lystn

Hey everyone, welcome back to the daily call. Today, I want to talk about the difference or at least how I think about investing in real estate versus the stock market. Again, the purpose of this is not to talk about all the benefits of investing in real estate versus trading or trading options in the market. I think I’m just generally going to talk about how I see both of these things in my life and how me and my wife have used both the stock market and real estate, how we piggyback one off of another and try to build out just a big framework for financial wealth and freedom. That’s really the goal of doing all of this obviously. Most of our money just so you know and most of our wealth is in what we do in options trading. Options trading is the fuel that drives all the different engines, I guess and in how I think about things. It is the lead of the train, so everything else follows behind it. What I’ve decided to do and what we decided to do many years ago now is we decided to start pulling money at some point from options trading as we generated profits during the year and start slowly pulling a little bit of that money and investing it elsewhere. Look. It’s not to say that I don’t think that options trading is the best opportunity to generate income. It is. The vast majority of the wealth that we have is in options trading by a long shot. But what we want to do is we also want to create different streams of income and I agree that everyone should do this. I don’t care where you do it, how you do it, what the avenue is. But not all of your money should ever be tied up in one stream of income. It's inefficient and it’s not what truly wealthy people do. If you really research and look at people who are truly, truly wealthy, they have different streams of income, also because we don't know what the distribution of income is going to be. There could be times where we’re trading options that we have five months of really good trading and then five months of bad trading. We just don’t know what that distribution is. Having different streams of income is really, really important to us. Now, what we’ve also done with our real estate (and I think you should treat maybe your real estate or whatever income stream you want to think about the same way) is that the money that we initially invested in it, we don't actually use the income that we drive from our real estate activities to actually live off of. We still live off of what we have budgeted for and what we take out of our trading account. And so, I think about real estate as this area that I put money into and it snowballs on top of itself. As we generate… And what we did originally many years ago was when we bought our first investment property, all of the profits, monthly income that we collected from that property, we started to snowball into another property. When we had enough monthly income and we saved up enough for a down payment on another property, the first property basically fuelled the deposit and the down payment for the second and then we started saving on two properties and then, that allowed us to buy the third property quicker and the fourth and the fifth, etcetera. And so, right now, we’re up to about 15 properties. We actually had a pretty busy end of the year. In 2017, we had some auctions. We’re flipping two properties right now, so that's been busy. But it’s all been self-funded and self-fuelled by basically the first one and two properties. We haven’t added to this. It’s all been a self-fulfilling prophecy at this point, meaning the money that we put into it, we've recycled the capital over and over and over again. Look. It’s taken time. I mean, we’ve been doing this now for about eight years, so it’s not like this has happened overnight. Please don’t get me wrong in talking about that. But the way that I think about real estate and how I like to look at real estate is again, a supplemental thing to options trading. What I love about real estate is it's obviously very consistent, though it has inconsistencies just like every investing vehicle. We have times where we have a property vacant or a tenant doesn’t pay and we have to go through an eviction process. I mean, all that stuff is still relevant. And so, we could have periods of like right now, we have a lady that has been with us for eight years and is perfect. I mean, she’s just a wonderful person. She pays on time. She takes care of the property. She sends us holiday cards. She’s the ideal tenant. And then we’ve got other people who come in for two months and they have a job issue and they have to leave and then the property is vacant for a month as we try to rent it out. I mean, there is ebbs and flows to it and it’s not totally, totally consistent, but as we build out our portfolio, it becomes more consistent on average. Of the 15 properties or units that we have now, if one goes vacant, that doesn’t dramatically affect the rest of the portfolio. I think about it very much like options trading. You don't want to have all of your eggs in one basket. You don’t want to be trading one ETF. You want to spread the risk across different assets, different underlyings and I think about real estate and properties as totally different underlyings. I think the leverage point though that real estate has is definitely in ROI. And so, in most cases, we can generate a pretty good ROI on some of these investment properties that we bought and although we’re flipping two properties right now which I think are just two good deals and one, we may actually just turn into a rental, the other stuff that we do and most of the bulk of investing that we do is long-term rental cash flow. Where we’re at even though we have properties in a couple of different states at this point, most of the stuff that we do is middle of the road investing. We’re not buying million dollar properties by any stretch. But middle of the road investing and just trying to buy decent single family duplex, triplex type houses and generate a decent return on them. And so, the good upside to that is that in most cases, you’re going to get a pretty decent return on your capital. What we usually target is anywhere between 20% and 25% ROI. If we put in a $20,000 deposit or a $10,000 deposit, we want to generate each year after cash flow, expenses, insurance, maintenance, repairs everything. We want to generate 20% to 25% on that. That means that we’re more selective than maybe other investors might be. It means that we sometimes buy properties a couple of year and sometimes, we had like 2016, I think we bought one property. It’s not like we are going out and buying properties every single month. We’re very, very selective about it because we want to generate above average returns on our properties because we’re going to hold them for a long time. Now obviously, this leads to the biggest downfall to real estate in my opinion which is the ability to scale quickly. This is why I think that real estate has in most cases, at least for me, has been put to the backburner, although we generate cash from it and we focus some of our time each month on real estate. It is not the full focus of what I do because it's very hard to scale. Scaling in real estate means you have to find a lot more good deals on a more consistent basis. That means building out teams and management companies, all that stuff that I don’t necessarily think we want to do at this stage in our life. Maybe later on, but at least right now, we’re managing everything by ourselves. We like that. It's not too much of a hassle. In fact, my wife really does this more so than I do because I focus on options trading and the website and the membership. She's really taking the reigns and focused on real estate. But I think that the scaling part of real estate is very hard. It’s very hard to scale without then adding a lot of cost involved in scaling. The beautiful thing about the stock market and options trading is that scaling is easy. I mean, once you have more capital, it’s just a matter of clicking an extra mouse click to increase the number of contracts that you’re trading. Scaling is totally more obtainable in the stock market and very easy without adding additional expenses, meaning you don’t have to add extra people. The same person could trade a $500,000 account as they could trade a $5 million account. It’s the same activity. It’s just different contract sizes and just different numbers, maybe a couple of extra zeros. Although I really do love real estate, I like the aspect of having something tangible. I think we’ve built up a pretty good portfolio at this point. We’re generating some pretty good income and we’ll continue to roll that and piggyback that into more properties in the future. I think the ability to not scale it as quickly and as fast without additional cost is something that I pay attention to. And so, we want to scale and grow, but we don't want to do so without doing it smart or without approaching it smart. Hopefully this helps out. Again, I just want to talk about the difference because I get a lot of people asking me questions on what we do, I guess outside of the stock market and that’s one thing that we do, is invest in real estate. If you guys have any questions on that, let me know. Just as a side note, my wife and I also do a little podcast on our real estate adventures. She has a nice little website that she built up called “Rental Rookie.” You can head over there. Both of us do that podcast because I like doing it with her and it’s super fun to be on a little podcast that we do together. We just talk about our ups and downs and what we go through and tenant evictions and construction and renovations and all that stuff. It’s been really fun to do that with her over the last two years. If you want to learn a little bit more about that, head on over to Rental Rookie and check out her show. Alright! Hopefully you guys enjoyed today’s podcast. As always, let me know if you guys have any questions. Until next time, happy trading!