Buying A Home Isn’t Stupid

The National Association of Realtors has had its share of battles
this year, but none is more frustrating than the national media telling
homebuyers that investing in a home is a stupid idea.

First, they keep trying to make real estate into a national
market (real estate is a LOCAL market), and then they treat the approximately 2 percent loss in housing
prices for 2007 like the Crash of 1929.

From the Housing Bubble to the Mortgage Meltdown, the press
has been relentless, even though most people have lost more money on
their SUV’s and their stock portfolio than their homes this year.

It’s time for a little perspective here, folks. Here are a few facts the NAR would like the media to remember: please click here for the full article.

0% Interest Game

Have you played the 0% interest credit game?  I guess I knew it was possible but I didn’t know how popular this was until a client of ours told me about it. 

Like I do, you undoubtedly get bombed with numerous credit card offers each week.  Most of the time I throw them out, but if you take the time to read them carefully, you may be passing up an opportunity.  The “game” is played by holding a large amount of unpaid debt that you continue to transfer around to new cards, one after another, and basically avoid paying any interest!

So here’s the way I read it.  Each of these cards have an initial period where they offer 0% interest provided that you pay the minimum monthly payment.  Before the initial period expires, you need to have identified and opened a new card and transfer the balance onto it.  If you miss the timing then you will face substantial interest due.

There is another ‘catch’ in that most of the cards I found (Balance Transfer Credit Cards or Compare 200+ Credit Card Offers) have a balance transfer fee of about 3%.   The way I see it is that even if you can’t get a card with a 0% transfer fee, you still just paid 3% interest for a whole year.  That’s WAY better than even an equity line at prime + 0 (7.5% today)!  My client was telling me that she knows people doing this with $100’s of thousands of dollars in debt.

But there is a downside.  Carrying a lot of rotating debt on credit cards will hurt your overall credit rating if you go to get a home or car loan.  Also, there may come a time when you cannot qualify for a card when you need to make a transfer.

However, there is a big different between borrowing money to buy consumer goods versus borrowing money at a discount for the chance of making a higher return investment.  For example, if I were to give this a try, first off I would make sure I could pay off the credit card fully whenever needed.  Then, I would get a 0% interest card that allowed new charges AND allowed cash advances to be made interest free for an entire year.  I would use the cash advance blank checks that come with the statement to deposit money into my investment account and away I’d go – buying stocks, mutual funds, ETFs, whatever. 

Fine print:  Not FDIC Insured.  Not Guaranteed.  May Lose Value.  May Hurt Your Credit.

Have you ever done this 0% interest game?  Do you know anyone who has done this?  I’d like to hear from someone who has done, or is doing this to see how successful you’ve been.

As always, we appreciate your comments.


Where did my equity go?

I know people who bought their home at the peak of the market in 2005.  At that time, with the frenzied pace of the market and competition from so many buyers wielding their easy-to-get credit, overbids were virtually required. 

Today I get a call from one such owner who is disappointed to see a home similar to his come on the market at about 10% less than the price he paid.  “Where did my equity go?” he asked.  I feel for him.  I feel for anyone who finds himself or herself “under water” now after overbidding for a property bought during the heat of the market.  But I also want to offer some perspective.

We are all living with the results of what happened in 2005.  In 2000, there were 4.6M homes sold nationally.  In 2004, sales grew to 5.7M and in 2005 sales exploded to a peak of 7.1M homes sold – 40% of which were non-owner occupied!  Alarm bells should have been ringing that speculation was running rampant in the market.  People were leveraging their credit (either equity lines, second mortgages, credit cards, etc) to buy and flip properties.  Another phenomena we saw were investors using 1031 tax-deferred exchange mechanisms that have specific timing requirements to locate and buy a property or else face big tax penalties.  This may have motivated them to overbid on properties because the consequences of paying taxes was worse than paying a little more for the property.

Buying a home is not like buying a stock.  Yes, it can be considered an investment – a Long-Term investment.  No, it should not be looked at each month to see what it is worth like you may do with a stock or fund. Of course we all want to see our net worth grow.  People who look at the value of their home very often have a purpose, and I would suggest that purpose is unhealthy.  Maybe they are looking to refinance and pull money out.  Maybe they are looking to add an equity line so they can buy consumables (flat-screen TV, boat, trip to Hawaii, etc).  If this is your pattern, then these are indications that you are living beyond your means.  Slow down and reconsider what you are doing.

Even a home bought at the peak in 2005 is still a good investment for the long-term provided the fundamentals of Location-Location-Location were followed.  I have a friend who bought a home in San Mateo in 1989, at the peak of that cycle just before a downturn.  Within six months he was “under-water” and it was a few years before getting back to even.  He still owns the property today, now worth 3x what he paid for it, and has since grown his real estate holdings into several investment properties.

No matter what you paid for your home and what it is worth today, it is a place to live and grow with your family; a place from which to build memories and experiences of life; and a place to make you feel warm and comfortable to return to after each and every hectic day.

My thoughts may not make you feel better, but I hope it does make you see things from a different point of view.  As always, we appreciate your comments.


Tree Removal – Part 1

Tree_frontWe have a giant Monterey Pine tree in the corner of our back yard.  It’s about 110 inches diameter and 35 feet tall – It’s HUGE.  It has provided enjoyable shade for our house, BUT it is located right in front of a power pole.  The safety rules for PGE’s trimming is that they should not allow any growth to come within 10 feet of the high-power lines on the top of the poles.  But the fact is that PGE has shaved this tree over the years to give a 10-foot radius of clearance around the power lines, making it look ugly from any of our neighbor’s viewpoint.  It has also made the tree grow in a somewhat unstable manor, making it lean over our home and the house next to us for many years.

What I did not fully understand when we bought our home 6 years ago, but now am very familiar with since becoming a licensed Realtor, is that it is the homeowner’s responsibility to take care of all the trees on our property regardless of what PGE has done.  San Jose has a City ordinance that requires all homeowners to bear responsibility for maintenance of trees on their property.  When we moved in, I thought this meant watering the trees and trimming the branches once in a while. 

What I now realize is that my homeowner responsibility as the ‘tree caregiver’ is much more serious.  Our Monterey Pine tree has become diseased, either from age or from the PGE trimming, and it must now come down.  The expense for removing a tree of this size is substantial – on the order of several thousand dollars.

I’m going to bring you with me on the tree removal journey through future postings as the process unfolds so I can show you what it takes to remove a big tree in San Jose and you will know what to expect.

ps. Please check out PG&E’s Tree Maintenance Program website for more information.


The rich get richer, Why?

Have you heard the expression “It takes money to make money”?

I’m not inviting a philosophical debate on the merits or dangers found in the pursuit of wealth.  The basic fact is that we all survive on money and we have each been raised in a household environment with a certain viewpoint towards money.  If the subject of being or becoming rich is an uncomfortable one for you then I suggest some excellent reading on the subject found in Jack Canfield writings that may offer a healing perspective.

Sabrina and I are always looking for growth — personal, professional, financial, and all other areas of our lives.  We also like meeting and talking with experienced and successful people who have achieved great things in areas where we want to improve.  I had one such conversation with a mentor from our Keller Williams office a few days ago.  Her opportunities to work with high net-worth clients over the decades have taught her some invaluable lessons and her comment is still ringing in my ears:

“Why is it that most people want to buy when everyone else is buying (multiple offers on homes that often aren’t even very desirable) and don’t want to buy when everyone else is waiting (like now – bigger inventory of many properties staying on the market for a longer period of time)?  Clients with large amounts of money (or investors), most of whom stopped buying property in 2005 when they recognized the price-to-value ratio stopped making sense, are beginning to get back into the market now.  They see the next 2 years as the best time to acquire more property!”

Here are some of suggestions:

1) Meet with accomplished people as much as possible, treat them to lunch or a coffee, ask questions, and listen to everything they say.  Devour books and articles on subjects in which you are looking to improve yourself.  Find an accountability partner to help articulate your goals and commit to working together to focus on and support each other in the pursuit of these goals.

2) Work on being counter-culture.  In a world where we are under daily attack by advertisements of all kinds to spend money, you need to be saving.  When you see other people selling out of a good stock, or commodity, or property and driving prices lower, you need to be a buyer.  Of course you need to continue to make sure the fundamentals make sense and usually consulting with professionals in their field is the best way to validate your intentions. 

3) Have a long-term view.  I’m going to write another posting on this point because I have so much to share from people I’m currently working with that it would be too lengthy to write here.  Real estate is not meant to be something you watch the value of daily or weekly like many stock traders do with their investments.  Forget about trying to “time the market” looking for a bottom – this leads to analysis paralysis.  Buying a property should be viewed as a long-term hold for leveraged growth over time.

People with money make more money by being different than everyone else.  Read The Millionaire Mind by Dr Thomas Stanley to understand more about how they think.  It’s fascinating.  They are not different people; they just know how to think differently than average people.