Augment Trading with Real Estate

i have some rental units, too. it doesn't take that much time if you have a management company do most of the work.

occupancy rates in many places are getting very high. the market has gotten much tighter and rents have gone up quite a bit. all the people who suddenly can't afford or qualify for a loan, now have to rent. it's payday for landlords after a few years of weak rents. i've jacked up my rent by 12% in just a couple of months and still have no trouble finding tenants. i probably should have raised it even more.
 
i've been thinking the same thing. my friend has 14 rentals and says its tough. remember one thing each renter will probably cost you 2-3k in repairs while they live there and damage they do when they leave. i think the idea is to break even pretty much and let the renter pay the home down. many landlords are trying lease to purchase scams to get money upfront knowing few will ever buy because they can't are there credit stinks.around my area all you can profit above your note is 10-15% so if a managemnt company is taking that theres little to no profit
 
lol,

I see no upside in Chicago "RE" at the present moment.
Income producing, only if Chicago does not get hit with a recession...odds are, it will

RE is more than just "apts and houses". The most valuable RE is unimproved land in an area that is project for growth. Of course, you must make sure you have the proper zoned land, that utilities are close by.

Chicago is the last area I would look to "play RE" part time. Chicago has not been hit that hard yet.

A place like Miami, would be a better area for investment and income. Miami should pull back an additional 20% before years end. It is still to early.

DC area as well. It has dropped in a significant manner, but just a little to early.


Look at southwest regions that are growing. It is a little late to get in to the land game in some of those states, as the players have already swooped in.

RE isn't like trading. If you make a mistake, you have carrying cost. RE is not liquid enough to dump your losses, like trading. In fact, some of the most attractive buys in RE are still not moving.........
 
This topic really hits home for me because I am a full time trader that was a residential and commercial real estate agent for about 3 years. I currently own a 5 unit condo building that is both commercial and residential. It is managed by a property management company but they don't do a whole lot more than collect the rents and let me know when there is a problem.

Based on these experiences, I am VERY much against real estate and VERY much for investing in the financial markets. Here are the reasons:

1.) In real estate, if I want to sell a property, I have to find a buyer, haggle over a price, and then hope and pray the deal gets concluded in 1-6 months. And the deal isn't done until it is done! Just because you have a ratified contract, doesn't mean the sale is complete. In the financial markets, I have buyers and sellers lined up and telling me at what price they will buy and sell at. When I find a price I like, I press a button and within milliseconds the deal is done.

2.) Commissions on real estate go from about 5% to 12% or more per transaction depending on the property. That means to break even on a property, the value has to increase by 5-12% to buy it and 5-12% to sell it for a combined total of 10-24%. Commissions for financial transactions are small. I am with a prop firm and pay .01 per share and I am paying a lot compared to other prop firms from what I understand. That is a very small percentage of the amount of capital I am working with.

3.) When rent is due, the tenant may or may not pay you. When a stock's dividend is due, it is simply credited to your account. When you sell a stock/futures contract/option/currency pair, the profit/loss is credited/debited immediately. No need to chase the money.

4.) In real estate you have to deal with people. It is a people business. And there are a lot of inept people out there which usually means that they cost you money in some way. In the financial markets, you can trade all day and not speak with anyone. Sure, your brokerage/firm may make a mistake with your records, but most everything is automated and that reduces a lot of problems.

5.) When you own real estate, pipes break, tenants trash your properties, people fall down on your sidewalk and sue you. The price of a stock may rise or fall depending on un-forseen events, maybe even become worthless, but the maintenance on holding a stock is minimal (other than looking at charts).

6.) How liquid is a house? How liquid are stocks?

7.) Real estate seems easy. It is hard work. I guess this also goes for trading, which leads me to my final point...

I may seem jaded or even bitter towards real estate. In fact, I have sworn to never again in my whole life own a piece of real estate again other than my primary residence. But I have come to realize that it takes time to develop an expertise in whatever area you choose. Trading is a pursuit that requires an enormous amount of expertise and the markets are VERY unforgiving to those who lack expertise. To divide your time between the two, especially if you are a trader that is not yet proficient, means you are really compromising your chances of success (in either market).

Ultimately, if you are going to focus on one market, why not do it with one that is highly efficient (financial markets) as opposed to one that is highly inefficient (real estate market)?

I hope this helps. Either way, good luck with it.

Sincerely,
Daryl
 
Quote from cubsguy81:

I was curious how many ETers also manage Real Estate investments in addition to or to augment their trading. I am doing ok trading but looking to add cash flow positive Real Estate to my portfolio in the coming year with the low rates and depressed prices.

My thought is to own rental properties (likely apartment buildings in Chicago) that are contracted out for management and continue my trading during the day. I have time in the afternoons/evening to search for potential deals.

Just wondering if anyone else does this.
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I've bought real estate over the years. Primarily houses and small apt buildings. I thought it would stabilize the trading income. It has done that. Although I gotta tell you that it was much more profitable than I ever thought it would be.

At this point we own a number of properties free and clear, so they kick off a good cash flow. We don't hire outside management. We have a list of contractors and handymen who we call on repairs. We have other people who mow lawns if necessary, shovel snow, etc. Some things we do ourselves like show the rentals, various paperwork, etc. My wife is very helpful in taking up the slack here when it comes to management.

Rentals are not a short term type of investment. It takes time for your cashflows to build up. And certainly you need some cash behind you to take care of emergencies when they come up (like a furnace goes out, or you need to replace a roof.)

A property has to "pencil out" when I buy it. I don't buy it at market price. I don't buy thinking it will increase in value. I don't buy it based on what I think the rents might be several years from now. The property has to make money, after all expenses, from the beginning or I don't buy. It's a habit I got into when I first got started because I really didn't want to take money out of my pocket to fix the real estate. So the property had to be self-sufficient so to speak. I've just repeated that over and over. And as time went on, I paid propertys off, so that none of the cash flow went to service a loan.

I like real estate as an investment. If it pays for itself going in, the tenant pays it off for you in time. Eventually you have a free and clear asset that kicks out a monthly income.

Over the years I have also done rehabs, although in recent years I've scaled that activity back. But that is also a lucrative activity as long as you buy cheap, make your money going into the deal, rather than speculating on what the price may do. These days, you have to be certain you can price your rehab for sale at a price where it will actually sell, rather than sit. That means you have to buy very cheap, and be very certain of your rehab costs.

As far as time goes, it isn't all that time consuming to operate rentals.

OldTrader
 
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