Real Estate Investing: Avoiding the Most Common and Lethal Mistakes

Many investors get into the real estate game because they believe they can get rich quickly — they buy property, collect great amounts of rent for a couple of years, and then sell when prices appreciate. This is not how real estate works, however.

It takes time, even decades, to see significant returns. It also takes care, learning, and a willingness to put in years of effort to make the most of such an investment. When one is willing to invest all this in a real estate venture, returns can be far better than can be realized in the stock market. However, investors who believe they only need to throw money at a property and do little else usually do not do well. This is only one of several cardinal rules of successful real estate investment.

If you’re interested in real estate investing, you need to make sure you understand the way the world of property investment works. Here are the mistakes that you should stay clear of.

Taking on more than you can manage

A number of things go wrong when you take on far more property management than you have time for. You can take in tenants to fill up your rental units, but you aren’t able to pay attention to them to make sure they comply with the rules.

It also can be hard for you to comply with your end of the bargain too. Keeping up with calls for maintenance, and finding the cash to deal with maintenance needs, can take work. You can even find it hard to find new tenants when people move out.

The answer to some of these problems, of course, is to sign on with a qualified lettings agent to manage your properties for you. This will free you to do what you do best — find the resources to manage and maintain your investment. Specific tasks are usually best done by dedicated professionals.

According to RussellRes.com, the prominent professional lettings agency, the problem of inadequate management comes about when people get into real estate investment without giving adequate thought to the responsibilities involved.

Not creating a proper accounting system

Whether an investor owns one property or several, it’s a business, and it needs to be treated as such. Investors need accounting, record-keeping, and management systems. Without these in place, there’s likely to be much trouble during tax time; money will be lost to missed potential deductions and penalties for underpayment.

Not understanding cash flow

Many people believe that all they need to succeed at business is a great product, that “if you build it, they will come,” and if paying customers come, there’s no way to get into trouble. This is hardly true, though. Dozens of businesses with successful products and full order books file for bankruptcy each year, simply because they are unable to understand the distinction between ensuring income and ensuring cash flow.

A full order book and plenty of sales will ensure that there is enough money coming into the business when income is averaged over a period of time. General accounting deals in averages. Cash flow accounting, on the other hand, deals with the availability of cash to pay bills and other obligations at specific moments when those obligations come due. If a businessman is unable to pay a supplier because he had been looking only at average cash inflow and not at whether he would have cash at a given time, he will be sued or will at least lose his reputation.

This is the problem that many inexperienced real estate investors face. If they have a couple of empty rental units in a given month, they may not have enough cash for maintenance or property tax when such needs come up. Any investor who hasn’t budgeted for enough savings to manage such lean periods can get into serious trouble.

Refusing to get advice

Many first-time investors get into real estate hoping to be the strong, silent, and independent type, who doesn’t need help. But no matter what appearances may suggest, it isn’t possible to do well in any kind of business, let alone real estate, without the help and intervention of advisers who have had success in the business. Advisers are needed for the business aspects of investment and property management, as well as for information on how the physical work of maintaining property is done. The more advice you get, and the more you pay heed to it, the more successful you will be.

The best way to avoid serious mistakes in real estate investment is to do your homework. Not only do you need to read up, you need to work in a successful real estate investment firm to see how they deal with things. It’s hard to go wrong when you observe those who are successful.

Lauren Khan works as part of a property investment team and is always pleased to share her experiences and suggestions with an online audience. She writes for a variety of investment and property websites on a regular basis.

Copyright 2015 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

4 Reasons You Should Ignore The Stock Market Doomsday Preachers

The stock market has not been pretty as of late.  All three major US indexes are in or have at some point recently dropped into correction territory, which is noted as a 10% drop.

The bulls that drove the stock market to more than double over the last few years have taken a break, and the bears have been more than happy to step in and finally be right.  However, I think that there are some who are way off the mark.

Is This 2008-2009 All Over Again?

There are many out there who will happily tell you that the stock market is headed for another crash like the one that happened in 2008-2009 when the markets lost over half their value in about an 18 month period.

They claim that the Fed artificially propped up stock prices over the past few years, and that their effect is over, and we will now return to those levels (and some claim lower)!

They claim that the global economy is so dire that the entire world is going to crash and burn any day!

They claim that just about anything and everything is a bubble and they’re all going to burst!

To all of that and any related thesis about an imminent market crash, I am very skeptical. Let me explain why.

Here are four reasons that I don’t think the market is headed for a crash.

There are no signs of a foreclosure crisis on the horizon

Remember the early 2000’s, when prices in just about every neighborhood were skyrocketing?  10% increases in mb-201312billscoinshome values a year?  No problem.  People could buy a home and be comfortable that they’d turn a profit in as little as a couple of months.  However, as we now know this was all built on a house of cards caused by bankers giving out loans that they should never have been doing.

Look around today.  While home prices have largely recovered, the volume isn’t there.  There’s less houses being sold.  This is a good thing.  It means people are actually buying and selling because they need to, which removes most of the speculation that drove the previous rise and fall.  While there are flippers out there, the practice is much less common and you have to actually know what you’re doing to make it work.

In other words, this is a fairly normal housing market that has solid footing, and while values could flatten or even decline, the crash in prices and spike in foreclosures seems very low risk.

Banks aren’t built on a muddy foundation

Remember the images of Lehman Brothers closing?  People walking out carrying boxes.  A giant building suddenly with no purpose.  A company that had handled and been responsible for trillions of dollars and in business for well over a century suddenly….gone?  We all saw the images and they hit home.  The fact is, while Lehman was the only major casualty of the giant banks, it could have gone further.

Luckily it didn’t.

When it all shook out, it turns out that very few banks were in great shape.  Most had gotten so consumed with the housing mess that it could have all come tumbling down.  Lehman wasn’t fortunate enough to get another chance, but many still did.

And the results show today.

Banks now must routinely go through stress tests, where a simulated economic disaster takes place, and banks must show that they have the liquidity and the financial strength to weather the storms.  When these stress tests first rolled out, very few banks passed.  Now, all the major banks have showed strength and routinely passed stress tests.

Is every bank guaranteed to survive some economic event that might happen? Of course not.  But, the industry as a whole is now must stronger and is not at risk of collapsing at any moment.

Unemployment numbers are solid

One argument that the mega-bears use is to point out that economic recovery is slowing.  This is true, but when you compare it to a few years ago, is this really a big surprise? We were just coming out of the biggest economic catstrophe in 80 years, so when things started going in the right direction, it was no surprise that things started picking up quickly.

Unemployment stands at just over 5% today.  That’s the lowest in years, and while employment gains are shrinking, I believe that it’s because of what the numbers show, that many people have jobs.

Many people will counter that argument by stating that the unemployment number is flawed, because many people simply dropped out of the workforce.  I can’t prove that’s wrong, but to me, just by emperical evidence, it’s pretty clear that more people are back to work these days.  I just don’t see the Facebook posts of people sitting at home looking for work.  I have automatic alerts about jobs in my area for my profession, and I see the number of opportunities getting bigger in number.  I just don’t see that unemployment numbers are a reason to predict a crash.

On top of that, I also think that the fact that unemployment has grown slowly and steadily over the last few years is a reason for strength right now.  Many past recoveries saw job numbers grow very quickly after a recession, only to see the large gains get undone at the first sign of trouble.  I believe in our current economy, employers have added jobs as they are truly needed, and the risk of them quickly unwinding the hires of the past few years is low.

Other countries do not drive us (though they can ride shotgun)

But….but…..China….and….Greece……yeah….they go down, we go down.

Isn’t that what many fear mongers have been preaching over the last year?  Every time China slows or Greece slows, the market goes into panic mode and the perma-bears pat themselves on the back in satisfaction.

Whatever.

The fact is that while we now have a global economy where things in other countries will impact us from a financial perspective, we still drive our own economy.

Let’s think about this?  The last time the situation in Greece came about, the stock market lost more value than the entire annual GDP of Greece!  Again, I understand the situation was no laughing matter, but perspective sometimes gets lost, and those who want to see doom and gloom will latch onto any little bit of news and make it seem like the entire country was going to basically fall into the ocean and all economic activity would cease.

Greece, China, and other countries will all have issues.  Will they impact us?  Sure.  But are they going to blow our economy out of the water?

Not likely.

So what does it all mean?

Am I here to tell you that the stock market shouldn’t have fallen?  No.  Am I hear to tell you that it won’t fall more?  No.  In fact, I could be completely wrong about everything I’ve said.  Maybe the market will tank.

But, I don’t think it will.  I’m keeping my portfolio aligned with that opinion (and that’s all it is).

I don’t see the perma-bulls getting hold anytime soon.  Will the Dow hit 20,000 this year?  Probably not (though wouldn’t that be nice!).  But will it go under 10,000 like many seem to love to call for?  I just don’t see it happening.

I think that there will be a lot of volatility.  I think right now this is caused more by the market sensing fear and trying to shake out the weak hands.  Unfortunately, if this is true, a lot of people will get shaken out, suffering losses, and then they’ll miss out on the upside again.

That’s what the fat cats on Wall Street loves to do to the retail investor.

So before you make a big move in the market, whatever it is, make sure you look past whoever it is that’s telling you that things are going to go way down (or way up) and make sure you understand for yourself the things that are going on and that you have your own belief in what’s next.

You might be right and you might be wrong, but at least you won’t be trusting someone else.  Because let’s face it, all those ‘someone elses’ don’t have the best interests in mind for your money despite what they say.

Readers, what do you think? Is the market headed for a crash or a rise or somewhere in between?  I’d love to hear your predictions and thoughts on what’s driving the market these days.

Copyright 2015 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

Those Who Short Stocks Are Terrible People

I generally try to avoid stereotyping people with generalizations, but I’m pretty much at my boiling point and have come to the realization that I can’t stand people who focus their investing on shorting stocks.

What Is Short Selling?

Shorting a stock is basically the opposite of purchasing a stock.  You short if you believe that a stock is going to go down.  You basically ‘sell’ a stock at the price it is today, and then later on close the position by ‘buying’ it at what the price is at that point.  So, if you have a stock that’s worth $10 today and you short 1,000 shares, then close your position when it’s $9, you’ll pocket $1,000, or $1 per share.

Obviously, there’s risk involved with it, in that if the stock goes up in value, you’ll lose money since you’ll have to close your position at a higher price.

Why Do I Dislike Short Sellers?

I do a little trading in stocks now and then.  As such, I follow the stocks in which I have positions or am interested in potentially opening a position.  I follow message boards and forums, and it’s between what I’ve observed here as well as a general understanding of the practice that has led me to the conclusion that short sellers are terrible people.

Disclaimer: I want to make a distinction here. Although I’ve never shorted a stock, I have thought about it in instances where I believe that I think a stock is overpriced.  I’ve never acted on it, but if someone opens a short position here and there, I could place them outside the generalization.  Maybe.

  1. They are the meanest people on message boards – I don’t take message boards and their content as very much weight when making potential investment decisions, but I do read them to get an idea of sentiment. And, if there’s a stock that has a high level of short interest, they are outright mean.  It’s one thing if you want to make money for yourself, but people who short stocks actively wish for and express happiness for those who lose money.  It’s disgusting.
  2. Short selling is, by itself, negative – Movies and books finish off with a happy ending most of the time, because that’s what people like.  Short selling is akin to an unhappy ending in a movie.  A person shorting a stock is hoping that it goes down.  This generally ties to the underlying company doing poorly.  While not always, a poorly performing company is often losing money, laying people off, and such.
  3. The perception of corruptness – If you open a trading account and want to short a stock, your broker is supposed to have the corresponding shares available that you’re shorting, generally in the portfolio of another investor.  After all, you can’t simply create shares out of thin air.  This would be ‘naked short selling’ and while this is illegal, you’ll find that there are few out there that don’t believe it doesn’t happen.  And, we’re not talking retail investors, we’re talking that there are hedge funds out there opening short positions that they can’t cover, but because the SEC effectively enforces nothing, who’s to stop them?  Nobody.

Regulation Is Needed In The Practice Of Short Selling

I think that three things need to happen to control the short selling that I believe has gotten out of control.

  1. Monitor naked short selling – Spot checking should be done to match up short positions with available shares to ‘buy’.  If they don’t match, then there is naked short selling occurring and this should be punished.
  2. Identify and punish short manipulation – It’s generally believed that hedge funds that have large short mb-201312billscoinspositions will often open and close small positions to drive down the price.  This works in periods of low volume.  In a simple example, if you’ve got three investors each with 100,000 shares short, and there is no volume, then they could start trading 100 share blocks between themselves, pushing the stock down with each trade.  What reason would someone holding 100,000 shares short have to buy and sell 100 share lots in a low volume day?
  3. Re-implement the uptick rule – For awhile, there was a rule that a short trade could not be executed until the stock went up.  If a stock was trading and went from $10.00 -> $9.95 -> $9.90 -> $9.85, then a short transaction would not be filled.  Only when it went back up to $9.86 would it be filled.  This was designed to prevent shorts from accelerating a declining priced stock.  But, that rule was ‘suspended’ and now it’s easy to jump in and short a stock that is already lowering in price.  This has the snowball effect of pushing the price further down, not to mention that it keeps potential buyers on the sideline who know that it’s being attacked, which ends up hurting the price even more!

As you can tell, I have no love for those who short stocks.  I don’t believe that the market always needs to go up, because that’s unreasonable and that’s how bubbles happen.  But, I equate shorts with vultures, in that they’re simply opportunistic and greedy and take a bad situation and make it worse.  Why in the world do we advocate that?

Readers, do you have any knowledge or opinion on short selling stocks? What do you think?

Copyright 2015 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

Things I’ve Heard Said About Forex

There are many different ways to invest, trade, make, and lose money out there, and just about all of them are available in some fashion on the Internet.  One of the big buzz words that I’ve heard over the past couple of years has to do with Forex trading.  I thought I would do a little digging on my own to find a little bit more information about forex and find out whether the things I’ve heard said or have wondered about are true, false, or somewhere in between.

  1. I’m not sure what Forex means? Forex is an abbreviation for foreign currency exchange.  Basically, you can trade based on how one currency (e.g. the American dollar) will trade against another.
  2. Is forex legal? Yes, forex is very much legal.
  3. Is forex regulated? That’s where it gets complicated.  Every currency is its own independent ‘thing’, and there’s not one body in the world that oversees all regulation.  So, forex trading may be regulated within certain countries, but the fact that currency exists in so many different forms makes it impossible to regulate whether trades regarding currency exchanges can take place, and how they can be worked.
  4. Is there a forex market?  Not really.  Most market exchanges like the Nasdaq or NYSE are open for a certain period of time.  Since currencies are trading 24 hours a day, forex trades can really be made 24×7.
  5. Can I trade forex with my brokerage? Simply put, no.  I use TD Ameritrade for my non-retirement brokerage needs, and I’m allowed to trade various investment instruments such as stocks, ETFs, mutual funds, bonds, options, as well as many others.  Forex is not an option, and it ties back to the reason in my last point, in that it does not have regulations around it, and most brokerages can’t or won’t trade in instruments which do not have regulations.
  6. Then how does one trade forex? If one is interested in trading forex, it is possible.  There are many reputable sites available where you can participate in this type of trading.
  7. Is it risky?  Sure.  Since these sites are not regulated or backed by the government, you don’t have protection.  Forex trading definitely amps up your level of risk, but there are many investors who are risk tolerant, and live by the rule that higher risk can lead to higher reward.
  8. Does Money Beagle trade forex?  Nope.  While I certainly appreciate those willing to take high level risks in their pursuit of making money, I do not have anywhere near that level of risk.  Still, as someone interested in how the markets and investments work, I’m always interested to watch others.
  9. What’s this about manipulation?  Recently, there was a settlement by hedge funds who were accused of manipulating the forex markets.  There’s definitely a risk here.  If a party has the money and gumption to make currency trades that could actually impact the price, that is, at its simplest, a form of manipulation.  The markets are supposed to move on their own, and forex trading is meant to trade against those movements, not drive them.  I would speculate that one way a forex trader could eliminate this risk would be to trade within currencies that have high volumes, where a staggering amount of capital would actually be needed to move the exchange.

There’s a lot to learn about this forex, and as it is a fast growing, ever evolving market, it will be interesting to see how things develop in the future.

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