Real Estate Investing Without the Drama…..

real estate trade


Real estate trade is a good source of income. In a previous article, I talked about why Real Estate was the best investment.  It didn’t have anything to do with the real estate market.  In fact, if you compare charts, the U.S. Stock Market’s performance has dwarfed that of the U.S. Real Estate Market.  So why did I say that Real Estate was the best investment?  Real Estate is superior because of the strategies you can implement.

For example, it’s easier to buy real estate on leverage than it is to buy stock.  You can also rent out your real estate, whereas most stocks generally pay single digit dividends at best. Properties can often be found at a discounted price, while shares of stock generally only trade close to the current market price. Tax advantages also come into play, and the list goes on.


Real Estate Investing Is Harder Than It Looks…

Real Estate can make you rich.  But it can also bankrupt you if you make some bad decisions.  There are many challenges in real estate that they don’t show you on TV.

For starters, dealing with agents usually entails paying thousands of dollars just to conduct a transaction.  Attorneys and title companies will cost you more.  Then of course, you have to worry about complying with town codes, and paying your share of fees and taxes to both buy and own a property.  Thousands of dollars can be wasted on ineffective marketing campaigns.  Negotiations can fall through.  There are countless other obstacles that  can kill your business before it ever gets off the ground.

I’m not saying it isn’t worth it.  But it’s a real business.  You need to have the emotional fortitude to withstand the ups and downs of real estate drama.


Real Estate Investing……In the Stock Market?

The real estate investors who succeed to the point of becoming multi-millionaires, do so through becoming brilliant strategists.  They dedicate themselves to understanding how to become expert niche marketers, developing extensive due diligence checklists, and assembling teams and resources that make their operations incredibly more cost efficient compared to their struggling competition.

Not everyone gets there, and many give up on their dream of becoming a real estate mogul.  I almost did.  But one benefit of being squeezed is that it can lead you to consider radical new ways of thinking.

I came from a stock market background.  I was pretty good at it too.  I studied the masters like Warren Buffet and Charlie Munger, and applied their way of thinking to my own investing.  But it wasn’t until I immersed myself in real estate that I realized you can apply the same way of thinking to the stock market.  And you can do it without a lot of the drawbacks of traditional real estate.


The Best of Both Worlds…..

There are three main tools real estate investors use to grow rich incredibly fast.  The first and most obvious is one is LEVERAGE. Only using your own money limits your ROI.  But if  you flip a property using 90% leverage, it increases your ROI about ten-fold.

The next tool real estate investors use is CONTRACTS. The beautiful thing about contracts is that they lock in your terms, and they insulate your potential investment from the competition.  In real estate as well as in stocks, your money is made on the buy.  When you can buy a dollar for fifty cents, you don’t even need the market to go up to make your money.

Lastly, Real Estate Investors use CASH FLOW. Cash flow out of any investment immediately starts mitigating your risk.  Who cares what the market price of your rental property is when it’s paying you positive cashflow for the rest of your life?  As long as it keeps paying, eventually you’ll be able to get all of your money back off the table.

What if I told you that you could use ALL THESE TOOLS in the stock market?  But instead of spending thousands on marketing, the deals would come to you.  Instead of negotiating with emotional sellers, you could just lock in your terms at the click of a button.  Instead of paying predatory rates to hard money lenders, you could find affordable leverage as soon as you spotted your deal.  Instead of paying agent fees, attorney fees, title fees, transfer fees, taxes, property management, etc., it only cost you about $8.00 to enter or exit a deal.

I had gotten my butt kicked in real estate not just because of the challenges, but because the stock market investor inside me kept saying “There’s a better way to do this”.  So I designed a way to be just as profitable as successful real estate investors, but without all the risk, expense, and headaches involved with traditional real estate.


Wholesaling…..Real Estate Vs. Stocks

Wholesaling is where most beginner real estate investors get started.  Since they’re new to investing, they’re undercapitalized.  They can’t afford to put down 20% on a property.  Instead, they become professional deal finders.  They find properties at a 50% discount.  They don’t need to be able to afford the entire property. They only need the earnest money to get the house under contract.  And once they find an investor who can take on that deal, the wholesaler can simply SELL THE CONTRACT for thousands of dollars as a quick profit.  In terms of annualized returns, this is usually the most lucrative strategy.  You can put almost no money down and make a 1,000% or more in as little as a several days.

Wholesaling means you risk very little money to acquire a CONTRACT, and you use that contract to LEVERAGE the value of the deal.  The problem is that when markets get highly competitive, these deals aren’t always available. You can easily waste thousands of dollars on bandit signs, direct mail, and social media campaigns, only to be throwing your offers at sellers who have already signed up with an agent or another investor.

However, in the Stock Market there are ALWAYS deals waiting to be scooped up.  Once you understand how the fund managers on Wall Street drive the market, you’ll realize that the waves they create are always putting stocks on sale which is perfect for our wholesaling strategy.  That means you no longer need to pump thousands of hours and dollars into uncertain marketing outcomes, and you don’t have to wait months on end for your next deal.  It all stays in your pocket for a greater ROI.

Once we find a stock that’s selling at a discount, we put a little money down to get that stock “in contract.”  We buy a call option that locks in our price for the next two months.  Over the next two months, the owner of the stock has to sell the stock to me at the agreed price if I so choose.   If it goes up 1%, 5%, 10%, I still get to buy that stock at the price I locked in.

Now here’s what’s really cool.  Let’s say you own the stock directly.  If you own the stock, and the stock goes up 5%, you only make 5%.  But let’s say that you paid $1.00 to lock in your contract at a 1% discount.  If your contract now sets a price which gives the holder a 6% discount, essentially your contract just became 6 times as valuable.  And that’s why it’s not uncommong to make 50%, 100%, or even 200% return in as little as several days.  Now that may not sound as impressive as the real estate wholesaling returns I sited above.  But you are finding deals every week, with no marketing, no negotiations, no attorneys, and no waiting around for months on end for your next deal.

If you can grow your money even at a rate of 20% a month, that compounds to about 1,000% a year.  Pretty crazy right?  $1,000.00 would grow to $1 million in 3 years.  I know many real estate investors who even have some deals under there belt who are still nowhere near that. Warren Buffet has only averaged an ROI of around 26% annual.  But because he has consistently performed at this rate, and used leverage to amplify his returns, he’s now worth over $80 billion.


Subletting……Real Estate Vs. Stocks

Subletting isn’t one of the major strategies we hear about in real estate.  But it’s actually one of the most brilliant and profitable ones.  Subletting is a pretty simple concept.  You rent a property, and then rent out your rented property for even more money.  For example, you rent a condo for $1,000.00 a month, and then you rent it out to somebody else for $1,300.00.  You use the rental income to cover your costs, and keep the $300 in positive cash flow.  Your only risk is if you can’t rent out each month.  Then you’re down $1,000.00 instead of being up $300.00.

So let’s do the math on this.  In reality, each month you risk $1,000.00 to make $300.00. That means you need to have occupancy every 4 out of 5 months to make money, AKA an 80% occupancy rate.  If you can pull this off you’re making money at 100% leverage.  You don’t own anything but you’re generating positive cashflow.

Here are the drawbacks to subletting.  If owners know they can get rent of $1,300.00, why would they on settle for a $1,000.00 from you?  You need to bring some sort of value to the equation to justify your cut of the rent.  Essentially property management companies are experts at subletting.  They’re able to justify their cut of the rent by taking over the management of the property.  They take care of vetting tenants, collecting rent, maintaining the property, handling evictions, etc.  That’s why the landlord will part with a portion of the cashflow.  It’s a great way to make money, but not everyone is up to starting a property management business.

Subletting stocks is quite a bit different.  First, we don’t take on the “rental property” until we’ve already found a “tenant” willing to pay us the “rent” up front.  That means worrying about occupancy is eliminated.  If we don’t find a tenant, we aren’t risking any money.  Secondly, we don’t need to manage a stock.  There is no maintenance, vetting, evictions, or other headaches.  Instead we create our value by promising to pay the landlord’s “insurance deductible” if their “property” gets trashed.

Stay with me now.  Let’s say we find a stock that we feel is very stable.  It’s not going to tank over the next month, and we have someone who wants to rent it from us.  So we draw up a 30 or a 60 day lease agreement, and we charge them $1,000.00.  We then go to the landlord, and we rent the stock for $600.00.  We create $400.00 in positive cashflow up front.  And the only promise we need to abide by is that if the stock gets trashed, we have to pay their $1,000.00 deductible.  Since we already received $400.00 in positive cash flow, we are only risking $600.00.

$400.00 against $600.00 is about 67%ROI!!!  If you can make 67% every one or two months, with only the occasional loss, you are going to compound your wealth quickly.  We love this strategy because it’s so stable.  Even compared to the wholesaling strategy, this is way more consistent.  The reason why is that we get paid up front.  We don’t need any kind of stock market increase to make our money.  And just like with the wholesaling deals, these opportunities are popping up every week.  Good luck getting consistent subletting deals every week in traditional real estate.


The Easiest Rental Property You’ll Ever Own……

The strategies mentioned above are what we use to generate lump sum capital.  We want to grow our wealth as quickly as possible so that when we’re ready to invest more passively, the residual income is sizeable.  Let’s say you had 3 good years, and you grew $1,000.00 to $1 million.  It’s now time to start letting your money work for you.

In traditional real estate, wholesalers and property flippers focus on building up enough capital to buy rental properties.  You generally don’t make your money as quickly, but a well-managed rental portfolio will stream rental income directly into your bank account with much less effort.  In addition, rental properties are typically purchased with leverage in the form of long term mortgages.  This brings leverage back into the equation so that investors can get far higher cash on cash returns.  It also allows them to pull equity back out of the property in the form of home equity loans which are then used to purchase more properties.

Many investors do get rich over the long-run even without wholesaling or flipping.  One of the best strategies out there is known as the BRRR method. (BRRR stands for BUY, RENNOVATE, RENT, REFINANCE.) It combines the benefits of rehabbing a property with the benefits or renting them out for passive income.  The first step is to find a fixer-upper property in a good rental market.  Once you find it, you calculate the cost to buy and fix up the property.  Let’s say it cost you $50,000.00 to buy, and another $40,000.00 to fix up.  So your total cost is $90,000.00

Here’s where it gets interesting.  Once you renovate the property, it will appraise for higher than the amount you put into it.  The $40,000.00 in work you put in can often result in an $80,000.00 appraisal increase.  That’s free equity!  And because you renovated it, you can also rent it out for more as well.

Once they get it rented out, they refinance the house to draw the free equity out in the form of a new mortgage.  The tenant will pay your new mortgage payment, and the lump sum cash you pulled out is considered a loan……so it’s not taxable!

So let’s stop right here.  This is the one strategy that I really haven’t found a way to imitate in the stock market.  In fact, I’m always looking for these deals because they are great strategy to pour your lump sum capital into.  BUT even this incredible strategy still has certain drawbacks.  You still need to market for them.  You still need to manage them.  You still need to deal with contracts, attorneys, tenants, and all the drama that can come with rental properties.  It’s not for everyone.

Now I may not have a stock market strategy that works exactly the same way. However, I do have rental income strategy that is about as passive and headache free as you can get.  So here are the drawbacks to this strategy.  You can’t use high leverage in this strategy.  You can’t refinance your stock to pull out lump sum capital.  You can’t renovate your stock to add free equity to it.

Here’s why I still love our strategy.  There’s no marketing, no agent fees, no property taxes, no maintenance, and no evictions or lawsuits.  There’s no dealing with the town, or fixing a toilet at 2am.  Instead, we simply buy real estate on sale right from our computers.  We only hold the income property while it is increasing in value.  And we collect dividend payments over 10% annual.

Here’s how we do it.  Uncle Sam is much nicer to Real Estate Investment Trusts (REITs) than they are to traditional Stocks.  Since the goal of a company is to pursue profits, all earnings get taxed on the corporate level before getting paid out to you.  But the purpose of a trust is simply to hold assets for it’s owners.  That means that the earnings that come into an REIT are not taxed on the corporate level so long as they get paid out to the investor.  What this means is rather than getting a miniscule 1.5% dividend from your stock, you are instead getting dividends ranging anywhere from 5% to over 15% annual.  We only invest in REITS with yields over 9%.

If you ask any rental property owner, they will tell you that positive cash flow over 8% is pretty decent.  So when you can get 10% to 15% without any of the drama, you’re doing pretty well.  However, our strategy doesn’t stop there.  Remember what I said about recognizing the trends created by Wall Street?  Well Wall Street will periodically crash these REITS to where they are on sale.  Historically speaking, not only does this strategy generate double digit cash flow.  We’ve seen market value increases ranging form 30% to over 90% as well.  In my opinion, those types of gains largely make up for the limitations I previously mentioned.  Oh yeah, you can also buy them on margin which brings some leverage back into the equation.


Which Is Better?

The purpose of this article is not to put stocks above real estate.  In reality, you’d be best off by becoming proficient in traditional real estate as well as the stock market.  When you can find a true wholesale deal that will make you thousands of dollars in a few days, you better know how to capitalize on it.  If you do find a property where you can apply the BRRR method, you might as well jump on that as well.  In my opinion, stock market is great use of your money when the deals aren’t coming in.  Being able to generate lucrative returns rather than sitting on cash for six months seems like a way better idea to me.  It also makes sense when you’re brand new to real estate, and you need something to back you up while you figure out how to operate your business effectively.

One area where the stock market truly does beat real estate is liquidity.  It isn’t easy to get in out of a property.  It costs a lot of money, and it can take a significant amount of time.  Meanwhile, the stock market allows me to be in or out of a position at the click of a button.  That means I can keep my money working until the day I need access to it for my other real estate deals.  And unlike real estate, I can reinvest smaller sums of money as they trickle in.  In comparison, I would have to amass at least another several thousand dollar down payment before I could get that capital working in my next deal.

My wife and I have a great arrangement.  She works as a real estate agent, and a private money loan officer.  She loves real estate and has many different ways to monetize on it.  I manage our money when there isn’t a deal on the table.  And trust me, if you’re new to real estate, you can go over a year without a deal on the table.  That’s a year wasted if you didn’t have any other strategy to make you money.


Real Estate Meets Laptop Lifestyle…..

I’m not sure whether you’re struggling in real estate, or if you’re new to investing, or even if investing never even occurred to you until just right now.  But no matter where you’re starting from, we are always here to help you succeed.  If you’re in need of a real game changer, I strongly suggest you watch our video on exactly how we implement the strategies described above.  TAKE A LOOK…..


About The Author


I am a college drop out who found my passion as an investor. I love the many facets of finance, investing, and business. But even more than that, I love sharing what I learn with others.

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