000. Now, to be sure, I have some fixing to do. The property needed a new roof. I hired a roofing crew to put the new roof on. Cost, $5K. I have some interior work that still needs to be done...cost will be approximately $10K. So by the time we are done, I will have about $46,000 in the house, plus let's say another $2K in miscellaneous costs like insurance, taxes, utilities, etc. So let's call it $48,000. Now let's assume I can't sell this house for $110,000. Let's say I sell it for $100,000...a 10% discount. Further, I'm going to have some costs of sale...let's say another $10K (it won't be this high but this makes it easy to figure). So in the end I will probably net something like $90,000 minimum to resell this property. No appreciation, no multiple bids for the property...just selling at a discount to move the property quick. The way I figure this this represents a profit of $42,000. This is 87% on the investment...a profit I will make is less than 6 months. Now, what did I have to do to make this? It's all in locating the property...and I have my feelers out in various parts of the community that leads to these types of deals periodically. I have cash, and I can buy quickly. I buy properties that have problems, from people who can't sell them. This property had a pet odor that the owner could not deal with, and people who looked at the property could not stand the smell. The odor made my roofers sick. This is why I could buy the property cheap. And of course, there are ways to deal with odors. Now, in my case I bought this property with my own cash. But how tough is it today to access cash on a credit line? It's not very uncommon to be able to borrow $50K cheaply and quickly at low cost. Now calculate your return. Now do a few of these deals per year with the credit line, and you start to talk about some pretty good dough. This type of deal takes very little time on my part. I have to get together with the seller to write the contract. I have to go to the title company to close. But I hire the roofer, the interior work, I hire a realtor to sell the place. Really, I don't do a whole lot...but it's all about know what, when, and how to do it. I have alot of experience in this. Now, you'll notice that no where in my example have I tried to forecast appreciation, or assumed anything other than what exists. This type of deal is one type of deal that the true investor in real estate does. Now, I also hold a bunch of investment real estate, houses and small apartment buildings. These were deals that I got huge rates of return on cash from the rental income. Not from appreciation. In other words, I penciled the deal out before I got into it, and figured my returns. Some deals I hold today I never had any cash in...so figure the percentage return on that. These properties I bought with the idea that the rental income was outstanding versus my investment. However, as it turned out, they have also appreciated significantly, plus many of these are now free and clear, paid for by tenants for me. Now I gotta tell you folks, the stock market just isn't that easy. Now, between you and me, my first love is the stock market, not real estate. But I have to say that I've worked a whole lot harder in the stock market than I ever did in real estate, with considerably more risk. Can you make money in real estate today? Of course. Just like you can make money in the stock market at any point. In real estate it simply takes knowing the value in your market, and then buying cheaper. It really isn't rocket science. You then need to know how to exit your deal. But the profit is in the buying...an old axiom in the real estate business. Do not ever assume that the pros in real estate are speculating on appreciation in real estate. I don't know a single pro in real estate who does this. Most guys I know make their profit going into the deal...similar to the deal I described above. Most of them are using credit lines for their activities. Now, I will also tell you that like any other business...you need to educate yourself. The ability to make money in real estate requires knowledge, just like the ability to make money in the stock market. OldTrader
OldTrader, what's the name of your book? I wanna buy it! Do such huge pricing inefficiencies like that really exist? I could understand, say, 10-20% under "true" market value, but sheesh, your example is $100 bills lying on the sidewalk but people aren't picking them up ('cos if they were really there, someone else already would have?). (But, umm, wouldn't it be smarter to keep quiet about your activities? Man, if I were you, I would be! Or does it injure your pride to have people knock real estate? )
Do you want to be a landlord, an appreciation speculator or a rehab artist? It all takes work. But Oldtrader is the exception because of his experience and Know-how. I do not believe that just anybody can do what OldTrader does with timing. Michael B.
You don't need a book from me....the book has already been written by William Nickerson, years ago. But yes, real estate is known for large pricing inefficiencies. Typically they exist when there is a problem with the house, or a problem with the owner. Think about it, if a house needs major work, it in all likelihood cannot be financed with a loan. That rules out most of the retail buyers. Even if they could buy it, how many retail buyers do you know who would want to or be qualified to perform major fixup on a property? Conversely, assume the owner needs to sell quickly because he has some type of problem. Again, this rules out most retail buyers because the loan process takes time. So the point is that when either of the above circumstances occurs, the real estate market becomes very inefficient. You have removed all but the professional type of buyer. And at that, all of the possible, interested buyers, may not know about the property in question, and so therefore, the pool of buyers at any point is quite small. I don't mind people "knocking" real estate. What I mind is incorrect information being disseminated. Just trying to point out that all real estate investors aren't involved in speculating on future appreciation. In fact, this would be the least knowledgeable real estate investor. OldTrader
I don't think "just anybody can do what I do" either. First, it takes knowledge. But the good news is that the knowledge is available. It isn't rocket science. And you would probably be surprised at how many people are doing it. OldTrader
Excellent Posts. If I may ask, what region of the country are you in, and if it is not a hot, highly competitive mkt, how much of your success would you say depends on that fact?
OldTrader, you maybe a veteran RE investor but I am sure the example you gave is one of an exceptional deal, the type of deal you find once every few years and you are still taking advantage of a red hot sizzling market even though you say you don't look for price appreciation. People who do this on credit are taking a big risk . It's difficult to know if there is something really wrong with the house, something that would make the cost of fixing it much higher. In your ex you did not mention how you were going to fix the odor problem. This could cost a lot more than you think. When you have experience in the construction and RE industry and have cash nothing bad can happen to you. But a lot of people without such experience think they can make easy money this way. And most of the real estate individual investors are the least sophisticated investors. My landlord in London chuckled when I said I was very happy if I made 30 % per annum, he could make 100% on a ahouse easy he said. I have friends investing in properties who had never heard the term "bubble". Plus and this is my personal opinion , the business of landlord in the residential market comes with a lot of hassles- and moral issues although I am sure not for most landlords. In a strong property market a landlord is always tempted to raise rents helping squeeze a little more working class people and this is how good returns are made isn't it? milking it as much as you can . You are not hurting anyone buying and selling stocks and bonds. You don't have to throw anyone in the streets to get a good return on your investment.
I'm in the midwest. Definitely not a hot market at this time. But it is a competitive market. The point is that in my market there are houses that are in various states of disrepair...such that if someone wants to sell one they have to discount it. In my market rents are decent relative to purchase price. I understand this is not the case in some markets. I would say most markets have houses that are in disrepair, and owners who are in trouble. The only question is how many buyers are looking for these deals. OldTrader