[DJKapeesh]

This is the investment discussion thread. If you follow my threads, they usually have something to do with finances and this is no exception.

The topic of this week is about investments.
I'm asking for members advice, experience, knowledge of different investments. "I'm not an experienced investor," besides the Roth, 401k, common stock, bonds, mutual funds.

I am interested in hearing the pro's and cons of different investments. I understand most investments if not ALL investments involve risk. Some riskier than others, some require knowledge and research, some require experience. This is my first step in acquiring these resources and making them available for public forum.

Investments in Question:

• Real Estate - Buying property with the intention to live or rent. Renting for income and buying multiple properties be it section 8 or nicer property.
  risk:
  No tenants
  Property damage
  Section 8 properties (do not want to own or live in when retired)
  "I recently heard of a renter scam where renters pay the deposit required and proceed to live without paying the rent. By law it takes 2 - 3 months to evict the squatters and the owner ends up paying"
  
• Small Business - physical location (stores, restaurants, etc)
  
• Small Business - mobile (moving repair, cleaning, etc)
  
• Small Business - virtual (graphic design, web development etc)
  
• Buying and Selling - Real Estate, Cars, Land etc.
  
• Assets - Stock piling things like gold, land or even stock and sitting on them
  
• Portfolio Management: Stock, Mutual Funds, Bonds and others
  
• Retirement - Roth, 401k ect

Other investment ideas and experience not listed here please feel free to discuss!

personal example situations:
Asset holding
Have 9 acres of land in Jamaica (81 acres total between 9 family members) in an undesirable terrain consisting of hill side with rocks and vegetation. The location is desirable and near a tourist area although not beachfront. Family has done nothing with this land for over 75 years and I am not sure what can be done to turn this into a cash cow without requiring large amounts of financial resources which I do not have access to? *Advice is welcome*

Although I own and have experience with this I would not suggest this to others because it is extremely hard to do anything with this type of land holding.

[carzaddict]

im glad you created this thread, im in a similar boat.

2 years ago I quit the corporate world and expanded on my personal business (investment #1)....along with that I decided I was going to try and mess around with day trading since im sitting at home all day (investment #2). I made a little bit of money, not a whole bunch, I wasnt investing a lot of money and the fee's were killing my margin. I was also not very well educated, i was buying and selling on hunches and feelings (I know, not the way to do it). it was mostly for fun.

I've been thinking about real estate investments. If you're planning on flipping a house on a short sale, it makes the most sense to be able to pay for at least 90% of the house upfront. you've got the cost of house + closing fees + whatever interest you may have to pay while you wait for the house to sell + any fixes.

for renting, this is a risk as well. obviously you want to make sure your income is greater than your mortgage + property tax. Yes you run into issues with tenants, normal house wear and tear. My parents had a situation where the tenant decided he wasnt going to pay rent for a few months...we took him to court and the judge allowed the tenant to stay an extra 6 months (there's a bigger story, too long to type). But basically we had zero rent for a year on that property.

In my wifes situation, she has a property in Indiana and has a management company that takes care of it. the management company takes ~8% of her monthly. Upon trying to sell the house, we realized that the house was a COMPLETE disaster. the tenants did NOT take care of it and the management company wasnt doing their job maintaining the house. The house is listed for about $10k less than what she paid 10 years ago. Thankfully she paid for the house outright, no mortgage and collected rent on it for years......that makes it a positive investment.....or else it would have been a loss.

Land is a hit or miss as well. I know people that have land in the mid-west. been sitting on it for some time.....waiting for some developer to come purchase it.

One thing i hear all the time is "invest in yourself"........meaning start a small business or go back to school, get a masters degree. I come from a culture where education is king. they automatically assume that getting a masters degree = getting higher salary (which isnt false, nor true).....i guess it just depends on the situation. for example, my cousin invested in himself, spent $100k on law school......after graduation, he was the first of his friends to get a job......a job in trust administration (not really law). his friends finally started getting jobs months later, law jobs....getting paid less than him. unexpected right?

I know someone else completing his Ph D in chemistry........the guy says the job market right now SUCKS.....hes making more money as a real estate agent than other people in the chem field.

Retirement is important though. Setting up a 401k and Roth when you're young is a great idea, especially if you're planning on making more money in the future (the argument for having a roth). Plus you never know whats going to happen in the future and how much you're going to need.

[DJKapeesh]

Originally Posted by carzaddict

im glad you created this thread, im in a similar boat.

for renting, this is a risk as well. obviously you want to make sure your income is greater than your mortgage + property tax. Yes you run into issues with tenants, normal house wear and tear. My parents had a situation where the tenant decided he wasnt going to pay rent for a few months...we took him to court and the judge allowed the tenant to stay an extra 6 months (there's a bigger story, too long to type). But basically we had zero rent for a year on that property.

This is my worst nightmare.

Buying something rent and having a mortgage but tenant doesn't pay. I guess I will wait on the real estate idea until I can pay at least 50% of the house upfront.

As far as stock, I discovered if your not buying at least $500 at a time the transaction margins will eat the profits in short term trading.

[SheaButter]

Originally Posted by DJKapeesh

This is my worst nightmare.


As far as stock, I discovered if your not buying at least $500 at a time the transaction margins will eat the profits in short term trading.

This isn't exactly accurate. If you're in the micro cap, $500 at a time isn't horrid. It's no ideal, but I've seen micro cap traders (including myself) averaging down, up and setting up positions in chunks of $500-$5000 at a time. It's all relative to your gains really.

[csu87]

I dont have a lot of investing advice, but I will say DO NOT FLIP A HOUSE unless you know what you are doing.

I am in the construction industry. I worked as a laborer/carpenter back in hs and some college with my uncle's company flipping houses. I would still not consider flipping a house, and I would be able to do all the work myself. (Licensed contractor and am able to get electrical/mechanical/plubming licenses). Depending on the age of the house, and if it has ever been updated, you are more than likely going to be doubling/tripling + any budget you might have had to bring all the electrical and plumbing up to code. This is the biggest mistake I have seen friends/coworkers do when trying to flip a house. That and, unless you are paying cash upfront, timeframes never work out, so you always end up paying a couple mortgage payments/interest payments, and have to pay all the fees associated with a loan.

I know all the shows on TV make it seem like its a great idea, and they always make a profit, but irl you barely break even more times than not until you get the hang of it, and it will take a lot of cash to get the hang of it.

[MiddleAgedAl]

One area I've been doing a lot of research on, that sounds promising, is investing in Tax Lien certificates. Like all investments, it's not ZERO risk, you have to know what you are doing, but it sounds quite interesting in that you dont need a lot of money to start, so as risks go, it's not too bad for the potential upside.

[DJKapeesh]

Originally Posted by MiddleAgedAl

One area I've been doing a lot of research on, that sounds promising, is investing in Tax Lien certificates. Like all investments, it's not ZERO risk, you have to know what you are doing, but it sounds quite interesting in that you dont need a lot of money to start, so as risks go, it's not too bad for the potential upside.

Sources for research or details?

[shadow191]

The problem with tax liens is that they're marketed so heavily these days that the margins aren't what they used to be. Lots of seminars/infomercials and that causes more people to flood in and it lowers the returns significantly since there are more people bidding.

A friend used to do this heavily for a long time and he made a lot of money over the years. But back then, the rates of return were better since you could still get good deals at auction. And when the economy was tanking, he actually took possession of quite a few homes (which depending on what you want can be good or bad).

But nowadays, it's no different than all the other get rich in real estate schemes being marketed. It can work, but it's risky and you will need more capital than you think. You also need to be prepared for things to go sideways because these aren't "clean" transactions like buying/selling stock, there is a lot of grey area.

Originally Posted by MiddleAgedAl

One area I've been doing a lot of research on, that sounds promising, is investing in Tax Lien certificates. Like all investments, it's not ZERO risk, you have to know what you are doing, but it sounds quite interesting in that you dont need a lot of money to start, so as risks go, it's not too bad for the potential upside.

[MiddleAgedAl]

Originally Posted by DJKapeesh

Sources for research or details?

Tons of stuff on the internet. There are lots of purveyors of "get rich quick using my magic system" out there, as there are in many investment categories, especially in the real estate space.

They all spin it by highlighting the positive and ignoring the negative. Some more balanced info can be had from non-profit associations such as the National Tax Lien association. http://www.ntla.org/?page=FAQ

(note that some entities such as the US Tax Lien Association call themselves an "association", but they are clearly a follow-my-system-and-get-rich-quick type of for-profit venture who wont be as honest as the real association above.)

There are more big institutional players than before, so competition for the little guy is worse, but it's still a big multi-billion dollar a year market. Florida (which sells more tax liens than any other state) had problems with large institutions flooding the auctions with shell companies to win more bids (in 2013, broward county tax lien auction had 2 million "bidders", 1.4 million of which were from only 5 investment funds. They have been changing the rules to reduce that, requiring refundable deposits, etc, so the pendulum is swinging in the other direction again.)

For me, the fact that institutions are so aggressively pursuing this market now tells me there is potential for money to be made there. Like any other investment, there are risks and rewards.

[MiddleAgedAl]

Originally Posted by shadow191

It can work, but it's risky and you will need more capital than you think. You also need to be prepared for things to go sideways because these aren't "clean" transactions like buying/selling stock, there is a lot of grey area.

Yup, like anything else, there are pitfalls. I think the biggest aspect that is under-represented is that while you can make up to 36% annually in states like Illinois, you do so only on the value of the lien itself, not the property behind it. You still need to do your homework before purchasing to know you are not getting a lien on a crack house or a place with a toxic oil spill, but if you get your 36%, it will be on the few thousand of the lien, not 36% on the 400K of property. Even at 36% annual return, you need to buy a LOT of liens at 1K each to generate serious cash flow, and each purchase should be accompanied by some due diligence. They are not a commodity like like stocks where my share of XYZ corp is just as risky as your share of XYZ corp. So, it's not necessarily a 1-hr a week, get rich quick scheme.

No party would let a 400K property go for a few K in back taxes, so usually, the only time you end up with the property itself is if it is an ex-crackhouse. You can't count on getting cheap property that way, you need to assume the money will come from the penalties of the liens themselves, which will be closed off by some party ( the mortgage holder if not the property owner themselves.)

[gtron]

i think it's called vulture investing.

[carzaddict]

Originally Posted by gtron

i think it's called vulture investing.

There's absolutely nothing wrong with that. Its a tactic really rich people do, its easy for them.

If you're going to flip property....I would think that being a developer would generate the best profit margin. Build a new house, you pay for is the land, materials and labor.....sell for profit (assuming you did the market research and houses around yours cost more than your expenses).

Another idea is foreclosures.......what do you guys think of that? Yeah im sure a lot of them would require fixing and getting up to code....but i guess if you can get it for cheap enough you can still get somewhat of a profit?

The biggest problem with these kinds of investments is that you need to have the capital (or is it capitol?) because 1) having the cash upfront can get you a better deal.....2) you dont want to collect any intrest, kills your profit margin.

for the $500 minimum stocks investment comment above.....thats not always the case. Technically it should be a quantity of shares vs quantity of cash. if you invest $500 of a $100-per-share company, you only have 5 shares. if it goes up $5, you only get $25, on average, each transaction is $7 (average).....buy and sell is $14.....25-14 = 9
But if you buy a company thats $5-per-share (you buy 100 shares) and it goes up 50 cents, you gain $50-14 = 36.
Also, the chance of going up 50 cents is better than going up $5....and probably can happen quicker

[MiddleAgedAl]

Originally Posted by gtron

i think it's called vulture investing.

That is one term used, which I think unfairly throws shade on it. The "vulture investor" is not the one who is shirking his responsibility to pay his taxes to support societal infrastructure.

In nature, vultures actually play a critical role in maintaining the health of the ecosystem. Same in financial markets.

The county needs tax money to pay firemen, maintain schools, etc. Money has to come from somewhere. If you as a homeowner bit off more than you can chew, and now cannot (or will not ) pay your taxes on time, the county is in a bind. I'm sure if your house caught fire you'd still expect the fire dept to show up and put it out, even if you have stopped paying for them.

If the county couldnt sell the liens to collect money now, then they'd have to get more aggressive with collections and foreclosures (so homeowners would have less time to get out of their hole), or they'd have to get the oil companies to give them free gas for their fire trucks.

[GOS7]

Great information here and very informative. Any input out there on buying rental property and obtaining loans against that house or building to buy more rental property?

My uncle has an old friend that did this repeatedly now owns 17 apartment properties.

[MiddleAgedAl]

Originally Posted by Ghos7N54

Great information here and very informative. Any input out there on buying rental property and obtaining loans against that house or building to buy more rental property?

My uncle has an old friend that did this repeatedly now owns 17 apartment properties.

I know someone who has done well with this, he has over 32 suites in a variety of buildings. You do have to deal with T&T all the time (tenants and toilets), but you can pay property managers to handle that, which of course hurts your return.

The key is to do it slowly unless you have a LOT of cash. People get into trouble if they over-extend themselves, and are too aggressive with expansion. My buddy took over a decade to go from 1 to 32 suites, so that he always had some reserve for issues.

As soon as some deadbeat tenant gets an eviction notice and pours concrete down the drains in a drunken rage to get revenge on the landlord (yes that happens), you are hit with BIG plumbing bills that can affect your other suites too, and if you have no float to cover it you are screwed.

[DJKapeesh]

Originally Posted by Ghos7N54

Great information here and very informative. Any input out there on buying rental property and obtaining loans against that house or building to buy more rental property?

My uncle has an old friend that did this repeatedly now owns 17 apartment properties.

If you are referring to the part where we discussed the rental property being a risk due to renter choosing not to pay for rent then we discussed this. Option 2 rental property is section 8 but then you will be stuck with a bunch of section 8 properties. Please specify what you mean by loans against that house?

[shadow191]

This method pretty much only works in a rapidly appreciating market. So you save up and buy one property and have decent equity in it. Then you take that equity out through a loan and put a down payment on a 2nd property. If that property appreciates then you can take your new equity from that property and buy a 3rd property. It's not really rocket science.

But the caveat is that if property values aren't rising quickly, you can't do it. The appraisals have to come in high enough that a bank will loan you money on your subsequent properties. And right now, banks are very, very conservative so I don't know if they'd even make the loan. You will also be highly, highly leveraged and one issue can crash the whole thing. A good friend picked up a very nice property from the bank a few years back for ~$2MM cash. The former owner was a physician and this was his office. Basically he owned this building free and clear and when the property market started going crazy, he took his equity out and started buying new commercial properties. Appraiser gave him a crazy valuation of like $5MM and he took what he could and started basically speculating. At one point, the physician had 10-12 properties with a value on paper of north of $20MM. Then 2008 happened and his tenants stopped paying on some of the properties. The issue was that he was undercapitalized and over leveraged so when his cash flow dried up, he couldn't make his mortgage payments and hold onto his properties. As the banks started taking properties back, it pretty much cascaded. All of the properties were pretty much leveraged out as much as they could go so any loss of cash flow was magnified. Eventually he lost every single property including his original one which my friend bought. He also filed for bankruptcy since some of the loans were personally guaranteed.

Leverage is great in a rising market if your collateral is appraised high. It's terrible in a falling market as your collateral loses value by the day. If you can't get out from under the payments or dump the properties because the valuation isn't there, it's over.

I think you'll find that the stuff people used to be able to do can't be done anymore. Banks just aren't going to extend that kind of credit anymore.

Originally Posted by Ghos7N54

Great information here and very informative. Any input out there on buying rental property and obtaining loans against that house or building to buy more rental property?

My uncle has an old friend that did this repeatedly now owns 17 apartment properties.

[GOS7]

Thanks for the input guys its much appreciated.

I'm a computer science major that has recently found interest in realestate. I just got my very first house this year for a great value and same as for condition and location (mayor lives one house down from me). Naturally I've been very docile and enthused to learn as much as possible and look foward to my next investment property in 5-10yrs.

Once again thanks for sharing your input and experiences and sorry to thread jack!

[MiddleAgedAl]

Originally Posted by shadow191

This method pretty much only works in a rapidly appreciating market.

But the caveat is that if property values aren't rising quickly, you can't do it. The appraisals have to come in high enough that a bank will loan you money on your subsequent properties.

One thing you can do to accelerate equity growth in times of flat (or decreasing) values is to buy C, or C- properties, then upgrade them to C+ or B- properties. If done right, the cost to do such an upgrade can be less than the increase in value of the property, which also increases the value of the rent you can get. My buddy used this approach several times during flat markets. The nicer the suite, the less chance that you'll have deadbeat tenants also. Look for suites with solid "bones" but crappy cosmetics, things that are cheap and less risky to fix. In slow times, you can get construction help cheaper too.

Do NOT try to go from C- to A, it probably wont work as a C- building is probably not in the kind of neighborhood to get A renters to live, even if they like the hardwood floors and granite countertops. This is the equivalent of doing a frame-off rotisserie restoration on a 1973 Toyota Corolla, you'll never get your money back.

[DJKapeesh]

Originally Posted by Ghos7N54

Thanks for the input guys its much appreciated.

I'm a computer science major that has recently found interest in realestate. I just got my very first house this year for a great value and same as for condition and location (mayor lives one house down from me). Naturally I've been very docile and enthused to learn as much as possible and look foward to my next investment property in 5-10yrs.

Once again thanks for sharing your input and experiences and sorry to thread jack!

???????? No this is actually right on topic

[David70]

My first house was 3 apartment old house, below average condition. I lived in one apartment which lowered the percent of down payment needed because it was my primary residence and also lowered my risk because I was one of the three tenants. It was also easier to "manage" the people and how they treated it and really bad renters didn't want to live on the property with the owner. Two other apartments would cover the rent and taxes and allowed me to put what I used to pay for rent towards fixing it up. Turned out to be the best investment I have ever made. I owned it for 7 years.

I think biggest problem with rental property is owners that don't look at it as a part time job and don't want to put money into the property for normal maintenance and repairs. Property gets in bad repair, rents fall, keeping renters becomes more of a problem and things continue to get worse. Getting someone to manage the property cuts into the return and also is difficult to find someone to do a good job.

I don't want to buy a rental property right now, not because it isn't a good investment but because I don't want a new part time job at this time.

[dreamingat30fps]

I'm interested in ecommerce drop ship businesses. I have one already that does ok, however whenever I have looked to get into other products I have not done as well.

Anyone have any experience in this space?