Feeling dumb and poor as the market goes up?!

[mathjak107]

Exactly! Why do people dis real estate investors and then pimp stock investments as superior?

Stocks are less stable and less predictable than real estate, yet the historical returns are very similar.

And when the economy goes to hell, with real estate you're left holding a real asset. Everybody needs to live someplace. What will you do with your stock certs to keep you warm at night?

i dont believe returns on real estate overall came even close to the return on stocks. real estate in most areas averaged only a point or 2 above inflation historically. as far as swings, actually stock swings over long periods of time become very smooth, in fact if your well diversified in other asset classes as well, i had a hard time pulling out any long term blocks of time where the returns werent within less than 1% of each other.

 

[Mr._johngalt]

i dont believe returns on real estate overall came even close to the return on stocks. real estate in most areas averaged only a point or 2 above inflation historically. as far as swings, actually stock swings over long periods of time become very smooth, in fact if your well diversified in other asset classes as well, i had a hard time pulling out any long term blocks of time where the returns werent within less than 1% of each other.

I had a conversation yesterday with a stockbroker about this very topic.
His comments pretty much mirrored yours. He knows my proclivities.
Tried to sell me a fund (front loaded of course). I bought a 9 mo.
CD instead. Staying with the horse I road in on.

JG

 

[mathjak107]

we only had 3 run ups in real estate in new york in the past 20 years.
we had a major drop in the 80's which took us down about 15-25% . the rest of the time was spent coming back very slowly. we had the first run up before the stock market crash in 87, the next one was in the 90's and then the current one. overall it was a lack luster return.

 

[Mr._johngalt]

we only had 3 run ups in real estate in new york in the past 20 years.
we had a major drop in the 80's which took us down about 15-25% . the rest of the time was spent coming back very slowly. we had the first run up before the stock market crash in 87, the next one was in the 90's and then the current one. overall it was a lack luster return.

Here is my view of "real estate" as a genre...........It matters little whether
the RE market is up or down. There are always big $ to be made if you know
what you're doing. In this way, it's a bit like the stock market. The smart
people (or sometimes the lucky people) can still make money (selling short
for example). I miss active RE investing. I truly do.

JG

 

[tryan]

we only had 3 run ups in real estate in new york in the past 20 years.
we had a major drop in the 80's which took us down about 15-25% . the rest of the time was spent coming back very slowly.

I think you could replace "real estate" with "stock market" .... to each his own.

But when the average retirement only lasts ~15 years (retire at 65; buried by 80) a 10 year run/bust (RE or stocks) will make or break you.

 

[FinanceDude]

Here is my view of "real estate" as a genre...........It matters little whether
the RE market is up or down. There are always big $ to be made if you know
what you're doing. In this way, it's a bit like the stock market. The smart
people (or sometimes the lucky people) can still make money (selling short
for example). I miss active RE investing. I truly do.
JG

I'm getting involved with some partners in Re investing. I have the following team: A top commerical RE guy, a top commercial lender, a solid residential RE guy, and the head of lending at a local bank, along with me. We are still working on a name, although I'm partial to Triple Net Investing Corporation.........

We have not found any solid opps yet, but everyone is working on due diligence. None of us wants to do the foreclosure deal.......too much time and money to inves there............I think we'll have some opps to invest in in 2007.............

 

[tryan]

None of us wants to do the foreclosure deal.......too much time and money to inves there............I think we'll have some opps to invest in in 2007.............

Made nearly all of my wad in REOs (post-forclosure) ... but 2007 - I believe - is too soon for this opportunity. Need a nice deep recession ... we'll see.

 

[samclem]

Here is my view of "real estate" as a genre...........It matters little whether
the RE market is up or down. There are always big $ to be made if you know
what you're doing. In this way, it's a bit like the stock market. The smart
people (or sometimes the lucky people) can still make money (selling short
for example). I miss active RE investing. I truly do.

JG

It seems to me that the inherent inefficiencies in the RE market (especially with regard to information availabilty) make it much more likely that an investor can find "good buys" there than in the stock market. Of course, finding those bargains, working the deals, tearing out wallboard, etc is also much more akin to real w*rk" than buying 1000 shares of XXXCorp and waiting for the results.

 

[FinanceDude]

It seems to me that the inherent inefficiencies in the RE market (especially with regard to information availabilty) make it much more likely that an investor can find "good buys" there than in the stock market. Of course, finding those bargains, working the deals, tearing out wallboard, etc is also much more akin to real w*rk" than buying 1000 shares of XXXCorp and waiting for the results.

Agreed...........

 

[dmpi]

Of course, finding those bargains, working the deals, tearing out wallboard, etc is also much more akin to real w*rk" than buying 1000 shares of XXXCorp and waiting for the results.

"Real Work". That's the part I don't like about RE. I have a j*b. I don't need another. Also are the tax issues the same? I've heard that once you go RE you can only trade up or down with like property (more RE), or going to get a big tax hit. Is that ture?

 

[FinanceDude]

"Real Work". That's the part I don't like about RE. I have a j*b. I don't need another. Also are the tax issues the same? I've heard that once you go RE you can only trade up or down with like property (more RE), or going to get a big tax hit. Is that ture?

Well, there's the "magic of 1035" and the reality of capital gains..........

Not a huge tax hit, only long-term cap gains rates..........

However, if you got the propert for $100,000 and sold it for $800,000.......that's 15% of $700,000 or MORE than you paid for it to begin with...........

 

[modlair]

There are always reasons for the market doing things. They are always quoted after the market does them.

From 2003, coming off the crash of 2000, there was rebound. Then taxcuts kicked in and fueled further advance -- though 2004 and 2005 were 5% and 10% increases -- which are numbers that are hard to call irrational exuberance.

Now, since the May correction this year (of about 8-10%), we have oil falling -- dare I say collapsing -- and still falling. Fuel for the fire.

It's real easy to explain what happened. It's always easy to explain what happened.

Oh, and one of the more difficult things to accept is a somewhat fundamental truth -- that there is little or no benefit to 20 or 30 years worth of observations made of a process that is largely random. There's nothing to be learned from experience with a random process.

 

[Patrick]

Oh, and one of the more difficult things to accept is a somewhat fundamental truth -- that there is little or no benefit to 20 or 30 years worth of observations made of a process that is largely random. There's nothing to be learned from experience with a random process.

Why do we have all these "Monte Carlo" simulations and backtesting? Some people say that it's a "random walk" yet others say there's "persistence." Is it just a best guess as to what will happen in the future?

 

[wabmester]

i dont believe returns on real estate overall came even close to the return on stocks. real estate in most areas averaged only a point or 2 above inflation historically.

You're confusing capital appreciation with returns. Rent = dividends.

Here's a study on the long-term returns from real estate:

thread

 

[FinanceDude]

You're confusing capital appreciation with returns. Rent = dividends.

Here's a study on the long-term returns from real estate:

thread

Stocks: capital appreciaton and dividends

RE: capital appreciation, rent, deductible mortgage interest, deductible capital improvements, etc, and on, and on............

 

[dex]

I haven't been able to keep up with this thread because I was closing on the new house, moving in and spending money!

I do have a plan for my investments it is a bit daunting trying to put so much money to work.

My plan is to set up the funds I will invest in and then average into the market over then next year of so.

Once I have the basic funds set up I'll post them here.

I'm had a large percentage of my money in foreign currencies due to the good interest rate I'm getting and the potential for foreign currency appreciation. I think that will happen once the Fed begins to lower interest rates - timeframe early to mid next year.

Thanks for the comments - we all need a kick in the but sometimes.

 

[tryan]

Also are the tax issues the same? I've heard that once you go RE you can only trade up or down with like property (more RE), or going to get a big tax hit. Is that ture?

Capitol gains are now taxed the same whether it's stocks or property (got to hold it a year for the 15% rate). Thanx to GWB. That's federal ... state level might vary.

 

[donheff]

Oh, and one of the more difficult things to accept is a somewhat fundamental truth -- that there is little or no benefit to 20 or 30 years worth of observations made of a process that is largely random. There's nothing to be learned from experience with a random process.

I don't think anyone argues that the market is completely random. If that were the case, there would be no long range upward trend. It could be expected to as likely trend down an average of 10%/yr over a 40 year period as to trend up 10% over that period. Complete randomness would do away with the concept of "stocks for the long term." True randomness would make equities a fool's game and almost all of us fools.

 

[FIRE'd@51]

I don't think anyone argues that the market is completely random. If that were the case, there would be no long range upward trend. It could be expected to as likely trend down an average of 10%/yr over a 40 year period as to trend up 10% over that period. Complete randomness would do away with the concept of "stocks for the long term." True randomness would make equities a fool's game and almost all of us fools.

You can have a random process with a non-zero mean. That's what the EMH is all about.

 

[Sheryl]

Well, there's the "magic of 1035" and the reality of capital gains..........

Did you mean 1031?

 

[mathjak107]

stocks trend almost randomly daily but the longer you go out the more the trend is up. 2/3 of the time in fact stocks are up. thats far more than random. thats why market timing is sooooo hard, the house is stacked against you catching a downturn just right

 

[FIRE'd@51]

stocks trend almost randomly daily but the longer you go out the more the trend is up.

That's because the mean of the distribution (i.e., the return) increases linearly with time, while the standard deviation (volatility) increases with the sqare root of time. Thus, the ratio (return/volatility) increases with the square root of time.

2/3 of the time in fact stocks are up. thats far more than random.

It can still be random. It just that the distribution is centered around a positive mean.

thats why market timing is sooooo hard, the house is stacked against you catching a downturn just right

I agree with you on this.

 

[mathjak107]

oooooooooooh baby i love that talk.

 

[FIRE'd@51]

 

[hellbender]

Exactly! Why do people dis real estate investors and then pimp stock investments as superior? Stocks are less stable and less predictable than real estate, yet the historical returns are very similar.

Good question. I have seen over and over where equity hawks compare the returns of equities and real estate. They usually (tee hee :) omit the income component of the real estate return, preferring instead to reference data pertaining to the rate of appreciation (only) of single family homes. Now generally, these are not stupid people, so why do they resort to such chicanery?

Perhaps it is because they realize that no one actually has to own equities. The demand for such investments therefore has to be created and maintained artificially. It helps if you can perpetuate the fiction that "stocks outperform all other asset classes" (yawn) or that real estate is too illiquid or too much work. It is the very liquidity of stocks that allows many investors to take actions which are contrary to their own best interests. Of course the idea that unlimited riches are available without requiring any effort has always had broad appeal.

I don't own equities but I don't care if others do. I don't mind if the equity hawks like to downplay the attractiveness of real estate and hype the (mostly theoretical) returns available from stocks. I don't need the competition. My temperament is not well suited to equities. My real estate activities have always been more productive for me. I marvel at the machinery in place to convince the average Joe that ownership of equities is the only hope they have for a solvent retirement. I don't believe it though . . . . and I have this persistent niggling feeling that in the time frame of the boomers retirements, that equities are going to be a major dissappointment. I like the idea that real estate has real value and utility no matter what happens to the capital markets.

I hope that equities perform well, but good or ill, the gyrations of the equities markets are for me just a matter of passing interest.