Intro to Real Estate and Stock Investing – Money Mailbox

by David@MoneyNing.com · 25 comments

I was wondering if you can offer me any information about investing in stocks and real estate. I am tired of doing this shift-job. My hours are 7-3, and getting a salary with one minute you have it and the next minute its all gone. Please help.

– Writes Beckie

First of all, good job with wanting to do better. The drive to have financial stability is an important (and seldom talked about) first step in financial independence. But here’s the reality. What you need to figure out first is not how to invest, but to learn how to live below your means and save. Investing requires capital, and that comes from money you have. It could come from savings, or from a side hustle. Either way, money doesn’t grow on trees.

And don’t listen to everyone who tells you that you can make money in investments out of nothing either. While there are examples of people who seem to be stock picking geniuses, the odds of someone having those abilities seem to rival winning the lottery. The majority who become wealthy with investing do so from income generated through managing other people’s assets. Getting rich solely with the stock market, or other investments, is largely a fantasy. It’s possible, but chances are slim that you could do it. Investing will help your money grow, but if you need it to explode to the upside to replace your job, I hate to say this, but don’t bet on it happening. Again, save, save, save, and put it in online savings accounts first.

Once You Have Money to Invest..

This is when you can look at the different alternatives available to you. You mentioned real estate, so I assume you mean rental properties. Being a landlord is a business, and it requires work. Managing tenants and properties is not easy, so embrace the fact that you are getting a second job. Many who first start in real estate get a reality check when their tenants call them at 3am in the morning to fix a toilet seat.

If you don’t mind that…

In real estate, there are usually two types of investors.

  • The cash flow investor, who buys properties to provide a positive cash flow when it’s rented out. These investors generally have no intention of selling the underlying asset. Or
  • The appreciation investor, who is buying a property expecting to sell it at some point at a higher price.

In practice, most investors are a mix of both, but in my opinion, it’s much better to figure out what the goal of the investment is before you even start. This way, there’s less chances of letting your emotions wreak your investments. For example, if you are a cash flow investor who can’t find a property where the rent exceeds your mortgage payment plus miscellaneous cost, you need to wait. I know people who have bought properties for possible appreciation. Then when the housing market tanked, they rented them out at negative cash flow hoping that the value of the property will rise. Since then, the value dropped another 30%. Not good if you don’t have the capital to hold onto it. Real professionals have a plan before they start. Don’t be like most people and try to get lucky.

Ultimately, people tend to fall under each based on their personality, but most people start out as cash flow investors because cash flow properties are generally cheaper to own (and hence require less capital to start). If you choose this route. Make sure you are bringing in enough money each month to justify the cost of your time managing your property as well.

I have thought about rental properties myself, but I think REITs are more for me. Here’s an article where I talked about the pros and cons of both, along with one where I compared an investment property with a dividend yielding stock.

What about Stocks

This one is easy. Skip stocks. They are too volatile and I actually have never met anyone who spends the necessary time required to consistently do well. Instead, build a diversified portfolio of index funds, and set it up so you regularly invest in them. It’s boring, but it works wonders. The best part is that this requires little effort and knowledge, and money you make from your own investment is, for the most part, passive income.

One type of index fund I can strongly recommend is the dividend paying type. As I mentioned before, I like these because when the market is down, re-investing the dividends will automatically force you to buy more at low prices. They are generally less volatile as well, which help people sleep at night.

That’s It?

As you can see, this barely qualifies as an introduction to investing. There is much to learn in the world of making our money work for us, and one short post will never be enough to write all there is to know. Continue to ask questions, and more importantly, learn from your own experience and keep reading. You will for sure be more comfortable once you get started, and knowledge allows you to ask even more specific questions, leading ultimately to more insights.

Keep learning, because that’s actually where the fun is.

Any one else have other recommendations for Beckie?

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{ read the comments below or add one }

  • Nathan Lyon says:

    Hello, I like your tip about looking at the value of the neighborhood before buying. That makes sense considering you want to estimate what the value of your potential home would be. I’ll have to consider your tips so that we can get a house in a safe neighborhood.

  • Anderson says:

    Financial advisors are a great option, though one should probably accumulate a bit of assets before finding one to make it worth while.

  • James says:

    Managing tenants and properties is not easy, so embrace the fact that you are getting a second job.

  • zack smith says:

    I agree with it. Real estate is a great source of making money if you are investing your money in a good property then it will help you in your future. I bought a house in one of the posh area in Cypress, TX and now I give it on lease and earning a lot through this property. such a nice post!

  • carry says:

    Hello, I like your tip about looking at the value of the neighborhood before buying. That makes sense considering you want to estimate what the value of your potential home would be. I’ll have to consider your tips so that we can get a house in a safe neighborhood.

  • lisa says:

    The key is to know your investments, since no one particular one is worst than another. For most people, real estate is easier to understand because they see the asset and can better foresee risks. For others, stocks are a better way to go because information about it is actually more readily available.

  • Arminius Aurelius says:

    P.S. I never buy Real Estate or stocks when the market is roaring and when the masses jump in . I patiently wait until the market crashes and then buy dirt cheap . It can take 2 or 3 years waiting [ not easy ] but I NEVER lose money .

    • Arminius Aurelius says:

      P.S. by the way Beckie , you are not happy with your chosen work BUT …….. you still have to have an income aside from what you will collect from rent in order to survive . The majority of your rental income will go to pay off your loan and then of course you have to pay yearly property taxes , repairs and maintenance , etc. You cannot live on what is left . Gradually over the years as the rent increases you will ” earn ” more and more money . I never took out a mortgage for longer than 7 or 8 years , therefore I earned less money every month BUT I saved Mega Dollars in interest . Plan for the future NOT for the here and NOW . There is NO free ride . Arminius

      • Arminius Aurelius says:

        I want to clarify something on two of my responses , on September 20, 2019 I said I never took out a mortgage [ loan ] for more than 7 to 8 years …..I meant a loan for a bankrupt business I bought . I was able to turn the business around within 1 to 1 1/2 years and earn good money. On April 30 , 2015 I said I took out 15 year mortgages but this was for rental properties / apartments. Some people would take out a 20 or 30 year mortgage but you end up paying an immense amount of interest to the bank. Rental income increases slowly. So because I already had an income coming in from my businesses , I did not need the rental income to live on. Without the income from the businesses , I could not live on the rental income until years later .

  • Arminius Aurelius says:

    Knowledge is Power . Unless you do extensive research before you invest, you more than likely are doomed to FAIL . A very high percentage of people fail . I was also in the restaurant business for 34 years . It is said that 3 out of 5 restaurants fail in the first few years …..because of the lack of knowledge , poor location , poor quality food , prices too high or poor management . I owned 5 restaurants and coffee shops , 4 out of the 5 I bought were bankrupt ……because of poor management . I succeeded in every case . I worked 12 hours a day , 6 days a week for 28 out of the 34 years I was in business . Sold the businesses for top dollar and now collect rent from 2 out of the 5 businesses . Life is good.

  • Arminius Aurelius says:

    If I were able to relive my life with the knowledge I gained over the years , I would be a Real Estate investor . After my 4 years in the Navy as a cook , I went to the Culinary Institute of America to learn the proper way to cook . Eventually after 5 years working in the finest restaurants and Clubs in Palm Beach and New York City , I bought 2 bankrupt restaurants and eventually had 5 within 15 years . I worked 6 days a week , 12 hours a day for 30 out of 34 years ……..and succeeded . In the meantime I did research and attended real estate conferences concerning investing in real estate . Started buying multi family houses in 1984 when prices were quite low . Bought 9 buildings [ 19 apartments ] between 1984 – 1987 . Stopped buying because prices had more than doubled . [ Donald Trump kept on buying – the market crashed in 1989 ] . I was safe because I bought cheap.
    Had 15 year mortgages . I found it an easy way to make money because:
    1. I was fussy who I rented to
    2. Would run credit checks on potential tenants
    3. If run down apartment , I would renovate
    4. My monthly rentals were about 10 % + lower than others
    5. Always bought in a good working class neighborhood
    6. Had few evictions , back in the 1980’s the attorney charged
    $ 1000.00 to go to court to evict a tenant . It took him about 20
    minutes at best . After a couple of evictions , I went with him to see
    what he did . It was simple and thereafter I did it myself. Actually had
    very few evictions .
    7. It was easy , offered a quality apartment , low rent , happy tenants .
    8. Once the mortgage is paid off , property taxes and maintenance , I am
    left with about $ 150,000.00 + + a year .
    P.S. When I have an apartment for rent I put an ad in the local news
    paper on Friday , Saturday and Sunday . Describe the apartment , 2
    bedroom , 2 bath , etc. state the monthly rent , give the address and
    ” open house Saturday 9 A.M. – 1 P.M. and Sunday Noon – 4 P.M.
    I take applications and then have a company run credit and criminal
    checks on what I consider the top 3 or 4 . Never allowed a Real Estate
    broker to interview potential tenants , they will rent to common trash
    just to get their commission quickly .

  • Investor Websites says:

    Real estate will always be the number one way to creating wealth in America.

  • Motivated Sellers says:

    In real estate there is also the creative investor who using techniques like lease options, owner financing, short sales and wholesaling to make money from real estate with very little cash and no credit. Of course these types of strategies are based on your ability to find motivated sellers.

  • Cd Phi says:

    It’d be a good idea to start reading books of interest to you, Beckie. I’m not sure that investing in real estate will relieve you of your 7-3 job but maybe it’s time for a career and lifestyle change. Little changes here and there that will add up to one big one.

  • Shaun McGowan says:

    Success in markets comes from buying x when everybody else is buying y.

    Neither is a fundamentally better investment; it depends on the market situation. Now, however, is probably not the best time to speculate on real estate.

    • Arminius Aurelius says:

      Shaun – March 2010 Sorry Shaun but here you were wrong . As I stated in previous posts , I ALWAYS buy when everyone else is selling , whether stocks or real estate . The real estate market started to crash in 2007 and got worse in 2008 . The stock market crashed in Sept. 2008 . By mid 2010 the R.E. market stabilized or earlier in late 2009 it stabilized . That was the time to start buying . Real Estate has been once again been irrational and the prices were driven sky high . But starting last year [ 2018 ] or a bit earlier the asking price has been slowly dropping . I would say that both the stock market and the R.E. market will CRASH within the next year at best. This next crash will be worse than in 2000 and 2008 .

  • R.J. says:

    I’ve wondered the same thing. I’m no expert, but to me, real estate seems like the smarter (or at least the least scary) choice because your asset doesn’t evaporate. If the housing market goes down, you still have something to rent out, hopefully for more than the mortgage. If your stock tanks, better luck next time…

    Stocks and index funds kind of intimidate me because I don’t know if I’d be able to differentiate very well between my emergency cash and my investment money. With a mortgage you have a fixed term and fixed payments. What determines how much income you want to invest in the stock market? And at what point do you stop throwing money at a stock investment when things start going bad. Or do you simply always assume it will always come back and keep digging a bigger hole?

    • MoneyNing says:

      Real estate can have a devastating effect just like any other investments. Natural disasters like fire and hurricanes can make a serious dent with your asset, while those who bought a house in Detroit is probably wondering what happened to their supposedly “safe investment”.

      I had a friend in Japan who told me that the value of his home just went back to when he purchased it… after 22 years. When my parents moved a couple of years ago, they sold their home for a lost after being there for 15 years. Real estate is not always a good investment.

      The key is to know your investments, since no one particular one is worst than another. For most people, real estate is easier to understand because they see the asset and can better foresee risks. For others, stocks are a better way to go because information about it is actually more readily available.

      If you are into dollar cost averaging, the only time it make sense is when you are investing in a safe investment. In that, I mean an index fund like the S&P 500 because you are essentially betting that the U.S. economy is not going to have a total collapse in our lifetime. For stocks, unless you do your homework, dollar cost averaging is like driving blindfolded, you will get killed eventually.

      • Arminius Aurelius says:

        You said ” Real Estate ” is not always a good investment . Yes to a degree that is true but that is also true with the stock market . # 1. Knowledge is critical . # 2. Timing is most important . Some ” financial advisors ” promote penny stocks , they get their commission and in 98 % of the time you LOSE . I remember a few years ago I read Forbes Magazine and they listed the top ” 400 ” Richest in the country. I counted and found that about 30 % were invested in Real Estate . I also bought 9 multi family houses between 1984 and 1987 in good working class neighborhoods in Providence , Central Falls and Cranston , Rhode Island . By mid 1987 the prices more than doubled and I stopped buying . Two years later [ 1989 ] the market crashed . I did not lose a cent because I bought CHEAP. The only problem was that one by one certain undesirable elements moved into every area , as soon as I saw ” them ” move into my area , I put the property up for sale and sold at top dollar . Since then crime and drugs accelerated and sale prices dropped dramatically . So you have to be cautious . I am a realist NOT a racist .

  • Abbotsford Real estate says:

    Great information. It takes money to make money. Investing can be a risky business, just make sure you know what you are doing and research it before hand.

  • Moneymonk says:

    “Investing requires capital, and that comes from money you have. ”

    best advice.

    You need a little cash to begin this game of investing

  • CD Rates Blog says:

    Good basic info. I would just remember that your J-O-B is a means to an end. Even those who seem to have made it quickly were probably slaving away after hours or after study time in their garage and may continue to work 16-hour days to grow what they started.

    To replace full-time income with what comes from investments takes time and patience, no matter which vehicle(s) you select.

    The most important tip, learn to live below your means. cd :O)

  • Random Thoughts of a Jersey Mom says:

    If she’s new to investing, she can look into hiring a financial advisor. But interview a few before you decide & get references. I wouldn’t suggest anyone investing in the market if they don’t know what they’re doing. You can lose everything if you don’t diversity your assets.

    • MoneyNing says:

      Financial advisors are a great option, though one should probably accumulate a bit of assets before finding one to make it worth while. At the beginning, focusing on living below your means is still much more effective then trying to increase your investment gains.

      • Arminius Aurelius says:

        ” Financial Advisors ” …….Like in every field , there are A -1 advisors and mediocre or poor advisors . Many lack real knowledge and promote things where they ” earn ” a high commission . Before the market crashes , when it too high and irrational , I pull out of the market and bank the money . I have money in several different banks and over the years the banks ” financial advisors ” recommended that I have too much cash and should ” invest ” in Annuities . The problem is that they take a LARGE chunk of cash right off the top for themselves . I always hold cash until the market crashes and then I jump in and buy when everyone else has sold or is selling , therefore I buy Dirt Cheap . [ the year 2000 and 2008 ] Educate yourself and be cautious . I subscribe to numerous newsletters concerning economics and politics but I take everything with a grain of salt .

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