“Relax pal. First lesson in business is don’t get emotional about stocks – it clouds your judgement.”
– G. Gekko
“If you’re buying a house to make money, then don’t buy a house.”
– Karl Lueders
The era of irrational real estate exuberance officially ended somewhere around early 2009, just a few months after the big “crash.” It happened when a random couple found the house in which they wanted to make babies, plant flowers and host handfuls of Thanksgivings. They turned to one another, squealing in delight, but then squared up their Realtor and asked, “How much do you think we can make on this one?”
I still get that question on an infrequent basis. I feign deafness to see if they’re sincere enough to ask again. If forced upon to answer, I usually go with the above quote. (No, I’m not Gordon Gekko.) It sucks, because we want everyone to own a good home that will make money, but I think we also forget that the public doesn’t always know the score with real estate. Many are still looking to buy their principal residence with an expectation of profit, rather than buying it with their heart. Which is how it should be.
I have a good perspective on the past and why people still want to believe that real estate is a sure thing. I made 16% on my first house in less than 18 months. Of course, that was back in Chicago in 1998, but people tend to remember the % and not the year. I wasn’t in the business back then and had no clue what we were getting into. We just wanted to stop paying rent. We loved our condo but we loved it even more when we sold it and moved to Denver with some tall stacks. Those stacks disappeared pretty quickly when we started looking at homes in Denver and realized we were making a lateral move from Chicago. Go figure.
Nevertheless, we looked smart because we got lucky. But I was that friend/neighbor that did get lucky and everybody wanted in on the trade-up. Yet once people started trying to act smart, we ended up with a fiasco like sub-prime loans, default credit swaps and NINJA loans. Then the s**t hit the fan across the country. Lots of places are beginning to recover, but the skid marks still appear prominently on many map searches of Nevada and Florida.
Some buyers still want an assurance that they’ll be able to sell their house for more than what they paid for it. Just so you know, you can get better predictability by putting your down payment on red (or black; just stay away from wheels with two green zeros) than which way the real estate market is headed. Real estate is not a financial investment; it’s a lifestyle investment. Homes are supposed to pull at your heartstrings, not appear as a ledger statement. (That is, unless, you happen to be buying an investment property, you’ve done research, and know the cash-flow thresholds. Another day for that.)
Sure, you need to be able to afford what the heart wants, and the heart might not know why you need a radon test, but that’s why you have good Realtors and lenders with realistic lending guidelines. And yes, it’s a huge financial decision. But don’t confuse financial decision with a financial opportunity. If you buy a home with the hopes of making money, you are allowed to blame yourself if/when that doesn’t happen. The days of time equity are gone.
But if you buy a home to raise kids, tend a garden and paint the walls bright orange because you can, then yes, that’s exactly why you buy a house. You buy a condo because you’re ready for the tax advantages of home ownership but don’t want to mow a lawn. That’s how you do.
And don’t forget, people like me are here to help you find your dream home for the best possible price. Good lenders are here to get you the best terms to make that dream affordable. If you want emotional detachment, buy a stock.