LIQUIDITY: You can exit ALL of your futures positions and go to 100% cash, in one business day. Not true of real estate. LIQUIDITY: If you want to sell, you can find a willing buyer and get a firm price quote, in less than a millisecond. Ditto if you want to buy. Not true of real estate. LIQUIDITY: If you want to buy something that costs more than your available cash, you have available a pre-arranged loan (called "margin") that you can draw upon instantly, without any paperwork. In futures, these loans are interest-free and they allow approximately 5-10% down, the rest is financed. Not true of real estate. UNIFORMITY: All gold contracts are identical. All shares of Wal-Mart are identical. You don't need to personally inspect the investable item (or hire a potentially dubious contractor to do the inspection for you) before buying. Not true of real estate. COUNTERPARTY RISK: All transactions involve a middleman called the Exchange, who guarantees execution. If you're selling and suddenly the buyer changes her mind, it is the Exchange (not you) who gets screwed by the buyer. The Exchange completes your sell transaction (in a millisecond) at your price, and the Exchange (not you) initiates legal proceedings against the weaselly buyer. Not true of real estate. AVAILABILITY OF VAST AMOUNTS OF HISTORICAL DATA: The item you are considering buying or selling, has been bought and sold millions of times before. There are records available of these transactions (e.g. Yahoo Finance) that you can, if desired, analyze. Some practicioners ONLY analyze these prior transactions before making their buy/sell decisions. This is called Technical Analysis. Not true of real estate. INDEPENDENCE: If desired, you can buy/sell from your bedroom at midnight, without having to ever get dressed or meet with other people. Thus you can do this while also having a "regular day-job". Or as agpilot has mentioned, you can buy/sell even if you are confined to a sickroom. Seldom true of real estate. INTERNATIONALITY: You can easily buy/sell items in the US, Canada, the UK, the European Union, Australia, Japan, and others, without a passport or indeed without filling out extra paperwork. You aren't limited to those investable units which you can personally visit or send your friends/employees to visit. Not true of real estate.
This is a good question and one I ask myself everyday. Every single real estate deal that I have touched worked out extraordinarily and several that I passed on would have made me a multi millionaire, I really feel like I have excellent abilities with real estate investing. So why don't I do it more is a very good question. The first answer is that trading is more challenging and I guess that is what keeps me going at it. I love the process more then the outcome. I also don't know why but I always feel like real estate is way over priced, even 10 years ago I thought it was way to expensive for what you get. For the last 3 years I've been really thinking that valuations have gone nuts even here in Toronto which isn't even close to Nevada or Cali. I keep saying if the market tanks I will load up on real estate again but so far it's been a long expensive wait.
Itâs a good question. Iâm here working my A$$ off day in, day out trying to churn a living out of the market, while everyone else in my family is getting rich of real estate. At my family gathering for the 4th of July, I was getting sick listing to how much money everyoneâs making on his/her real estate. I felt like a chump. But hereâs the thing. Traders trade the markets instead of real estate because of the opportunity cost. A trader can hit the market everyday and try to make some money, but people investing in real estate may have to wait years or even decades to make money on their real estate. How much money could the trader have made during that time period? You have to factor in the opportunity costs.
How are they getting rich? They they get pre-con prices and are flipping or are they just going on about how much their house is worth? If it's the latter, then they are not getting rich unless they are selling their house on Miami Beach and are moving to Iowa. The run up in primary home prices is not wealth, it is just a burden on those who don't own. While their houses increase 14 to 28% per year, so are all the other houses in their area. What is interesting is that prices have reached a point in my area now where the $1MM+ homes don't have any buyers. A realtor was complaining that a listing for one of his own investment properties has been on the market for more than 14 days.... jee-wiz. I don't know much about real estate pricing. I was too young to remember or care about the last boom and face some RE issues myself now that I have recently moved. I find, however, that in my situation it is making more and more sense to rent and use my downpayment money to back more traders and expand my group. We'll see what will happen. I think there is still room for prices to go up though.
Let me just say first of all that if you don't know anyone who "built their wealth off the markets", it's not because they don't exist, or even because there are a small number. It's only because you don't know them. You could for example simply scan down the list of the Forbes 400 and see many who have made fortunes through finance. This is not to say though that real estate is not a source of wealth for people. Many of the posts here on real estate really illustrate the lack of knowledge that persists here on ET about real estate investment. Basically one way of making money in real estate is to buy it and hold it. Ever hear that one before in the stock market? However, there are people who flip, people who rehab, etc etc. One of the things though that real estate has an advantage in is that it is possible to deal with very little to none of your own money. You can deal with the banks money. And therefore, the potential is magnified. Further, real estate is not a homogeneous, fully informed type of market. In other words, one 3 bedroom house may sell for a different price than another for various reasons, to include motivation, etc etc, thus creating opportunities for an astute real estate investor with access to the banks money and the ability to move quickly. There are significant tax advantages to real estate versus stock investment, one of which is the 1031 exchange which allows the real estate investor to sell a property for a profit under certain circumstances as set forth in the IRS code, and purchase another property with the funds thereby deferring the tax on the profit. This allows a compounding effect that is not available in stock investing other than through an IRA type of account. That said, the two forms of investments are different types of games. In the stock market people tend to attempt to forecast the market direction in order to make profit. This is not necessarily what people do in real estate. Because the real estate market is imperfect, the investor may be able to buy a property at a discount to market value, and then resell it at market. This does not require the ability to "forecast" the market. I've always thought that real estate was an "easier" market to make money in, mostly because you can force the value of your real estate higher by improving it. Whereas stock market investment requires some degree of ability to forecast...an ability that is much more difficult for most of us. Then again, you have to appreciate the liquidity and variety of opportunity available in the stock market. And as one poster said, where else can you buy several contract of the ES and several minutes/hours later sell them for a few thousand profit? That you can't do in real estate. I've done both. I did the real estate to stabilize my income. But my heart has always been witht the stock market. OldTrader
I don't prefer one above the other. I use real estate as a kind of life insurance. This part of my capital doesn't need as much attention as trading. It also is a diversification to limit my overall risk. I use trading for the (hopefully fast) growing of my net worth. I am not able to make a fortune in real estate, but in trading things go a little better. So i am forced to adapt myself to my abilities. This means trading instead of dealing with real estates.
Like others have said there are many way's to invest in real estate. One of the best ways that I have found is by forced appreciation.... redeveloping the land with a bigger and better structure that is worth more then your expense of acquiring the old structure and building costs of the new. This eliminates the years of waiting. On my very first deal I went in with a partner and we bought a one family home that was in a multi family zone for 625K. We demo'd the house and put up two (2) fam semi attached homes at a cost of nearly 550K for both. Each home was then worth a bit over 800K after all expenses and holding costs we were able to walk away with a nice profit in under 9 months. We then did it again on his fathers house... He bought the house from his dad and I put up 1/2 the money to build. My mistake...i didn't put myself on the deed...unfortunately he decided he wanted to keep these homes for himself which was actually ok by me but the problem was he simply wanted to give me back my money without any kind of compensation for my time and for using my capital. Long story short...we settled out of court.... I settled for an extra 100,000 K for the sake of putting the issue to bed while he made nearly 500 K ..but again I made some money in a short period of time without waiting for price appreciation. I plan on doing another project ...(.but no more partners)....lol... We have a home where the zone will be changing to an r5b zone. This will actually allow me to put up two semi attached 3 family homes. Granted I already own this lot but even if I had to buy it today I could pick it up for 800 to 900 k.... Add a cost of 300K per house to build would bring my cost up to 1,500,000 . Each home could sell in the 900K to 1 mil area leaving a nice profit for 9 months of work. In reality I wont be selling these homes since my cost is actually about 35 % lower because we've had this home for years so I don't have to pay 900k to buy the lot.... The 6 legal rents would be nearly 10,000 per month not including 2 basement apartments that could get another 1200.00 dollars each . Plus tenants pay for their utilities as well.... Their is another home that will be going for sale in a few months across the street...same zone...R5B. I heard they will be asking 1,200,000 for the land because there it is a legal 4 family on the lot now... a little to much for me unless I could simply renovate them at a lower cost and add another floor then subdivide the lot and get two legal 3 fam. If you have to tear the home down I wouldn't pay more then 1 mil to 1.1 tops.... Now keep in mind that You don't need to be a contractor in a sense that you would be doing any labor yourself....I cant do a thing myself except go to home depot and pick up little odds and ends...lol......You use subcontractors for everything...sure some will try to rip you off if they think you don't know what your doing...some will try to rip you off no matter what.... so be prapared to get many estimates and proposals....You will actually find good people who will give you good proces and are willing to help you with issues that arise along the way. I had issues with venting the boilers. Actually, weve had many issues....the subs ask us questions about thiings and we would reply "we have no idea... what do you recommend... Talk about rookies...but it all worked out. then you build relationships and the next project is faster and easier....Quick note....Not always a good idea to go with the cheapest subs...look for reliability... As for funds go....You get a construction loan.....in the mean time you really only need enough funds to lock down the property with a 20 % down payment..... pay the mortgage until your plans are filed and approved and then the construction loan bank comes in and pays your current mortgage off so they can be the first lienholder...this will free you from any more mortgage payments until the job is complete... This is a god sen because is frees up your cash flow..... then you need the funds to demo the house, excavate and enough to pour the foundation. Once the foundation is poured you can call for your fist draw on your construction loan. Always borrow more then you need to build just incase you run into problems and like I said...now there are banks offering construction loans where you don't even have to make any payments for 1 year on the loan. They just add the payments to your principal and then the construction loan converts when your done into a fixed 30 year while only paying one set of closing costs. Some banks have pre-payment penalties which may hurt you a bit if you sell the homes....Indymac offers a good program.... So people need to stop thinking in terms of buying and renting a property and waiting for the market to appreciate one day... Forget waiting...find an opportunity and force the appreciation by developing the land.... One thing you need is a contractors license. Here in NY the tests are a joke. You go down to consumer affairs and they actually give you a study guide before the test. You need the license in order to secure the construction loan. Banks don't like to give construction loans unless you have a licensed contracter doing the work... Some banks may want to see what other jobs you have done...You might have to make a resume..We actually made a fake one on our fist one and no one ever checked it out. I guess we got lucky... Oh ...and make sure that the zone on the property you are interested in isn't changing to a smaller zone or "downzoning" by checking with the community board and building department....architects may not know.....I knew about the zone changes in flushing before my architect did....lol You don't want to but something and then find out that you cant build what you want because they changed the zoning on you.... Anyway...I just wanted to point out that there are more ways to invest in realestate then buy and hold and wait... It doesn't have to be a slow process that takes years.... and the hunt for a deal is actually quite fun... As for rehabs....I find that there isn't enought room for error in them...You cant make mistakes with your numbers.... Good luck to all... Nick
Let me give you a real life example of one of my RE transactions. New house was built in 1989 for 129,000 I bought it in 1998 for 115,000 , house was sold recently for 179,000. So it looks like about 60 % profit , right ? What about property taxes ( 2% per year ) insurance, maintenance( another1.5% ) When you are done subtracting, profit per year is about 6-7% and this was a very good run.