Cheap Homes – Why I Purchased Investment Properties in Detroit

I recently heard from a friend that there are so many foreclosures in Detroit that you could buy a home for a few thousand dollars. Call me crazy, but being a real estate investor, this was too good to be true. I figured the homes would have to be in bad areas or not worth purchasing. But I was wrong. Not only are the houses in livable condition, but you can rent them for a couple hundred dollars each month and still turn a profit. I took some time before making my first purchase to get a better idea of the areas in, and around, Detroit.

The most difficult part of buying a home in Detroit was figuring out the best place to buy. I never thought you could have too many homes on the market available for purchase at any given time. When I started looking at the homes in Detroit, I realized why the home prices are so low. There is entirely too much inventory. I didn’t let that stop me from finding what I was looking for, which was a three-bedroom home with at least one bathroom that I could rent out to someone that was losing their home. If you make things cheap enough, you can easily find someone to rent the property.

I realized that I needed to find out where there were schools that ranked highly, nationally, in the Detroit area. After finding the schools, I quickly began my search for real estate. After a few days I had looked at more than 25 homes that met my criteria. After narrowing down my options I was ready to write offers. I had to realize that the process to purchase these homes took a little bit longer than a normal transaction, but the extra time was worth the wait because you can get real estate for the price of a used car.

After my escrow closed, I quickly found a property management company to take care of the first home I acquired. I told them about my strategy and started tracking down potential renters. My techniques worked a lot better than I anticipated because as more and more people lose their incomes, cheap housing becomes a commodity. My property was rented within two weeks and I was able to put in more offers on other properties in similar areas.

The reason I chose to purchase real estate in a depressed market is because of the quick return on my initial investment. I will have recuperated the purchase price of these properties in under two years of renting. And because I do watch many different trends in the real estate market, I know that in the not so distant future these properties will be worth considerably more than they are today. I also gain a sense of pride knowing that I can help those that are in need.

 

How to Pick Stocks for Long Term Investment

There are many ways to make money in the stock market – you can enter a long position, short sell, buy options, etc. I believe new investors should start trading by using fundamental analysis to pick a long position. Below are the fundamentals I used when I started investing in stocks.

  1. Pick an industry. Using common sense (oh, and world news!) put your focus on an industry that can reasonably be expected to perform well over the next few years. At the time of this writing, my recommendations are precious metals, crude oil and rare earth minerals. Once you pick an industry, use a stock screener to set the following restrictions.
  2. EPS (earnings per share) should be, at the very least, a positive number. In a nutshell, this number represents a company’s profitability. Generally, the higher the number the better. I do not like stocks with an EPS much higher than 3.5, because it makes me wonder if the company can sustain that kind of profitability. Also, it makes me question if the company is underpaying its employees or failing to provide decent benefits. Thus, my EPS range is 1 to 3.5.
  3. Price. You can view price like a tree. A higher priced stock is like a big, strong tree that does not move in heavy wind. A lower priced stock is like a frail tree that snaps in half when the wind blows. Therefore, during times of volatility you can expect a higher priced stock to resist a downtrend. However, the higher the price the more the stock has to increase to see much of a payoff. There, I suggest new investors set a price target of $20 to $45. As a newbie you should stay away from stocks priced less than $20.
  4. P/E Ratio (price to earning ratio) should be lower rather than higher. This number indicates how overpriced (or underpriced) a stock is. The higher the number the more overpriced the stock. Thus, you want to buy stocks that have lower P/E ratios. You should compare P/E ratios between stocks of the same kind – for example, you would want to compare a tech company’s P/E to a competitor’s P/E since these companies are in the same industry. Tech companies traditionally have higher P/E ratios while utility companies are known to have lower P/E ratios. Thus, I cannot give you a particular number – you have to research each industry to see what is considered low or high.
  5. Volume. I like the average volume to be a minimum of 1,000,000 to any maximum. The higher, the better. It helps drive the price on good news, and higher volume also ensures that you can sell the stock easily when you want to cash out.
  6. Buy on uptrends. View the stock’s one year chart to determine whether there is an uptrend or downtrend currently in place (if the stock has not gone up or down much, it is in a sideways trend – avoid this). Reasonable minds will differ about this piece of advice, but I personally feel that new investors should never attempt to pick bottoms – you should only buy a stock when the stock is in an uptrend. A body in motion tends to stay in motion.

There is much, much more to be said about how to pick stocks. I started trading in 2003 and did quite well using only fundamental analysis. As always, you should do your due diligence before making any investment. I am not a professional, and I can not guarantee anyone’s success with stocks. Trade carefully and confidently.