Saturday, August 26, 2006

The One Where I Pontificate About Home Buying

I saw this article on the Real Estate Market, which I thought was interesting. Except for this part: "High prices are sewing the seeds of their own demise." It's sowing, as in "what ye sow, so shall ye reap." How the hell does someone sew seeds. Moron! Anyway, back to my twisted diatribe.

I’ve been saying the housing markets were due for a correction since ’03, but like the tech boom, I underestimated the ability of people to push a bubble to extremes. While I suck at predicting market tops (in stocks or real estate) I’m actually pretty good at predicting bottoms. After the tech crash in 2001, one of my aunts called me and said she was selling her mutual funds and asked if I thought that was a good idea. I don’t think it’s a good idea for old people to buy risky stocks in the first place, but I told her to empty out her bank accounts and buy more instead of selling. Of course, she ignored my advice because, like everyone else, they buy when the price goes up and panic when the price goes down. If she had listened to me, I’d have started this post with “let me tell you about why I’m my rich aunt’s favorite nephew.”

I think housing markets suffered from the same problem as dot com or tech stocks. People were seeing prices rise so rapidly that they felt they HAD to get in before they were priced out forever. Instead of being cautious when prices rose, it made them more eager to buy. But what Warren Buffet says about stocks applies to real estate too. “The dumbest reason in the world to buy a [house] is because the price went up.” Conversely, the dumbest reason not to buy a house is because the price is falling.

You see, when every body thinks the same thing, they are usually wrong because most people are idiots. Although I bought the ninja fortress even though I wasn’t confident about the housing market, I think that since everyone is predicting bad things for the housing market, now (or very soon) would actually be a good time to buy. When feckless homebuilders and desperate flippers are trying to unload their homes at bargain prices, buying actually makes a lot of sense. You don’t become rich like Warren Buffet or Donald Trump by buying high and trying to sell higher, so don’t panic if prices come down a bit. That’s a great buying opportunity.
Damn, this is very informative but not very funny, I shoulda’ saved this for my ninja investing blog.


Gary said...

I'll make it funny for you. Since you are a young single Catholic guy you should go out tonight and sow your wild oats. Then go to church in the morning and pray for crop failure!


Anonymous said...

Very true, Ninja. Unfortunately, one side effect of this phenomenon is that what people think is reasonable for buying a house is skewed too far upward thanks to the boom. Yeah, interest rates went up but the prices appreciated far too much so that now when things are cooling, the houses are still overpriced.

And the only people who profit from this are the banks/mortgage companies, because no matter what, they get theirs out of every home sold.

Twoste said...

A person is smart. People are stupid.

Big Daddy said...

Like you knowing about bottoming out, I seem to have an innate ability to 'get out' before a crash.

I cashed in my stocks two months before the bubble burst, and became worthless, and I managed to lock in a decent interest rate, on a condo I got her to drop 10k off the price on, before all this upcoming mess.

Anonymous said...

Tips for Being a Successful Landlord

In today’s apartment rental market there are several things that are “must do’s” for becoming a successful landlord. The reason you’re playing the real estate rental game is to have the check in your mailbox on the first of the month, right? Here are a few tips that can help you to achieve this with as little aggravation and frustration possible.

First and foremost is finding the right tenant to rent your apartment, house or other rental. This is the most important ingredient in the recipe. Checking the prospective tenant’s credit history to make sure they are paying their bills is one of the best ways you can screen. A tenant that pays their bills on time most likely will send you their rent on time. Establish a clear system on collecting rent, handling complaints from the tenant and how you will contact them if you need to gain access to the apartment.

Secondly, get all the important terms of the tenancy in writing. You have the option to have a basic rental agreement or draw up a formal lease. Whichever you decide, the important thing is to document the terms that you and the tenant agreed to. Clarify who is paying the utilities, the rental price and any other agreements made between you and your tenant.

It’s a good idea to stay on top of the repair and maintenance needs of your property. When you are notified of something that is broken or not working, repair it as soon as possible to prevent further damages. You may also lawfully enable the tenant to withhold rent, sue for injuries caused by defective conditions or move out without notice.

On a similar topic make sure you are carrying enough property and liability insurance to cover yourself in any situation. A well designed insurance program can protect your rental property from losses caused by everything from fire and storms to burglary, vandalism, and personal injury lawsuits.

I hope that this has been helpful to you. Just remember, as long as you follow these simple tips you will be on your way to a happy and fulfilling landlord future. Best of luck!

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