Real Estate Smackdown: Stock Options vs. Real Estate
Well, hello. Hello everyone. My name is Robb Reinhold. Many of you have met me. I see a couple of familiar names in here. If we haven’t met before, I’m a trader at Maverick Trading. I have been trading since 1997 professionally. And, about a year and a half before that, I’d have to say that I was amateur. You’re actually going to hear a lot of my early stories. So, for those of you who have known me for a while, there might be some new stories in here that you may never have heard.
I’m also joined tonight by Mr. Darren Fischer. Darren Fischer is co-author of the Maverick Trading book, Maverick Trading. I don’t wanna plug it, but you can buy it on Amazon. Okay. I just plugged it. Sorry. But, I don’t like to admit this, but Darren is not just the co-author, he’s the main author. So, Darren did a fantastic job. Darren is going to be here answering questions. I always like to have someone else here to answer questions. I know we have a pretty good group here, and if you have any questions at all, please go ahead and just type them into the chat box. And Darren will answer you with any of the questions that you have.
All right. So, here we are. Options versus real estate. Now, when we do these free webinars periodically, we’re always trying to figure out, “Okay. What’s kind of in the news right now? What are some of the things we’re seeing.” We really look at the stock market and what’s happening. And, one of the things I’ve just noticed so much, and I don’t wanna have anyone jump to conclusions, but I’m seeing a lot of the stuff I saw back in 2006 and 2007. And, again, I’m not saying we’re at the top. That is not what this is all about. But, I’m starting to see a lot of interesting real estate, more so than usual.
And so, as I was driving around, and I saw a couple signs, I remember thinking, “You know what? Let’s have this fun little class where we take real estate that is super hot right now …” Real estate home prices have been going up somewhere in the 5-6% area per year. That is larger than the statistical average. The statistical average is right around 3.5%. So, we’re getting an asset class that’s appreciating more than it usually does. That always attracts speculators. And, we really wanted to do a side by side comparison of, “Okay. What is better, options or real estate?”
Now, I’m going to have to warn you here, I’m going to give a spoiler alert. So, if you don’t want to be … If you wanna be surprised at the end of this of who actually wins between options and real estate from Maverick Trading, go ahead and mute your microphone here for the next 10 seconds. ’cause, obviously, I think you can see where it’s gonna come down in my opinion. But, this isn’t just gonna be about my opinion. This is gonna be about the numbers. We’re gonna dive into the numbers. We’re gonna dive into some of the strategies people are using to make money in real estate. And then, we’re gonna basically show you how you can do the same thing with options that is a lot easier, a lot less risk, a lot of other things.
So, let’s go ahead and jump in. Before we go any deeper here, I need to go through a process here. This is the process of investing. And, it’s kind of funny because I’ll meet adults that don’t understand this whole concept. They say, “But Robb, I don’t even know how to buy a stock.” And, I remember thinking, “Wait a second. You don’t know how to buy a stock?” But, I realize that some people legitimately don’t understand the process of buying a stock. And, it always works along the process of cash to asset to cash. This is the cycle of trading and investing. So, again, you take cash, you take money, you take capital, and you turn it into an asset.
And, again, there are eight major asset classes. Let’s just go through a couple that you’re familiar with. There’s real estate, there’s stock, there’s commodities, there’s a business, there is currency. Again, you go from cash to assets. Now, ironically, currency is a cash asset. But, let’s not get into that semantic argument right now.
So, again, you take cash, you turn it into an asset. You turn it into real estate. You turn it into gold bars, which sounds really cool. That’d be fun to own these gold bars. You turn it into a stock. And then, that asset either goes up in value or it goes down in value. That’s what happens. And then, at some point in the future, you sell your asset. And, you sell it, and you turn it back into cash. So, everything runs on this premise of cash to asset to cash.
Now, this is the cycle of investing and trading. And, what I want you to understand is that the asset, it could be a lot of different things, but it doesn’t really matter. This is the process of investing. Now, before we move any further, I wanna kind of throw something out there, especially for the younger people in this group. Sorry anyone who’s older, like I am. You’ve missed the boat. You’ve missed the boat if this is the first time you’re hearing of it. But, I’ve told my kids from day one, “Hey, look. If you want to be wealthy, if you wanna actually get ahead in life and have money to go on vacations and do all these fun things, you need to learn this process right here. You need to work to get cash.” Unless you were born independently wealthy or had a big trust fund that was passed down to you, we all went out into the world, and we had to work for cash.
Now, most people take that cash, and what do they do? They go out and buy a car, they go to movies, they go out and go to dinner. They go out and do some pretty big vacations. And then, at the end of the year, that cash is gone because they only spent it on things that went down in value or had no value. That furniture you bought last week, guess what? If you try to sell that furniture that you bought last week, that $1,000 couch, you could probably sell it for 300 bucks, if you’re lucky. You need to buy things that go up in value, or at least have the ability to go up in value. Not every investment you make is gonna be great.
But, if you take that cash, and take some of that cash and buy something that goes up in value, and you do that starting at age 20, and every single month at age 20 you take 50 bucks and put it away and you buy a stock, you put it away and you buy a little bit of gold, you put it away and but a little bit of this. If you did that every single paycheck of your entire life, do you realize where you’d be when you were in your 40s and 50s? You wouldn’t need to work anymore.
This is the process of investing. And, it always blows me away how little people understand that concept. And, to me, it’s always been so simple. But, I understand that to a lot of people, it’s not that simple. You need to take cash, and you need to invest it. You need to invest it in an asset.
So, what we’re really talking about here, we are going to go ahead and assume that you’re already all investing. You’re already investing. It’s just a matter of how are you doing it. Now, if you are not already investing, shame on you. I know there’s reasons. I know … Look, we all have little hard times in our life. But, guess what? That 20-year-old’s gonna have a hard time in their life somewhere in their 30s. But, as long as they keep doing it over and over again, they’re going to have more money.
Now, ironically, and I did this on purpose, I wanted to show that this was a bad investment. Look at this. They took hundreds and turned it into a wad of crumpled $20s and some $1s. This is not the kind of investment that we want you to be making here. So, again, I wanted to get out, “Okay. Investing is the key.” Taking money and turning it into an asset. That’s the key to getting ahead in life as far as money goes.
How you do it, now that’s what we’re debating. We’re debating, “Okay. What is the better way to do it? How do you do it in the best, most efficient way to where you grow your wealth the fastest and you take the least amount of risk along the way?” That’s what we’re discussing here. Now, if you are not investing, I hope you learn something here. But, if the only thing you learn from me tonight is this, that you have to take your cash and turn it into an asset or else you’ll have no money at the end of your life, if that’s all you learn and you go out and change, and you put 20 bucks away every months, guess what? This was absolutely one of the best things you’ve done for yourself.
So, let’s start the process, because we’ve already got down investing. You have to invest. We’re not going to be debating, how do you invest it? How do you take that money, turn it into an asset, and then turn it back? What’re the ways that we can use?
All right. Now, we’re also going to be getting into this idea of investing and trading. Now, Wall Street has really changed over the years. When I got into this business in the mid-’90s, the saying on Wall Street was, “You can’t make money trading.” No one could make money trading. You had to invest for the long term. That’s the only way that you could make money. And, when I used to tell people that I was a trader, people would laugh at me. They’re like, “That’s not a real business. That’s not a real career. No one can make money trading.” And, it’s funny because I was kind of scoffed. And, I was a little bit embarrassed sometimes to tell people what I did for a living.
Here we are 20 years later. We have shows on TV called Fast Money. We have shows on TV specifically about trading. There’s tons of trading books. And, trading is now a generally accepted way to actually invest. So, in the end, I really wanted to talk about how there is really no difference between investing and trading because it’s still the same process, asset … sorry, cash to asset to cash. So, the difference between the two is trading is designed to have more turnover. So, investing is designed to have less turnover. So, again, this is obviously the buy and hold stuff, or this is the, “Hey, I’m gonna turn things over quick.” But, it’s still the same process, cash to asset to cash. The big question is timeframe. How long are you going to hold onto that?
Now, some people have turned their investments into their life-long married … that they’re married to, that they literally will never sell. They’ll go to the grave with that investment. Whether it goes up or down, they go to the grave with it. Now, we all know people like that. And, there are people like that, that they’re just going to die with their Wells Fargo stock, whether Wells Fargo is in a scandal, whether the management does well, whether it doesn’t, it doesn’t matter because they buy and hold forever. That is, technically, a strategy. It’s not a great strategy, but it is a strategy.
All right. Whenever there’s turnover, you have higher cost. When you have less turnover, there most of the time can be lower cost. Now, this is kind of a fallacy because Wall Street has gone away from commissions, and they’ve gone to, “Hey, we’re just gonna charge you 1% of your assets under management every year because we don’t want our brokers churning your accounts and getting commissions. We did that for you.” Yeah right.
Now, your broker used to have to call you up and actually talk to you on the phone and recommend you do something before they got paid. They had to do some work. Now that they just have assets under management, now they basically can send you a Christmas card, call you once a year for your little evaluation, and they get their 1%. They can handle much more assets under value. So, I’m going to say it can be a lower cost to be a buy and hold person with a big broker, but Wall Street has … They’re good. They’re good at getting money out of you. So, just be careful about that.
Trading involves active management. That means you are actively involved in what you’re doing. Investing is passive management. You’re basically passive. You’re not doing any of the work. You’re not making the changes. So, for example, in real estate you buy a real estate property and you hire a property manager. That’s passive management. That’s passive management. You’re not really doing much as far as managing the business. Trading has a higher return potential, but also a potential higher risk. Investing, in general, has lower return potential, but also potentially lower risk.
So, again, this is where it’s the same process, cash to asset to cash. Trading is someone who does it more rapidly and takes more interest and activity in the management of it. Investing is seen as someone who doesn’t have a lot of turnover and is passive, and just lets it ride and hopes and pray for the best.
Now, look, there’s nothing wrong with either one of these as long as you’re doing one of them. Hopefully that makes sense. I just talked about how if you haven’t invested in your life, you will be broke. That’s a guarantee. So, as long as you’re doing one of these things, I’m happy. Just do one of them.
Now, I know me, I wanna control my money. I wanna have control of it. I don’t wanna put it in someone else’s hands. I don’t want someone to tell me, “Well, you only made 1% this year because I really needed to go to my beach house in the Hamptons, and I was too busy.” I don’t want that. I want to be actively managing. But, as long as you’re doing one of these things, it’s all right. But, what I really am going through right now, is I don’t want you to really see this as investing versus trading. It’s the same thing. It’s always investing. There literally is no such thing as trading. It’s investing. Trading is just you are looking to do it more rapidly and be more active in the management of it. That’s it.
All right. So, let’s take some of the real estate strategies that you can learn on a late night when you can’t sleep at 2am. You can sit up and watch … Again, I don’t even know any of the names anymore, because frankly I don’t watch them anymore. But, you can watch any of the people on TV, and they can talk about rental properties. Or, you can go to a seminar and learn about, “Oh, this is real estate. This is what you wanna do. You wanna purchase a good property.” So, this is where I wanna go through the numbers. As I said earlier, this isn’t my opinion. I want to crunch the hard numbers.
Right. So, let’s just take a purchase price of a house of $250,000. Now, it was funny because when I say that, I know that there’s some of the people in this group that just fell out of their chairs laughing hysterically that there might actually be a house worth $250,000. If you live in San Francisco, if you live in New York, Chicago, you are laughing hysterically at the idea of a $250,000 house. There’s some people, based on where you live in the country, are saying, “Yeah, that’s not bad. It’s a little high, but okay.” It’s one of the funny things about real estate, is wherever I am in the world, it’s a totally different market.
But, let’s just use $250,000. You’re gonna need a 20% down payment. Now, again, this is what they’re gonna teach you to do. They’re gonna teach you to, “Okay, go get a down payment, and go get a loan.” Now, again, this loan, you can go to a bank, you can go to the seller, you can go somewhere. But, if you don’t have $250,000, you need to borrow it from somewhere. And, whenever you borrow money, it’s always going to come at a cost. Now, if you don’t have 20% down, you only have 10% down, guess what the mortgage companies and the banks are gonna do? They’re gonna put something called PMI insurance on I. Meaning, “Okay, since you didn’t put 20% down, we’re gonna charge you an extra $100 per month to do that.” So, all the sudden your costs go up.
So, you get a $200,000 loan. Let’s just take 5%. That’s a little bit above what you could get on your primary residence, but that’s about what you could get on an investment property right now if you have good to excellent credit.
Here’s the numbers: Rent … Sorry, this is principal and interest. So, on a $200,000 loan, that’s gonna be your principal and interest. You’re gonna pay about $3,000 in taxes. You’re gonna pay insurance. You’re gonna have repairs. So, your total expenses are gonna be just under $20,000. Now, when I was putting this together, I was very generous with the rental income because I’m guessing that there’s not one $250,000 house in America or in Canada that you could legitimately rent out for $1800 a month. I’m being extremely generous on these numbers right now. But, $1800 a month, this is where you’d be. So, at the end of the year, whoa, look at all that dough. $1700.
Now, yes, you had to do a lot of work for it. You’re taking a lot of risk to make $1700. I’m even gonna throw in a 4% appreciation of the home. So, basically, you made a total return of 5.4%. These are the numbers. Oh, good. This is real estate. Now, I understand, I understand that the game of real estate is that you don’t make a lot of money for the firs 10, 15 years. You basically try to break even. And then, once you can pay down that mortgage, and there’s no more mortgage payment, now that’s when it all comes in. That’s when you start to make big bucks, 15, 20 years down the road. Again, that’s what they sell you on rentals. No one will tell you you’re gonna make a lot of money off rentals the first couple years. Everyone will tell you you’ll probably run at a loss.
So, let’s talk about what you get with rental properties. Well, what about it when you get a vacancy? What about when one of your tenants doesn’t pay rent? It takes you a month to get them out of the property. You then have to go in and clean it because they destroyed the property. Then you have to go and relist it to try to get someone in there new. There may be a three month period in there where you can’t get a renter to pay you that monthly rent. All of a sudden, you see that $1700? That’s gone. That’s gone. Your entire profit for the year is gone. And, again, with tenants …
Let me tell you a little story about how I got into all this. So, when I was 16-years-old … Boy, I’m telling you a lot of personal stuff tonight. But, when I was 16-years-old, I was involved in a car accident. It was the other car’s fault, and I had a head injury. And, all of a sudden everyone’s like, “Oh, okay. Now I understand this guy much better. He had a head injury. Before we didn’t really understand, but now we do.”
So, the other person’s insurance company kept calling me saying, “Hey, we wanna settle.” And, I’m like, “Look, I’m not gonna sue.” And they said, “Look, with a head injury, the head injury, there’s going to be … We have potentially liability for the rest of your life. We wanna settle and give you some money.” So, my dad explained to me it was a good idea. And, when I was 18-years-old, I walked out of a lawyer’s office with $20,000 in the check. Now, if you wanna talk about risk, that’s a risk right there. $20,000 in the hands of an 18-year-old.
Well, luckily, I had a dad that always told me to save money, and showed me how to save money. And, I knew, I already understood, that if I went out and spent it, it was gone. And, I had to put that away so it would be there in the future. So, I actually went with my mom, we went to place called [Olde 00:20:47] Discount Brokers. Some of you might remember that. And, I bought stocks. And, I went away for a couple years. I went to do some college football, did some other stuff. And, when I was finally ready to get ready for my life, that had grown to $45,000.
The first thing I did is I took that money and I went out and bought real estate. And, I thought, “You know what, I’m going to be a landlord.” So, I found a property. It had a couple units on it. And, I learned very quickly that I am the worst landlord of all time. I would go over, play with their kids, I’d get to know the tenants. And then they would tell me, “Oh, I’m sorry. We don’t have the rent.” I’m like, “Well, I can’t kick you out. I love you guys.” And, I would let them stay for probably six to nine months before they finally ended up leaving and I had nothing.
Some people are built for the job of being a landlord. Some people are not. But, I’m telling you what, this one right here, personal liability, to me is one of the biggest ones in real estate. And, this is one of the ones that I wanted to talk about specifically, was that in 2006 and ’07, we saw the same kind of activity. Lots of stuff on TV, hey, go head and by properties, and lots of people were telling you that’s the way to make money. And then, when it all crashed, and again, we always get market downturns, people found out that they were on the hook for a lot of money. They were on the hook for that whole $200,000 loan you took out. And, if you can’t pay it back, you lose the house, it ruins your credit.
A lot of people’s lives were severely impacted. Severely impacted. Not because they lost money on the investment, they did, but impacted because their credit was ruined. And, if you owned a business and you needed to get credit, too bad. It was really serious. That’s a real serious thing that I don’t love about real estate.
All right. So, let me take you through a very simple concept of what you can do with options. Now, this is going to be pretty basic for some of you. And, for some of you, this might be a little bit over your head. But, I’ll … Again, we’re just gonna go through it. You can do the exact same thing with an option. First thing you need to do is you need to buy an asset. Guess what? A stock certificate is an asset. That has value.
Now, some people say, “Well, geez Robb. If I can’t touch it, hold it, or feel it, it’s not an asset.” Well, that’s ridiculous. People say, “Oh, a house. A house has value.” It does now, but … I always tell people whenever they say that their house, it always will have value, I say, “Okay. Well, let’s say a plague comes across and wipes out 50% of humanity. How much is your house worth when you try to put it up for sale tomorrow? Zero. There’s no one out buying houses. There’s too many houses.”
So, this is just the same thing. It’s an asset. You buy an asset … In the options market there were always buyers and sellers. That’s the great thing about stocks and options. It’s called liquidity. There will always be a buyer and seller. Because, there are people there … not people, but there are companies called market makers that, by law, have to always make a market. So, you will always have a renter. And, you will sell, and again, you can choose the month, but you can sell a one month $50 call. So, you by the stock for $50, and you basically are giving someone else the right to buy your stock for $50. So, you’re giving them the ability to control your stock for one month.
Now, if the stock runs up to $55, they’re going to exercise their right and buy the stock from you at $50. That’s what you sold them. If it goes down to $49, they will not exercise their right, and they’ll walk away. But, they’re going to pay you what’s called the premium. They’re gonna pay you the premium. So, they’re gonna pay you rent. They’re pay you rent for the month. So, again, this is a covered call. You buy a stock, you go to the options market, you sell a call on that stuck, and you get the premium in. Now, during that month, just like when you rent out your house for the month, you can’t sell it to anyone else. You can’t let anyone else use it. That person has paid for that months worth of use of that property. It’s really the same thing, identical thing.
Let’s look at the numbers. Let’s take that same $250,000. All right. Now, in the stock market, you have what’s called margin. Margin is a loan. Same thing if you were to go to a bank to get a loan on real estate. Every single broker will give you a loan to buy stocks. Now, here’s a great thing about this loan: it’s completely, 100%, pre-approved. Not the kind of pre-approved they tell you, “Oh, you’re pre-approved for a $300,000 loan,” and then you go try to get the loan and they run you through the mill with thousands and thousands of documents and paperwork. And then, finally at the end of it they say, “I don’t think we’re gonna give you the loan.”
Yeah. That’s the fun part of real estate. That’s the really fun part. Any of you ever gone out and applied for a mortgage, and gone through that process? That is a fun process. If you have an account at Ameritrade, at Interactive Brokers, at E-Trade, it’s guaranteed that you will get a 50% loan. So, you can buy this $250,000 in stock for $125,000.
Now, let me tell you something that’s fairly new to investing and to the market. It’s called portfolio margin. Now, portfolio margin is given to people that have a lot of money. “Wait a second? Are you telling me that people who have a lot of money get financial advantages over other people? Holy cow. I did not know that happened.” Yes. That happens, sadly. That is the way the world works. So, if you have a portfolio margin account, which all of our Maverick traders have access to because, luckily, we have enough money to qualify for it, you can get … And, again, I put 18%. It actually is a little bit better than that. But, it really depends on the underlying stock. But, you may only need $45,000 to buy that $250,000 worth of stock.
So, again, the loan’s pre-approved. There’s no reason at all to go to a bank, because the brokerage firms will gladly give you margin. So, again, you’re gonna sell … Boy, this would be 50 contracts. Sorry about that. You’re gonna sell 50 contracts. Each contract is worth 100 shares. So, 5,000 shares would equal 50 contracts. And, you’re gonna sell that for $2 a piece.
Now, again, who is going to buy these for $2? Well, you go and sell it to the options market. What if there’s no one there that will buy it? That’s totally impossible. There’s firms out there called market makers that are required to make a market in that security and required to fill your order. It’s called liquidity. It is the best thing about the stock market. And, it’s the worst thing about the real estate market, is liquidity. Whenever you want to buy or sell something, it’s done in the stock market. The liquidity is there. When you wanna buy and sell in real estate, it may not be there. People found out in 2008 it wasn’t there. It wasn’t there for two years if you want to sell a property. So, you take the income … Again, that would be … Boy, my math is terrible here. Yeah. $10,000. All right. Sorry about that everyone. Anyway, the return, much better. Much better.
So, again, side by side comparison. Renting … So, you’ve got someone that goes out, goes to a bank, gets a loan, puts their personal credit on the line, then has to find someone to come in and rent that house. They have to hope and pray they don’t trash the house. They have to hope and pray that they’re paid on time. And, they’re supposed to break even for the first five years, the whole time getting calls at 10pm at night that the toilet’s clogged, or the basement flooded. Or, you could do the same thing with a covered call.
Now, again, that covered call example I gave, for some of you, you’re thinking, “Wow. That’s really cool.” Let me tell you what. That’s a terrible strategy. There’s just better ways to do it. There’s better ways to do it that is much more safe, takes much less in margin. Again, our traders do it all the time, they’re called spreads, it’s a much better way to do it. But, it’s the same concept. You control an asset, you sell a call against it, you bring in income. And, you have to wait for that period to be done, and then you either get to keep the income or they buy the stock away from you. Or, it went down and you get to decide what to do.
All right. So, again, let’s take a look next at the next thing I see. So, I’ve seen shows Flipping Vegans, Desert Flippers. Now, look, the reason I know all these is because, I am not kidding you, HGTV is on 24 hours a day at my house. That, and Food Network. Now, I wish I could call the cable company to be like, “Hey, can I please just pay for two channels?” Because, that’s all we watch. That’s all we watch. Raise your hand if also that’s the only thing playing in your house? I always get a lot of people say, “Oh my gosh. That’s my life. That is 100% my life.” Okay. Too funny.
So, again, I know the Property Brothers. They’re pretty cool. I was just trying to think of their names now. No, I just forgot the Property Brothers’ names. I was gonna say that I like one better than the other. But, I can’t tell them apart to be honest with you.
All right. So, let’s take a look at flipping properties. Now, this is something that I got into in my early years. I took that money that I went and invested at Olde, and that money grew to $45,000. Thank you. Someone just told me Drew and Scott. Yes. Drew is my favorite. Sorry about that. All right. Anyway, I took that money and I invested in real estate. And, I learned very quickly, “Oh my gosh. I am not a good landlord. I am not a good landlord. I need to get into a business where I don’t have to talk to people, and I don’t have to count on people.” And so, I got into flipping properties. I said, “Great. Let me flip properties. I’m young. I’m ready to hustle. I don’t really know how to fix stuff up, but I’m willing to work hard.”
So, I did get into flipping properties. So, I sold that property, and I took that capital and I got into flipping properties. Now, it was during this time that I also go involved in trading. And, I started to learn trading. I met a person who was a trader. And, I started to do a little trading on the side. But, my main source of income was flipping properties.
Now, flipping properties, I actually love the business. I’ll tell you more of my story about exactly what happened, but let’s take another example. So, property flipping. Let’s take that same $250,000 house, and let’s say once you fix it up you can sell it for $320,000. Again, we’re just throwing numbers out there. You still need to buy the asset. Now, if you have $250,000, you can go in and buy it for cash. If you don’t, guess what? You have to go get a loan. You have to go get a loan. So, you gotta go to the bank. They’re gonna tell you, “Okay. Well, we need this letter, this letter, this letter, this letter, this letter.” You’re gonna go through the whole process, and sometimes they’re gonna say, “Oh, sorry. We don’t like you.” And, sometimes they’ll say, “Okay. Fine. We’ll give you the loan. Geez. Just go away.”
I know. It’s like … Sorry. Hopefully you can tell the bitterness in my voice from going to banks and getting loans. Because, I was in this business, and I never got loans from a bank when I was 21, 22-years-old. They didn’t give loans out to people like me. So, anyway. But, you can always do seller financing. I did a lot of my stuff seller financing, where I came with a down payment, the seller carried the note. But, again, it always cost me interest. Always costs money to borrow money.
So, the start to finish where you buy the property, you go in there, you demo it, you take out the old carpet, you take out the old toilets. Now, here’s the thing is that … what people don’t understand. When you watch the shows on TV, and you watch the hosts, and they buy those terrible properties, do you ever see those hosts in their nice clothes every doing any of the work? Yes, sometimes they do a little bit of the work. But, you don’t see them gagging as their pulling out an old toilet that’s been there since 1940. You don’t seem them almost hurling because the carpet has 15 layers of dog pee on it. You don’t get to see that stuff in the shows. They edit that out.
I’ve been there. I’ve bought these houses. And, they are disgusting. Any of the nice houses, you can’t buy because you can’t fix them up and sell them for more. So, you’ve gotta buy the worst properties. And, I’m telling you what. I have found the worst things in the houses. But, you still get to buy it. So, you gotta take cash, turn it into an asset. Now, from start to finish it’s about a six month process. Sometimes you can do it a little faster. I was always about six weeks on my turn around time. So, I’d buy the property, go in, demo it, get it fixed up, and it’d usually take about three months for it to sell, based on the market we were in.
So, let’s just take a six month. So, six months you still have to make monthly payments. You still have to pay for the property taxes. You own it. You still have to pay for insurance. You still have to pay for repairs. So, again, total expenses. And then, when you sell it, you’ve gotta pay to sell it. You’ve gotta pay realtor fees. Now, look, a lot of people think, “Oh, I’m gonna sell it without a realtor.” Good luck. Good luck. Raise your hand if you’ve ever tried to sell a property without a realtor? Yeah, and then … Oh, good. I’m seeing some hands go up. And then, those same people, raise your hands if you didn’t sell and you finally had to go to a realtor six months later? Okay. Yep. That’s what I’m seeing.
Yeah. It’s very difficult to sell a house without a realtor because the people that are looking … Realtors are very smart about how they put it together. To go buy a house, it costs you nothing to get a realtor. It’s free. Why would you not? Why would you, who doesn’t know the ins and outs of real estate, go try to do it on your own? That is really dumb. You should go get a free agent. And, that agent comes, and the seller pays both the buyer and the selling agent. It’s genius. It’s such a great business model. Because, all the buyers are represented by agents. And, if your house isn’t listed, and you’re not paying good commission, that agent is never gonna take the clients to your house, ever. It’s so genius. It’s so genius.
Anyway. So, let’s say it all goes well. It all goes well. You buy the house, you fix it up, six months later you turn around and sell it. Hey, that’s not a bad return. That is not a bad return at all. Again, let’s say you could do two of these a year? Okay. Again, this is always assuming that it all went rosy and nothing went bad. You didn’t get in there, and you didn’t find out that the foundation was actually cracked. And, it’s gonna cost another $40,000 to fix the foundation. “Oh, yeah. We didn’t put that in the numbers.” If that goes in the numbers, it’s a loss. Six months of work, and it was a loss? All that risk? All that personal liability you put on the line, and you find out that the sewer line to the street is backed up? There’s $15,000.
So, again, you just don’t know. You just don’t know. So, you need a large cash savings. Now, when I got into the business of flipping properties, I actually loved the business. I actually really liked it. Look, the demo was disgusting. But, I loved to get the property all stripped out. And, I loved to get a coat of paint on. Because, after that, it’s fun. It was fun. I really enjoyed doing tile. I really enjoyed doing a lot of the woodworking. It was something I actually did personally enjoy.
Here’s what I did not enjoy, was that as I started to flip more of these houses, I started to take on more. And, one time … Here’s the thing about flipping houses, is you have top put out a lot of offers. Because, you can only make money off the ones that you buy at a good price. And, very few people are going to sell you houses under market value. So, I would have to put out about five offers for every one house that I would end up getting.
One time, I put an offer on one property that had four houses on it. The parents had died, all the houses were run down, and the kids didn’t wanna deal with it. So, I came in, I put an offer on that, I put an offer on a couple others. Next thing I know, I own seven houses. I owned seven houses at once within a two month period. So, I’m like, “Okay. I better get these done.” So, I’m working. I’m working, and working, and working like a dog. And, it takes me probably about three or four months to get them all up and going. I put them on the market, and the market turns down a little bit. I owned seven houses for about six months. Each one of those houses had a mortgage payment on it. I was trading at the time. I had to drain my entire trading account.
In that last month, I went my wife and I said, “[Micki 00:39:05], I don’t know what we’re gonna do. We have $800 in the bank. That’s all the cash we have. And, we have seven mortgages at the moment.” So, I discounted some of the properties, I sold some of the properties below where I wanted to sell them. But, I got all that cash. Next thing I know, I sold all of those houses. And, now I’ve got a ton of cash again. And, I thought to myself, “That sucked. That sucked. I am never going to do that again.” And that’s when I told myself, “I will never get into the flipping business unless I can buy the house for cash and afford to sit on it for an entire year.”
Because, the stress was awful. It was so much stress. It was so much work. And, there was no income coming in to my family other than what I could generate in my trading account. But then, I had to drain my trading account. There was no income coming in. I actually worked some temp jobs during that period. My wife actually ended up getting a job, just so we could get through that time. It is a huge monthly drain to be flipping properties. But, in the end, look, this is real estate. This is trading real estate. You’re flipping. You’re going cash to asset to cash as fast as you can. That’s the process. It’s trading.
So, which one do you think I think is better, trading or flipping houses? Well, there’s a reason I got out of the business of flipping houses. I fully intend to flip houses some time in my life. I now have the ability to go in and pay cash for a house. But, I do not have the time to go in and do any of the work. So, I love the business. I love the business of flipping houses. But, trading, it’s the same thing. It’s the same thing. You can trade so many ways. And, this is where people always, when I tell people I’m a trader, they always say, “Oh, are you a day trader?” And I say, “Sometimes. Sometimes I hold for a few weeks. Sometimes I hold for a few months.”
The great thing about trading is that you get to decide the frequency. And, there are strategies that fit well within every frequency. I actually have several different accounts where I employ several different strategies. I have long-term accounts that I’m an investor in. I have some accounts where I make a change every three to six months is where I go from cash to asset to cash. And, there is actually some accounts where sometimes I do day trade. In my Forex account, I almost exclusively day trade. I actually don’t day trade stocks anymore. I don’t because if you’re going to day trade, get into Forex. It is the absolute best to day trade. It is the most liquid. It’s open 24 hours a day. When it trends, it trends. It’s fantastic.
And so, I don’t do any short-term trading outside of Forex. Because, in my opinion, that’s the only place to do any short-term trading. So, if I do have any of you out there that say, “Hey. I think I do wanna day trade. I think that’s what I wanna do. I think that fits my personality.” Let me tell you, go to Forex. Go to Forex. That’s the place you wanna be. Don’t waste your time in other places.
So, obviously I’m the head trader for Maverick Trading. I’m going to think trading is better than flipping houses. But, as I said, I did like the business of flipping houses. I did not like the business of being a rental landlord. I did not like that business at all, and I will never do that business again. I will do flipping again. I really enjoyed it. I really enjoyed the process.
But, as far as what was best for me and my family, I got out of the business. And, I focused solely on my trading after the story I told you where we had seven houses, no money in the bank, and it really was so stressful. And, I thought, “I will never put myself in this situation again. I need liquidity. I need liquidity.” And, that’s really, to me, the key. Really, the reason why I would tell anyone … If someone said, “Robb, should I get into real estate or trading?” I’ll be like, “You know what, get into trading. Because, the liquidity is the key.”
So, the exit. It’s so easy to buy a property. I shouldn’t say that. Yeah, you gotta have a down payment. You gotta have financing. But, when you do buy the property, that’s the easy part. When you finally decide … When you finally decide that you want to sell it and turn it back into cash, all of a sudden your power’s gone. You can throw it out there. You can hire an agent, you can put it out there. And, depending on the market … Right now, people are selling their houses above market price. You might get lucky. You might get in a period of time where it’s a hot market. You sell your property, there’s a bidding war, and you end up more than you wanted faster than you wanted.
But, if you need to sell in a down market, you’re gonna have to discount the property severely. And, there still may not be buyers there. As people found out in 2008, 2009, there was zero buyers. There were zero buyers out there in the real estate market. And so, when you wanted to finally get out of that and go somewhere else, you had to depend on a lot of other things. In trading, the market has so much liquidity and so much depth. There are companies there that are legally required to make a market. They’re called market makers. And, I know people always blame the market makers for things. Look, they may or may not. You’ll never know. It’s one of those conspiracy theories. But, what I do know is that when you want to sell, they have to fill your order.
Now, again, the price could be dropping quickly, but they still have to fill my order. Period. The best thing about trading over real estate is liquidity, is liquidity. To get into a real estate deal, I would have to spend hours and hours driving around looking for properties, throwing out offers, negotiating with the sellers, going to get financing, or waiting and going to a title report, getting an inspection done, getting an appraisal done. Finally, I could buy it. And then when I turned around to sell it, it was like the whole thing all over again.
I love trading. It’s a click. It’s a click of a button, and you’re out. Cash to asset to cash. You can change the capital structure however you want, change the portfolio. At Maverick Trading, we say that we’re market agnostic. It means that we don’t care if it’s a bull or bear market or a sideways market. We’re agnostic. Whether or not the stock market goes up next year should not effect your return as a trader. What should effect your return as a trader is your edge. How did you trade? What trades did you make? How good was your position management? That’s all that matters as a trader.
In real estate, real estate is a one-way street. If real estate goes down in value, everyone loses. Renters lose, property flippers lose, everyone loses. Everyone loses. It’s a one-way street in real estate. In trading, if you wanna be bearish, be bearish. There’s lots of great strategies that we have that you can just simply go bearish. Hey, prices go down, you know what? Let me do some bear call spreads, let me do some long [puts 00:47:01], let me do some diagonal put spreads. There’s so many strategies that you can use, and it’s very easy to change.
If you decided today that the market, that the economy, was going to crash, how long would it take you to convert your real estate portfolio, sell it all, and go to cash? And then, if it did crash, there would be nothing to do other than stay in cash and not lose money. But, there’d be no way to make money. It would take you months, and months, and months to make that turn. It’s so low. Today you decided you’re no longer bullish in the stock market? You wanna be bearish? You could turn that all around in a couple minutes. Liquidity. It’s awesome. Liquidity’s the best thing.
So, for those of you that closed your ears when I gave a spoiler alert … Remember, I gave you a warning early on. I said, “Look, if you wanna wait to the end to find out who’s the winner,” the winner is officially options in my mind. Now, look, I will have people disagree with me. And, that’s fantastic. I have no problem with people that disagree with me. Look, I’m not saying real estate is bad. Real estate is fantastic. As long as you are investing in something … As long as you’re investing in something. Do you know what the best … the best money that you probably ever spent? Oh, you know what, this is a loaded question. But, I’m gonna go ahead and say it. Oh. This is going to be a very loaded question. I was gonna say, “is on your education.”
Now, probably 20 years ago I could have said that with a complete assurance that I was saying the exact right thing. But, 20 years ago if you paid to go to college, it paid off way more than you invested in college. Boy, we definitely had a little shift here in America, where we have people with MBAs that are working at Starbucks. Now, look, this was four or five years ago. I tell you what, there are zero MBAs working at Starbucks anymore unless they want to be working at Starbucks. The job market has come back, and the people that went to college and got MBAs, they’re being rewarded. I know during the downturn everyone was looking at their $50,000 of student debt saying, “What did I do this for?”
I’m telling you what, it will pay off. If you go through your entire life taking your cash, buying things like property, education, stocks, commodities … Even though gold is a terrible thing, it at least doesn’t go down in value. It at least goes up in value slowly. Art, collecting cars, collector cars, not your Toyota Tercel, that’s not gonna go up in value. Sorry. But, again, buying things that go up in value is the key. That is the key to making it in life.
Now, how to do it, this is where you just get to decide, “What vehicle do I wanna use? Do I wanna use real estate? Does that fit my personality better?” Well, I think there’s a lot of downsides in real estate. In my opinion, real estate is something you do after you’ve made a lot of money trading stocks. You make a lot of money trading stocks, and then you say, “You know what? Let me diversify this into real estate.” I do not disagree with diversification. I think diversification is great. Diversification is a great way to lower risk of a portfolio. If you do that when you’re 20-years-old, and you reduce the risk of a portfolio, you also reduce the return, and you’re not going to get ahead.
Diversification is for something you do down the road when you have a lot of money. When you’re at the bottom and you’re trying to get up, you’ve gotta pick the right vehicle. You’ve gotta pick the right vehicle, the one that’s gonna get you ahead the fastest. And then you start to diversify after that.
So, looking at stocks and options versus real estate … Look, here’s the problem with real estate. And, I’m gonna ask a question right now to the live session. Raise your hand if you just right now are priced out of real estate, meaning you don’t have $20,000 to put down on a down payment? Now, if I got 100 people off the street and asked that question, 95 out of 100 would probably say, “Yeah. That’s my problem. I would love to get started in real estate, but guess what, I don’t have $25,000 for a down payment.” The great thing with options, you can get into options for a couple hundred bucks. Now, look, that’s a bad idea. If you wanna make a living trading options, you better be trading six figures. And, again, that’s what we do at Maverick, is we help people get to that point of six figures.
So, again, if you don’t know anything about Maverick Trading … Well, you know what? Let me take you back. All of you received an email because at one time in your life, you saw an ad for Maverick Trading that said, “Hey. Do you wanna be a professional trader and trade for the firm?” You clicked that ad, and some of you went all the way through, and I can see a couple of our traders in here. Some of you stopped along the way, which is fine. But, at some point you said, “Hey, you know what? I do wanna be a trader.”
So, again, we have two separate division. We’ve got our Options and Futures division, and we got a Forex division. Forex, as I said, is, for me, the only thing you should do if you’re going to do short-term trading. Now, that being said, I do a lot of the instruction with our Forex traders. And, I say that Forex is a game you need to be on the sidelines 95% of the time. Forex is fantastic when it’s moving, and it’s terrible when it’s not. If you just try to bang away and trade every single minute of the day on Forex, that’s never gonna go well. You have to know what you’re doing in Forex. You have to.
Our Options division, this is a much slower, steady game. So, if your personality is more, “Hey, you know what? I like the idea of renting out properties, I just don’t like the idea of unclogging someone else’s toilet,” then this is a much better way to go. It’s very slow and steady. We really work on monthly returns. Let’s get to our monthly return. Let’s sell some options. Let’s bring in some premium. Let’s do some other strategies. Let’s build wealth over time. And, again, it really depends on your personality.
So, again, since you came here tonight, we would like to just offer you a couple things. Again, all of you at some point have expressed interest in becoming a trader for Maverick. Again, like I said, I can see some of our traders in here. I can see a couple of our former traders in here. Look, we want to extend to you an offer to check some things out. Come check our our Sunday Trading Room. So, every single Sunday we meet as a firm, all of our traders come together, and we talk about the week ahead. So, we do our Options Trading Room at 9pm Eastern Time, and we do our Forex one at 10pm Eastern Time. And, again, it’s to get everyone ready for when the market’s open on Monday, that we’re ready to go, we know what we’re looking at.
Also, we wanna offer a seven day trial to our members website. For those of you … Again, we like to say, “Look, we want to make sure that you’re right for us, and we want you to make sure that we’re right for you.” So, again, we wanna open up the doors. Come check it out. One of the things that is required of all of our traders before they trade live for the firm, and trade firm capital, is three things: You must develop a personalized trading plan and submit that for review. You have to pass all of our tests. And then, you have to submit demo or real trading statements, at least two months. Those are the three requirements. And then, once you pass those three requirements, you are eligible to trade live for the firm. And, the trade backs you with capital.
So, again, our first level in stock and options is a $25,000 account. Our first level in Forex is a $10,000 account. So, if you’re interested in becoming a trader for us, I would go ahead and apply for one of the trading positions. It’s pretty simple. For FX you got to maverickfx.com. There’s gonna be an “Apply Now” link. Just click on that. For options, futures and equities, Maverick Trading. There’s gonna be an “Apply Now.” Just click the link and get going.
Again, some of you have already started this process. And, if you got a little distracted, or life got busy, or you’re in a better place, go ahead and go in, resubmit your application. Because, that’s going to let one of our recruiters know to get in touch with you. So, one of our recruiters is gonna be reaching out to you over the next 24-48 hours and basically saying, “Okay, thanks for coming to the webinar. What are you interested in, and do you wanna come join us for the Trading Room? Do you wanna check out the website? Or, do you wanna try apply for a trading position?” Or, maybe it’s all three.
Again, we wanna open up the doors to you. Check it out. And then, of course, our recruiters, they’re following what we’ve told them as far as what we’re looking for in new traders. We have a pretty specific idea of what we’re looking for. So, again, your recruiter will be getting in touch with you.
So, in the end, I wish I had a bell to ring and proclaim options the winners. But, you’ll just have to imagine a bell in the background. But, look, I hope, I hope, that if you forgot about options, if you forgot about a covered call, you forgot about this. Let’s say you forget everything I said tonight, but the only thing you remember is that you need to take some of your cash and invest it on a regular basis … And, I don’t care what you invest it in. Art, precious metals, you go buy a silver coin every Friday, you go do something. If that’s all you do, your life, or at least your financial life, will be better because of it. That’s a guarantee.
Now, look, I’m not saying you’re gonna make great investments all the time. You’re gonna have losing investments. Everyone has losing investments that makes more than one investment. But, if you keep doing it over time, that’s how you build wealth. So, again, have at it. Thank you so much for joining me. If you have any questions at all, again, your recruiter will be reaching out to you. We’ve got a pretty big group here tonight, so we usually like to say 24 hours, but today I’m gonna say 24-48 hours. They’ll reach out to you. If you have any questions, let then know you’re questions. If you wanna check anything out at Maverick, please go ahead and check it out.
All right. I wanna thank Darren Fischer. I can see him typing away furiously at the keyboard answering a lot of questions. I’m going to stick around and help him answer any of the remaining questions until the last question’s been answered. But, again, thank you very, very much for joining me, and I really hope that you learned something today.
All right. Good bye everybody.