Two Investments
I read a post on Event Horizon 1984 Blog Log “eBay Inc Stock Price During CEO John Donahoe’s Tenure” which started me thinking about my own eBay investment history.
The eBay investment
Early in 2001 I had been buying on eBay for two years and selling for one year, I was completely hooked. I bought shares at just under $10. I was aware that generally internet stocks pay no dividends but thought my investment would appreciate sufficiently to compensate for that lack. In December 2004 eBay would hit its peak at $58.88.
With hindsight I could have split my initial investment between eBay and Amazon which was trading at $10.19, but I was underwhelmed by Amazon and passed on the opportunity.
In 2006 I began building this website. I had quadrupled my eBay inventory to 3500 multiple item listings after stores went into search and the abrupt reversal of SIS in March resulted in an 80% drop in sales. A 250% increase in store listing fees six months later impelled a corresponding inventory reduction on eBay. The need to diversify off eBay was becoming clear. In 2007 eBay and PayPal’s percentage of my gross was higher than that of my wholesale costs, overhead (S&H) or profit. By January 2008 after the slowest ever Christmas sales it was apparent that I could no longer afford to sell on eBay. I needed to either change my line of products or venue.
The only residual value from the eBay years was my feedback. By February 2008 feedback changes and the ugly atmosphere at eBay made it plain that the only way to preserve my unblemished record was to leave. I joined the boycott and have neither bought or sold on eBay since.
This is what I wrote on this blog in April 2008
Hear me well eBay. I will not be bringing back the 3500 multiple quantity listings I had in my eBay store when you shafted me in 06, those listings I removed when you doubled my listing costs … those fixed price listings you would like to charge me 12% final value fees on. I am a businesswoman. I can’t run a viable business with my venue micromanaging it.
Thoroughly disillusioned by eBay, there was no reason to hold stock in an organization I was convinced was going in the wrong direction. I sold at $30. Again with hindsight, it was a good decision, eBay dropped to $10.27 in March 2009 and 14 months later is trading at around $20. Amazon was trading at $72.41 the day I sold my eBay shares and today’s average price is $120. Ah well!
The second investment
This is a 1920s kit cottage located in a small town in South Dakota. It has been well cared for and rents for $300 a month. I own it free and clear.
After deducting taxes, insurance and management fees plus an 8% set aside to a maintenance contingency fund, the house has earned 11% annually on my investment based on it’s 88% occupancy rate during the period I have owned it. Additionally it has appreciated (conservatively) at 4% per annum.
The comparison
Over the eight year term my eBay investment appreciated at 14.75% per year but produced no income. If I still owned the stock it would have appreciated by 8.6 per year.
Over the same eight year period the house appreciated at 4% annually or by approximately 37% while producing 11% income.
There is not a whole heap of difference between the two investments in terms of net return. The differences are security, lack of volatility, (def.# 4) and potential in the real estate, contrasted to liquidity in the shares.
- liquidity, it is easier and faster to unload shares than to sell real estate
- security, the house belongs to me, I make the decisions, I am in control
- volatility, the stock market goes up and down as others buy and sell, property values are generally not so mercurial
- the bonus, a small warehouse
- potential, I could live in my house, rent it, mortgage it, remodel or enlarge it, sell it, there are choices
Some thoughts on real estate investment
As with any investment the profit potential hinges on what you pay for it. Use a realtor and be upfront and specific about your goals. Do the math and research before you look so you know your price parameters. Listing price has no bearing on offer price, if you can’t negotiate to a price you can make money on, walk away. As Auntie May says “Cash talks with a loud voice.”
Be coldly analytical when investment property shopping, location, price, condition (anticipated maintenance) and expected return must carry more weight than charming staging.
Do not allow yourself to become emotionally attached. It is an investment. Pay close attention to the area, is it trending up or down? What is the school district’s reputation? Better locations attract better tenants.
Unless you have real estate management experience and knowledge of applicable law, find and employ a capable rental agent. Keep tabs on them.
Y’all come back!
