CD's, Turn Key REI, Stock Options comparison

[Gary P.]

A post in the landlording section inspired me to review and post numbers. One thing to think you are being honest with yourself, quite another to put it out there for critique by more seasoned investors.

Putting my numbers on the web is more than a little uncomfortable. Please indicate if this is/was helpful with a PM, +1 response, or insightful comment.

This is a pretty good time for this post since our options account and REI numbers are close in value and thus have comparable returns.

Before we get into the numbers I wanted to cover the options strategy at work so as to not give an impression that anyone can start selling options with any strategy and see similar performance.

The options strategy generates cash 3 ways: selling the "put", collecting dividends if we are "put" the option, and selling "calls" if we are "put" the option (notice there are no buying of options in this strategy). At another level, choosing the stocks: the stocks are chosen from a small pool of stocks that pay dividends, are not very volatile, and companies with strong financial statements. These stocks are ones that we like owning anyway because we like dividend paying stocks with strong financials at good to great prices. However, the strategy is meant to generate cash rather than purchase great stocks, so the focus is on selling the "put".

I know, just show you the numbers already....

turnkey numbers (scroll -> for narrow screens):

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price		dwnpymnt	cashdwn	mortgage	rate		closingcost	rent	management	pi	piti	capex	vacancy	cashflow	modified cashflow	coc projected	seller financed payment for 12 months
90,850		17000	2925	68000	4.75		25413.33	1050	105		538.34	105	52.5	249.16	44.99	0.103636742	204.17
82700		16540	0	66160	4.75		22445.62	900	90	345.12	499.78	90	45	175.22	175.22	0.127124547
79700		15940	0	63760	4.75		20505.91	875	87.5	332.6	476.82	87.5	43.75	179.43	179.43	0.135079046

Some back story on the financing, The first property appraised for less than the agreed upon price. There is some fancy financing to cover the difference, seller financed over 12 months half the discrepancy and I brought cash to the table for the other half and had included in the closing docs/cost. So the actual cashflow for the first property for the first 12 months is reduced by the seller financing payment  - there will be anoticable cashflow increase in month 12 assuming all remains equal. 

Money was added to the options accounts throughout the year, similar to but not exactly consistent with down payments for the investment properties.

With interest, possibly only my own, I can check in and provide these numbers again next year.

The real comparison

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month	options returns	options annualized	REI	REI annualized	CD annualized
January	382.71	0.176	na	na	0.005
February	298.28	0.135	na	na	0.005
March	800.6	0.359	na	na	0.005
April	1050.59	0.232	na	na	0.005
May	966	0.194	94.5	0.0044	0.005
June	618.78	0.089	97.5	0.0045	0.005
July	1055.55	0.147	44.99	0.0023	0.005
August	202.98	0.027	225.22	0.056	0.005
September	569.34	0.073	348.4	0.061	0.005

Where the annualized REI returns are calculated on the cashflow value at that month x12 and divided by the cumulative closing costs. The options account varied up and down throughout but the annualized number is calculated the same as the REI. Not shown in the closing cost is the home inspection done by a third party for each house. The May - July REI numbers are from partial month rent and variance in the seller financed payment.

I am interested in where this going, not just because it is my money, because the large drop in August was due to the market downturn which "put" a great deal of stock in my options account - this is/was an interesting time to be comparing REI vs options returns. Note: The September options return is about half "put" sales and half dividends.

Perhaps on my next update I will have an idea of the tax implications of each asset type included into the table.

Putting my numbers on the web is more than a little uncomfortable. Please indicate if this is/was helpful with a PM, +1 response, or insightful comment.

I like the REI trend far better than the CD returns currently offered. Let me now if you think I should have kept the money in CD's.

Cheers