Update on My Real Estate Activities

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It has been a hard week, but a good one. As I mentioned in my December Lull for Property Managers, it is a tough time of the year to be marketing properties, however it is an excellent time of year to be buying. I also mentioned there that I had a negotiation going on 5 rental units located here in Belton, TX. My update for you is, we were able to close the negotiation on those properties. These properties will cash flow at about $1,000+ per month combined, which is an excellent deal, considering we are only risking a contract price of $154,000.

So stay up, keep plugging away in your markets, and let me know if you have any questions. While you are waiting, sign up for my RSS Feed to get free, automatic updates on all blog posts here at Personal Finance Resources.

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December Lull for Property Managers

Real Estate Investing 1 Comment »

No doubt about it, December is probably the worst month for real estate. The kids are finishing up their final examinations at school. Christmas is coming, and the family will be heading out of town to go to Grandma’s house to celebrate the season. December is a time to be with your family, and almost nobody wants to be moving in to a new house during this time of year.

The Silver Lining for Real Estate Investors

If you are marketing a piece of property during this time, good luck. I am trying to market a piece of property in my small town of about 100,000+ people. It is a more expensive property, thus making it even more difficult to find a suitable prospect. But on the flip side of the coin, since there aren’t many buyers out there right now, it is a golden opportunity for you to find and negotiate the sale of a house or other property at well below market rate. I am also currently negotiating 5 units on two separate locations during this time.

A fluke happened, and I noticed a pair of duplexes on the MLS that fit my formula for rental property in this area. I drove by the properties and found the realtor/owner in the front yard tending to some tree limbs. I inquired about the property, and he informed me that they were under contract. But he had another piece of property nearby that he wanted to get rid of, and it wasn’t even on the market. So guys it pays to drive areas you want to invest in, and talk to people that are there. Since then, one of the duplexes became available again, and we are negotiating for all 5 units. This will be a great deal and should allow us to gross over $1,000 per month in rental profit.

So bottom line, stay out there. Keep looking, talk to people you know, try to get into others. A good idea is to find out some of the top real estate brokers in the area, and just call them up and invite them to lunch. See if they are working with anyone that might have a property that fits your formula. Networking is key in real estate.

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Put Spreads

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In my last options posting, I talked about call spreads. Put spreads are remarkably similar except that you are expecting a downturn in that underlying security. Put spreads, like call spreads, minimize the risk to the investor, because they allow your initial investment to be reduced. Note here that it is important to always use the same expiration date on both the put that you buy to open and the put that you sell to open.
So the put spread is buying a put close to the money (or in the money) and selling a put further away from the money.
For example:
I have been watching another stock that is currently trading at $82.65, up a $1.50 on Friday. It is somewhat near the high end of it’s 52 week high/low. I am considering buying a put spread on this stock. The JAN $80 put is selling for $2.10. The JAN $75 put is selling for $0.80. So if I were to buy into this trade, it would cost me a total of $1.30 per share. So for my 10 contracts, it would cost me $2,100 ($2.10 x 100 shares per contract x 10 contracts) for the JAN $80s. I would then receive $800 back ($0.80 x 100 x 10) for the JAN $75s. So the total cost to enter the trade would be $2,100 - $800 for a grand total of $1,300 plus commissions. This is also my total risk. In this case as with buying call spreads, the maximum that I can lose is the amount that I invest.
If the stock goes to $77 at expiration:
my $80 put is worth $3 per share x 100 shares x 10 contracts for a total of $3,000. The $75 put expires worthless. You might be asking why the $80 put is worth $3? Again a put allows me to sell the stock at a certain price on or before a certain date. So what is the ability to sell a stock at $80 worth if I can buy the stock on the market at $77? Three dollars. So all in all, I sell the JAN $80s and buy back the JAN $75 for the $3,000. I subtract the $1,300 that I paid to get into the trade, and I am now at my profit of $1,700.
If the stock goes to $72 at expiration:
my $80 put is worth $8,000. I could sell the put for that. However, the put that I sold initially, JAN $75, is now worth $3,000. So my total take is $5,000 - $1,300 to get into the trade, for my profit of $3,700.
If the stock goes to $80 or higher at expiration:
Both puts expire worthless, and I lose my entire $1,300.
So again the bottom line is, I am willing to risk up to $1.50 to make $3.50. In this case, the trade is even better because I am only risking $1.30 to possibly make $3.70.
Why I Like Spreads?
The biggest reason that I recommend spreads is because it allows smart investors like me to invest in closer to the money markets for a reduced amount. The underlying stock does not have to move as much in order for me to make a profit, and if the stock moves the other way, I lose less money.
The Risks?
The stock moving in the other direction and potentially higher commission rates because of more contracts being traded are the two that come to mind. For me, the upsides are better than the downsides, and that is why I trade them.
What is Left?
I could type an article every day for a year and would not cover all there is to know about options, picking stock candidates, and everything else involved. Stay tuned; I do plan on getting into some trades that will make money as long as the stock moves in either direction. If these topics interest you, sign up to receive Jeffry’s RSS feed. Until next time…

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