Posted by Dirk Roach on November 04, 1999 at 11:01:04:
John, you said it! What a super post, definately going to print and save this one. And my advice is that others do the same.
Dirk
Real Estate or Commodities? - Posted by Shelva In Canada
Posted by Shelva In Canada on November 02, 1999 at 21:31:38:
Hello All Seasoned CRE professionals out there…
I have a question…
Although this is basically upto and depend on each individual;
How would you rate CRE Investing / Entrepreneurship with investing in Commodities / Stocks based on the following factors
- Risk Management
- Initial Capital Required
- Mental Stress / (Being able to sleep at night)
- Physical Energy required
- Time required
- Skill / Technique required & Learning curves
Your time towards this is really appreciated. I accept the value of CRE investing / entrepreneurship but I have had mixed views from contacts from both these worlds on which is better (? - how do we define better) etc and am curious as to how you folks (who are actually doing it as I am a new bee who just ordered Ron’s Fast Cash course).
Much appreciated
Thanks
Shelva
Re: Real Estate or Commodities? - Posted by Cary
Posted by Cary on November 03, 1999 at 17:42:17:
Shelva,
It’s a very difficult question. For you see, I have invested “lots” of money in Stocks, Commodities, and RE. But, I agree with most of what Mr. Behle has to say, one has to remember that Mr. Behle is an EXPERT in the field of RE Paper. I am no expert at stocks, Futures, or RE investing. I am just a regular Joe trying to make “a little money on the side.”
To be brutally honest with you. I have LOST “lots” and MADE “lots” of money in both RE and Commodities.
I have also made pretty good money in Stocks, BUT with the monster bull market we have going on right now in the stock market, it makes one think “how can I lose?”
But, I can definately see where when the Bull slows down, money will be very difficult to have in the Stock market. So, if you decide to invest in stocks, remember that — you are not the one in control.
As far as commodities go, I love 'em. I get the rush. I love it when things are going my way. I learned early on though, losses are inevitable. But, to be successful at commodities, you MUST stay “on top” of what you are doing. These ‘gurus’ that say, with 20 year history’s buy this on this day and sell on this day, or this is a simple elliot wave 3 extension, or this Gann angle shows, or any other “system”, BE CAREFUL. Have you heard that 95% of people in the futures market lose money. Those 95% aren’t ‘stupid’ as the gurus make it sound. Some of these people are ‘brilliant’ and still can’t find that “hidden order” that lies w/in the futures markets. While it’s true that I have lost plenty of money in commodities, I have made plenty of money as well. But, it’s not as easy as these late night gurus make it sound, trust me. I guess I average about 35% return on my commodities, when looked at yearly. But, month to month the swings get WILD. If you can’t handle a wild ride, then commodities ARE NOT FOR YOU.
RE is a different story. I’m sure there is some statistic out there that shows that 90% of people MAKE money in real estate. Well, one has to remember that this statistic has owner-occupied homeowners in it. You have to devote plenty of time, and research everything, in order to make “good” money in real estate as an investor. My last RE deal, I thought that I’d done "due diligence’, and I still got burned. So, even RE isn’t without it’s risks. All in all, my RE side of things, I average about 20%.
So now you ask how would I rate these investments, on a scale of 1-10, I’ll give you my take on your questions.
1-Risk Management - RE(3), S(8), C(4)
--------RE (3) because SO MUCH can go wrong, and big money losses is the result if it does “hit the fan.”
--------S (8) because you only invest the amount you are willing to lose.
--------C (4) true you only invest what you are willing to lose, but you better plan on losing much more often that you win.
-
Initial Capital- RE(4), S(8), C(4)
-------RE(4) because you are kidding yourself and others if you think that you can realistically start with much less than $25K. I know some do it, but these are the EXPERTS that I was talking about before.
-------S(8) because right now in the bull market if you have $2K-$3K, you can open a brokerage account and still have enough in there to cover your losses.
-------C(4) because as a beginner you’d better have AT LEAST $15K-$25K and trade the small stuff (corn,oats) if you ever plan on making it last. If you start w/ anything less, you are planning on too much luck. -
Mental Stress- RE(2), S(8), C(1)
------RE(2) because what if your rehab contractor bails on you, tenant won’t pay, major employer in town downsizes and lays off a bunch of workers and property prices go very soft, and you can’t sell/lease/flip/rent, etc. your properties.
------S(8) because you know what you wanted to risk before you entered the transaction. But the fear of loss is still there, but you factored that into you decision before you bought.
------C(1) because you can lose more than you intitally invested w/ limit moves against you, and you are so highly leveraged. -
Physical energy req’d- RE(5), S(5), C(5)
They all require a LOT of work/research to be consistently profitable. -
Time required- RE(2), S(7), C(4)
-------RE(2) in order to be successful at RE you must devote the time to do it right. Most of these people do this FULL TIME.
-------S(7) researching companies has become a lot easier with the advent of the internet. You just have to “know what to look for.” Plus, a bull market doesn’t hurt.
-------C(4) to do adequate research in commodities is much more difficult. Hard to differentiate between rumors and facts, especially when YOUR money is at stake. Real time data helps. Adequate research library helps. But, you don’t have to do it full time, or any ‘day trading’ or anything like that. Once your research is done, just ride the trend. Hope it stays your way. -
Skill/Learning Curve- RE(8), S(6), C(2)
------RE(8) the hardest part about RE is ‘finding the right deal/motivated seller, etc.’ Once that is completed THEN the skill comes in to make it happen.
------S(6) once you learn what to look for, and the types of companies that you like to research, it’s just a matter of watching the price dip, and purchase on the dip.
------C(2) you’ll lose a lot at first. There is a VERY STEEP learning curve associated w/ futures. But, once you get the hang of it, and get used to the volatility, it’s OK.
All in all, pretty muttled. No ‘perfect’ investment out there, as far as I can see. Some are better in some areas than others, but they all require motivation and persistance.
Just my experiences, and my $0.02.
A puppy for a pet or a Crockodile? - Posted by John Behle
Posted by John Behle on November 03, 1999 at 13:03:32:
That’s how I view the analogy.
- RISK MANAGEMENT - not even on the same scale. The “due-diligence” you can do in real estate or mortgage investment is extensive. With stocks or commodities somebody can “sneeze” and change the whole situation. A company can make a bad move. A competitor can outmarket them. Management can change. A major supplier or customer can have problems. A product defect can cause liability. On and on and on.
Bottom line is you have little control over the investment and almost no way to do enough due-diligence to be comfortable and safe. Just like slots, it pays off for some, but the majority lose.
Without EXTENSIVE training, inside information or great luck, there is little safety in those areas. Commodities can be one of the absolute riskiest. Do not believe the info-mercials, etc. One of them out there has actually been proven to have taken severe losses on his own portfolio and only made it up by selling his course.
You can have risk in real estate if you don’t do your homework. Extensive education is of course helpful - but not necessarily required. Yet, if you do your homework and know the market and conditions of your area, your risk is minimal. It take a major turn in a national or local economy to hurt you if you do it right. People can argue with that, but in almost any case they might mention, sufficient due-diligence would have prevented any problem.
-
INITIAL CAPITAL REQUIRED. CRE does not have to take any cash and can be turbo-charged when you do have it or have access to it. I have bought millions in notes and real estate with no cash. Most of the time I walk away with money. Yet, we do throw cash at many deals to drive prices down or solve problems, yet it is investor cash. You do not need cash to invest in real estate or discounted mortgages (my specialty) and if you do it right - you can get paid when you buy.
-
MENTAL STRESS. You may actually sleep better with stock market or commodity investment. Most people don’t even know or understand their risk in that area. With real estate, you may worry about a property, tenants, toilets etc. - even though you don’t really need to.
Frankly, I became real tired of property management and sold most properties to create “Paper” which I enjoy a lot more. It’s easier to sleep when your “worst case scenario” is getting back a property and making a much greater profit.
Yet, I still hate it when people lie to me. It seems to bounce off others more, but really annoys me. I also tend to be too gentle at times when I’m not being paid, but there is enough of a cushion that I can give them some space. I can do that and still profit beyond any other safe investment I know.
Mental stress. Not bad with paper and easily manageable with real estate. I could not sleep a wink if I had money in the stock market or commodities.
- PHYSICAL ENERGY REQUIRED. It totally depends on how you approach it. There are dozens of fun, profitable and successful real estate and paper investment strategies. I started with “rehabs” and learned to hate it. Some love the work, but I don’t. I do some now, but have a contractor I can count on and a designer/planner that does real well. I rarely have to be involved except at times to reign them in from going too far in improvement of a property.
With paper, the physical exertion is extremely minimal. It can mean driving by or going through a property with a camera and checking documents or driving to a closing. OK, there’s an occasional paper cut and going to the bank to make deposits can be tiring.
TIME REQUIRED. Again, that depends on the type of investment. You could argue that real estate or paper investment is more time intensive, but it is really only because you can and should do some due-diligence.
If you did any portion of the due-diligence you should in the stock or commodity market, it would take much more time than most forms of real estate investment. Some of the dozens of strategies are more time consuming than others. Some, like paper investment are minimal - depending how you approach it.
If you want an extremely low yield and low management, you can put money in stocks, mutual funds or commodities and allow someone else to manage it for you - at greater risk.
Many real estate strategies can be safely managed by others at minimal risk (though you still need to oversee and manage the manager). Management of paper is very simple with little time requirement.
- SKILL / TECHNIQUE REQUIRED & LEARNING CURVES. This is a big deception. People would say that stocks, commodities, etc. do not require the skill or training. That is baloney. It doesn’t require training if you plan to do NO DUE-DILIGENCE and plan to just throw your hard earned money after some investment advisor’s recommendation or on a hunch.
To invest in the market with safety (and receive an kind of a decent rate of return), you need far more extensive experience than the average stock market investor will ever have in a lifetime. With high level training and a degree in finance, I would be better prepared than most, but would still feel quite inadequate doing the due diligence on a company I was considering investing in. Otherwise, you would be totally at the whim of a consultant or investment advisor. Most stock brokers do not know any part or portion of what they would need to know to make any money.
Keep in mind that if they did, they wouldn?t have time for you - and would not be working as a stock broker. If they knew how to make money, they would be out there doing it. Stock brokers make recommendations to their clients based on what the brokerage tells them to sell. Usually that is because the brokerage is helping to ?make a market? in that stock or part of group of brokerages that have committed to sell out an offering.
BOTTOM line - there is little truth to the statements of promoters trying to sell you on the stock market that you do not need much knowledge or only the techniques in their course.
NOW - the same is true to a lesser degree in real estate. You may have some success and get a start through one course, book, seminar, etc. You may be able to do it safely and make some profit - BUT - the truth is that those who succeed with spectacular results are dedicated to education. If I were to get cute initials for my real estate education, it surpass ?doctorate? level. It?s just unfortunate in some ways that true, down to earth, practical, street smart education isn?t necessarily found in Universities or Colleges.
My least valuable education is a degree in finance. For a reasonable offer, I?d sell it back. Yet there are things I?ve learned in a two day seminar or even a simple book that I value higher than that degree. It?s a whole other conversation, but the most valuable education is in personal development, not in techniques (there?s been some discussion on that in the CASH FLOW newsgroup on this site). Or, reference the article I wrote on ?Three Essential Ingredients of Success? that is available free in the articles section here…
If someone tells you their course is all you need to be successful, smile, buy the course (if the price is reasonable), learn all you can, make some money and then learn more. DEVOTE 10% of your profit to education - but if you find yourself getting over-educated and have to park your car in the street because you have so many home study course in your garage, then know there is a problem - THAT ANOTHER ?HOW TO? COURSE WON?T SOLVE. Then it is time to look at the internal workings of fear, limitations, beliefs, etc. that hold you back.
Ok, I?m done for now. Hope that helps.