High Return Investment Ideas/Alternatives to Landlording ?

chenda · Post by **chenda** » Mon Aug 22, 2011 11:06 pm

I've been looking into investments which could potentially give significantly high returns (i.e. 15% +) which could enable me to retire in the next few years, rather than waiting till I have enough for a SWR of 3 - 4%. The options seem very limited, so far I've only found:
1) Landlording - This seems to be the best - in some areas where you can buy cheap, run-down property there are potentially huge returns to be had for cash buyers with some DIY skills. Unfortunately, I don't live in one of those areas, and I am very reluctant to get involved with mortgages.
3) Alternative property investments - e.g. car parks, garages, allotments
4) REIT's - Hassle free but capital is at risk, and returns are volatile
5) Low maintenance businesses - automatic laundry mats are often used as examples. Obviously there are millions of potential businesses which could be low maintenance depending on how you run them, but this is getting into entrepreneurship with the usual higher risks involved and skills demanded.
6) Forestry - This seems an good long term investment for capital growth but difficult to generate a regular income from.
Has anyone considered or can suggest anything else ? I appreciate this is'nt going to be easy, or we could all retire much earlier...

4444 · Post by **4444** » Tue Aug 23, 2011 12:19 am

There is a study that says if you buy companies below book value you will beat the market...

If you aren't looking for income right away there are tons of opportunities...

mikeBOS · Post by **mikeBOS** » Tue Aug 23, 2011 1:24 am

Blackjack? :-p

4444 · Post by **4444** » Tue Aug 23, 2011 1:29 am

If you want to lose 15% every time you go to the casino that is a good idea hahah.

Post by **jacob** » Tue Aug 23, 2011 1:54 am

You can increase return rates by adding either work or risk.
If you add work, well ... (it still might be better than a W2 job though).
If you add risk, it's unlikely to work in the long run. There's a reason for the S in SWR.

4444 · Post by **4444** » Tue Aug 23, 2011 2:07 am

So you believe in efficient market theory then? Often times, you can get an increased return without increased risk.

OurLifeInc. · Post by **OurLifeInc.** » Tue Aug 23, 2011 2:16 am

Please describe "Often times"! I'd like to know what I have been doing wrong all these years!

4444 · Post by **4444** » Tue Aug 23, 2011 2:20 am

Lets just take a look at one stock: APPL. The company has gone up and down a lot over the past 3 years. Chances are the fundamental value of the company does not mirror these price changes. The list is on and on ...
Price is what you pay value is what you get...

C40 · Post by **C40** » Tue Aug 23, 2011 2:20 am

The hard part is knowing the what/when/where/how before it actually happens or is to late to do so.

4444 · Post by **4444** » Tue Aug 23, 2011 2:23 am

OK BUT just because a stock goes down doesn't necessarily mean there is more risk. THERE is LESS! I am not trying to speak in absolutes or be rude to Jacob. I agree that you can increase returns with increased work. That I agree

.

4444 · Post by **4444** » Tue Aug 23, 2011 2:31 am

Jacob: Sorry to be rude. Wouldn't increasing risk all around in the long-run actually decrease returns? In the short-run I can see how there is a lot of variance.

KevinW · Post by **KevinW** » Tue Aug 23, 2011 2:55 am

+1 on the "more work or more risk" sentiment.
Though, you may be able to invest directly in your household, to eliminate expenses, at a better ROI than in the markets. E.g. a $50 pair of scissors that eliminates $20/month of haircut expenses. You may want to look for low-hanging fruit like that if you haven't already.

Post by **jacob** » Tue Aug 23, 2011 3:12 am

@4444 - You can also increase returns with increased insight---a kind of work. Only a minority of people have this insight---most people have no original ideas. In the case of AAPL you would have had to know what a difference Steve Jobs and the iPod/Phone would make. Before that, AAPL was a medium company. AAPL still has significant manager risk as is evident in the stock price whenever there are news about Jobs's illness. Ex ante, RIMM would also have been a good bet.
I don't think markets are 100% efficient.
Keep in mind that buying below book value is no guarantee that the stock price will appreciate. It could be a value trap. Since book value is the difference between historical asset prices and the liabilities, a company could have a low price to book value if assets are valued at historically high values say 100MHz Pentium servers procured at $3000 a pop and depreciated too slowly. In my opinion, value investing was a lot easier when companies where simple to understand e.g. consisting of trucks, buildings, lathes, and mills. It's a lot harder when they consist of some clever manager, some intellectual property, a website, and a brand name. Without the company to bind them together, they would individually be worth nothing, unlike the hardware of some industrial company.

4444 · Post by **4444** » Tue Aug 23, 2011 3:19 am

I agree. Warren Buffett started investing when annual reports were probably 12 pages long. Now annual letters are hundreds of pages long. I just don't buy that the markets are 100% efficient. Even since 2008, when apple was a very strong brand, the company's stock price has fluctuated tremendously...and this is a large stock that is supposed to be the most efficient due to its institutional following.
I think all this volatility proves that the market participants don't have a clear grasp on the value of these businesses or else why is the market so bipolar?
I dont think high beta means high risk!

dot_com_vet · Post by **dot_com_vet** » Tue Aug 23, 2011 3:30 am

If you're accumulating, you could find an employer that pays better.
I was considering moonlighting with my own business, but simply switched employers, for a 20%+ annual pay increase.

photoguy · Post by **photoguy** » Tue Aug 23, 2011 6:46 am

"I just don't buy that the markets are 100% efficient."
I'm a b&H indexer and I don't believe the markets are 100% efficient either. But there's a huge gap between that and "inefficient enough so that I can make excess returns at low risk".
"Even since 2008, when apple was a very strong brand, the company's stock price has fluctuated tremendously...and this is a large stock that is supposed to be the most efficient due to its institutional following."
Since it was obviously so inefficiently priced, how come you didn't invest in it and make millions? Buy the dips and sell on the peaks, right?

4444 · Post by **4444** » Tue Aug 23, 2011 6:55 am

It's not even about timing the market...You are putting words into my mouth. My whole point was that this particular poster wanted to know how to get higher returns. I was simply saying its possible, with work, to get those returns in the marketplace with less risk. It's not about that the market goes up and down and that you are profiting off the swings. It's about becoming educated enough to KNOW WHY YOU ARE BUYING SOMETHING, thats how you will have higher returns. I AM BUYING THIS STOCK AT THIS PRICE BECAUSE... THAT IS ALL NOTHING MORE AND NOTHING LESS. These are businesses...not pieces of paper. If you cant do that you shouln't own the stock. If you just want to collect the dividends of a mortage REIT and put a stop loss on it thats fine too...I am not judging...Sorry to have caused a stir.

McTrex · Post by **McTrex** » Tue Aug 23, 2011 10:58 am

Not applicable for everyone but maybe interesting for those that have (leased) company cars. Many (IT) companies in the Netherlands offer lease cars as part of the compensation package. I work for an American data storage company that is high on the list of best places to work so their benefits are good. They offer either a lease car or a cash allowance. When I joined I hadn't heard of ERE yet so I opted for a nice lease car. After becoming aware of the costs I started looking for alternatives for when the lease contract expired.
What I ended up doing is I switched to a tiny, very fuel efficient car that I bought myself and opting for the cash allowance. The allowance is a little over 800 euros a month while the car costs me about 300-350 euros a month, including depreciation. I bought the car for ~12000 euro and it nets me ~500 euro a month for a yearly return of ~50%. Of course its limited to the amount of the car, but I wish I could get that return with all of my money

It's not entirely risk free as I would lose money if I get an accident in the first two years, but after two years I have fully earned back the investment and from that point on it's totally risk free. I've got about one more year to go to reach that point.

dragoncar · Post by **dragoncar** » Tue Aug 23, 2011 1:47 pm

Speaking of increased risk, does anyone have any insight into the "Equity Premium Puzzle? (http://en.wikipedia.org/wiki/Equity_premium)" What are the chances that there is no longer an equity premium? Having just started the PP, that would suit me just fine, but either way I think that not all risk is worth the reward.

teewonk · Post by **teewonk** » Tue Aug 23, 2011 3:51 pm

After all that's been mentioned on this forum about the book "Possum Living," I've finally requested it from the library. Reducing expenses to nothing is safer than an investment that can turn sour. If there were a low-risk, high-return investment that you or I could get into, demand would go up, bringing the return back down.