

My Secret Non-Software-Developer Life - jsonmez
http://simpleprogrammer.com/2013/09/16/secret-non-software-developer-life-ive-never-told/

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seldo
There's a very important lesson in here about investing, but not the one the
author intended. From the article:

"Suppose you find a stock that you know will increase in value. You go to the
bank and say, “hey, can I borrow $90k to buy this stock? I’ll put down a down
payment of $10k.” You’ll be laughed right out of there."

And then, later:

"Now suppose you find a house that you think is a good deal for $100k. ...
suppose you go into the bank and say “hey, can I borrow $90k to buy this
house, and I’ll put down $10k?” If you have decent credit, you’ll get the loan
easily."

Leverage, i.e. a multiplication of your investment by borrowing money, is
quite frowned upon when investing in stocks[1] but is not frowned upon, in
fact positively encouraged, when investing in real estate. This is because
"owning a home" has a sentimental value attached to it by policy makers that
equity investing does not. It is a weird market distortion caused by bad
policy, particularly in the US.

Leverage by retail investors is frowned upon because they can get badly burned
and lose a ton of money. Real estate is not as volatile as equities, but as
the financial crisis of 2007 showed, large numbers of retail investors going
into real estate solely as a speculative investment can lose them huge amounts
of money.

In all investing, the size of your return is related to the risk you are
taking on. If you can get a 30% return investing in housing, as the author
suggests, and only 6-7% investing in mutual funds, that's because housing is
4-5x more risky than a mutual fund. Higher returns are not just sitting around
waiting for you to notice how much more money you can make.

So by all means leverage away if you've got capital and want to take on more
risk for the chance of higher reward, but don't go into it thinking it's an
"almost guaranteed way" to make money, as the author has concluded.

[1] Unless you are a large bank, but that's a whole other story.

~~~
eterm
Indeed, the OP made money in a market which governments are desperate to prop
up and make sure keeps rising and seems to think "that was easy, anyone can do
it!" which is a terribly takeaway message.

Also, it all builds toward plugging a book which raises my sceptical eye just
a little.

~~~
anonymous
> Also, it all builds toward plugging a book

Ah, so it's not just investment advice, but also a practical example of good
marketing.

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chetanahuja
It's scarcely believable that the author (who is also the submitter) is making
statements like the following:

 _" Now suppose you go into the bank and say “hey, can I borrow $90k to buy
this house, and I’ll put down $10k?” If you have decent credit, you’ll get the
loan easily."_

 _" So you end up making a profit of let’s say $110k – $100k = $10k on your
$10k investment. Cha-ching $10k became $20k, a 100% return on investment."_

less than 5 years after the worst financial crash since the great depression
caused exactly by that exact line of reasoning by millions of people. This is
a guy who claims to have learned "a lot about .... investing."

More than likely it's all affiliate/SEO spam for the book he's flogging in the
post. And we've all (including myself) made it worse by commenting on the post
here I'm sure.

~~~
001sky
Unfortunately, the math is true.

Its the same for student loans. Who is going to lend an 18 year old 150,000 to
buy a lottery ticket?

Nobody.

If somebody is going to lend you 150k to buy a lottery ticket should you buy
it?

Interesting question. All lottery tickets are negagtive NPV. But they sell
well to poor people. So, if you need 150K for college, your probabably pre-
disposed to buy negative NPV lottery tickets.

And thus, the availability of capital distorts asset values.

~~~
vinceguidry
If I had $150K to invest in only lottery tickets, I'd buy wholesale and resell
at a discount. That's how you make money in the lottery.

~~~
001sky
Like the abstract approach. But if you get 'wholesale pricing', the ticket is
worth more to own, no? you'd then lose money on the sale. AFIK lottery tickets
are only sold on comission, for this reason. If you could get the govt to sell
you the tickets at a discount (lobbying.ribels), that would be an interesting
investment fund, indeed.

~~~
vinceguidry
> But if you get 'wholesale pricing', the ticket is worth more to own, no?

Not necessarily. You have to line up a whole lot of factors to increase the
odds enough so that the tickets' worth get anywhere near face value, and when
you kick in taxes, forget it.

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gmays
I did something similar, but I bought the homes cash instead of financing. I
bought most properties as short sales and a cash buyer seemed to have an
advantage (maybe I was wrong?) so I always offered cash. I always had to put
out a few bids at a time since even the most promising bids seemed to have a
~25% success rate.

To buy at least one every year I had to take out a low interest HELOC on the
first investment purchase to help finance the new ones. Thankfully I was able
to pay the prior HELOC amount back in full prior to buying a new one and just
keep using the same credit line since there's a 5-year draw period.

I live and buy here in southern CA so the prices have risen to the point where
I don't feel comfortable buying anymore, but thankfully so have the property
values of the homes I do own.

I never looked into getting my real estate license, but we have a great agent
now who we've bought our last four homes through (including the one we live
in). She also recommended an excellent property manager that we now use
exclusively (our last one was worthless). A good property manager makes all
the difference. I actually spend more time sorting the taxes for the
properties than I spend doing anything else for them, and that's one a couple
hours a year.

I think real estate is a great industry for hackers. I've always been good
with money, but I had no background in real estate when I started. I could
have done a lot of things better and I probably got lucky, but it's still a
goo industry for us.

Investing in equities is too information-centric and it's hard to compete or
gain a legal competitive advantage. But in real estate the market is so
fragmented, varies by region, and realtors are so old-fashioned that it's easy
to gain an advantage if you think differently.

I suspect that anyone who can run a startup as a single founder (i.e. they
have a wide range of skills) could dominate the real estate market in most
non-major cities within five years if they wanted to. If they document and
systematize their process, realtors would pay tens of thousands for it a pop.
Real estate agents tend to always be looking for shortcuts, are unfazed by
loud and spammy advertisements, and want new quick ways to get leads than most
other markets and have a lot of money to spend doing it, especially here in
southern California where a commission can be over $100,000.

If I weren't set on running my company for the next 10+ years I'd probably go
into real estate to see if I could do what I suggested above. Anyway, a few
closing tips: find a good lender if you borrow, find a reliable and reputable
inspector before you decide, thoroughly research the area (historical prices,
industry, jobs, schools, crime, future major builds plans, etc.), and condos
are easier to manage than single family homes since the HOA covers everything,
plus your margins are higher.

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madcat123
It's great that the author is successful in his choice of investments, but I
think the post makes the whole thing look much less risky than it is. Real
estate prices only go up, right? WRONG [1]. And if you're leveraged 1:10, when
prices drop the whole pyramid comes tumbling down painfully fast.

Buying one property per year doesn't seem to be too much, but 5-6 years into
it you're way more leveraged than you should be; it's easy to get carried away
by imagining potential future rewards and ignore the actual risks involved.

[1] [http://www.arizonarealestatenotebook.com/wp-
content/uploads/...](http://www.arizonarealestatenotebook.com/wp-
content/uploads/2013/01/2013_01_30_Case-Shiller_Phoenix.png)

~~~
jsonmez
I survived the real estate crash easily, because all my loans with 30 year
fixed loans and a leverage amount of 10% down was sufficient enough to allow
for rent to cover the service of the 90% dept on the property. This is very
different than speculative investing where you are counting on real estate
prices to go it. Sure, I'd like prices to go up, but I'm perfectly happy
having a renter pay my mortgage for 30 years as well.

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informatimago
Now consider this:

If you rent, to a human landlord (let's avoid a corporate landlord), the the
money you give each month is used by a human person, probably for good things,
like buying products you or your brother are making.

on the other hand, if you borrow money from a bank to buy, you're giving money
(at least the interests, but they may make up an significant part of the price
for long term borrowing), to a BANK, which will use this money to further
enslave you and other human being, provoking ecnonomic crisis, and gaining
political and ecnonomic control everywhere.

This is a prisoner dilema; renting is harder, but it is better for the humans
as a whole.

~~~
TheZenPsycho
If you rent from a human landlord, there is a pretty good chance that rent is
going directly into the interest of a loan. I.E. a bank. And not the good
stuff you or your brother are making.

