Startling Real Estate Advice!

We have all heard real estate buying advice -- increasing in both page-count and audio volume over the past few years.  I will bet, however, you have never heard advice in the direction or tone of the article I am going to present over the next few days.  This advice is both surprising and honest.  Though called Selecting the Right House, the article offers perspective on investing, life priorities and our American culture.  It comes from a man who graduated in 3 1/2 years in Mathematics and Economics (on the Dean's List) from Brown University.  He is an attorney with over 37 years experience in the banking industry.  I am proud to say he is also my eldest brother.

Enjoy part 1, and stay tuned in the coming days...

Selecting the Right House (Part 1)



Much advice is offered to the first time homebuyer on choosing the right home. Most of it’s bad! Rather than following the advice of late night infomercials and mortgage brokers operating out of the trunk of their (leased) cars, most homebuyers would have been best served to follow these three easy, common sense rules:


1. Buy a house you like living in;
2. Don’t buy more house than you can afford; and
3. When you’re not sure, go back to rule # 1!


While these rules may seem obvious, we are experiencing a housing crisis today that could not have occurred if these had been followed by most buyers. So why do people use more care picking out an I-Pod than they do purchasing what is probably their most valuable asset? In many cases, it is exactly the fact that the purchase is so significant that buyers don’t trust their own intelligence and, instead, turn to a gaggle of advisors, pundits, self-styled authorities and self-serving promoters to seek advice. The problem is, what you get is quite often a misleading cacophony of half-truths, generalizations, exaggerations and, my favorite, conventional wisdoms.


So why isn’t the conventional wisdom reliable? Well, first of all, if conventional wisdom in the investment area were effective, everybody would be RICH and no one would need advice from experts. Unfortunately, most conventional wisdom is best described as wishful thinking without using any math. Particularly in the areas of finance, economics and investment, where most people feel a bit uncomfortable in DIY mode, a horrendous amount of misinformation gets passed around widely and often enough to become, eventually, so ingrained in our way of thinking that one can hardly be convinced it is total nonsense. Here are a few pertinent examples.

A HOME IS A GREAT INVESTMENT. Hardly. A residence is a necessary investment, like kids’ braces. It can also be a “good” way to preserve capital and keep up with inflation. It can also be a source of great satisfaction and enjoyment, not to mention security and well-being. These are not insubstantial factors and should never be down-played. But purchasing a home because of its investment value is practically never a good decision, even when housing prices rise after the purchase.


Yet, I will always get a room full of dissent and counter-argument when I make this statement, despite the fact that over a quarter of today’s homeowners owe more than the value of their homes, foreclosures are approaching Great Depression volumes and short sales outnumber regular transactions in almost every major market in our country. The argument goes that this market is an “aberration” (yeah, and so was the one in the early 1990’s, the late 1970’s, the 1960’s and from the beginning of the Great Depression until the end of the Korean War, just to trace the last 100 years), or this was caused by Wall Street, or Congress or the neo-Fascist world conspiracy! The fact is it was caused by the same thing that causes all price changes: Supply and Demand. We built too many houses given the number of qualified buyers; hence, prices declined, and, with them went the equity of over-extended (often with second mortgages on top of the firsts) home owner/borrowers who really believed (now I know who watches Survivor and thinks it is real life!) that housing prices always go up.

See what I mean?  More soon...