A few years ago I was seriously trying to buy a condominium
in Washington, D.C. but the more I examined the lamentable crop diminutive condominiums
the more hesitant I got. I quickly
identified the hustle, realtors and property owners created grandiose real estate descriptions borrowed
from palatial mansions in the suburbs like , “Spacious two bedroom, two bath,
with powder room, huge kitchen and entertainment, hard wood floors close to
metro and downtown amenities.” The only thing they failed to include was the
fact that all these lovely features had been crammed into roughly 500 to 800
square feet which means you had to fry chicken sitting on the sofa while you
entertained and you could rest your foot but not the rest of your body in the 5
ft. x 10 ft. “Luxurious master bedroom suite”.
But the biggest deal killer for me was the lack of closet space in spite
of the fact that most units had walk in closets larger than the bedroom and
living room. I cannot tell you that after touring a few of
these disappointing urban shacks not only did I feel that my intelligence was
being insulted but I realized I could get more than twice as much bang for my
buck in the suburbs… Being a dyed-in-the-wool city boy of course carried great
weight with me which is why although I’ve fallen in love with many rentals,
condominiums and houses in the suburbs I am still living in a rather large
rental efficiency downtown in the heart of the city...
I thought about all the people who got stuck with mortgages
from $800,000, $1.5 million and up. All
of those properties were now worth less than half of what they sold for and their
owners had the misfortune of watching while neighboring properties sold for a
fraction of what they paid the bank! So
I after bidding on a couple of grossly overpriced properties I pulled out
completely to do some serious soul searching.
A conservative man by nature I started to question everything…
1.
Was I serious about attempting to buy something
so expensive it would take me 30 years to pay for it?
2.
Was I seriously going to purchase property for
which I’d have to keep a roommate or four housemates in order to pay my
mortgage?
3.
In the grand scheme of things was the elusive
dream of property ownership worth the financial risks or was it simply cheaper
and less of a risk to let some other sucker take on the mortgage and financial
responsibilities of property ownership? While
renting I was both financially independent and I had the option of packing up
and leaving at any time with no responsibilities past the satisfaction of my
outstanding bills; up until now I had been willing to pay more than most people
paid for their mortgage in order to enjoy this financial freedom… Was I really going to give up this advantage?
Why in the world would anyone want to purchase something
that would take 30 years to pay off knowing they would still owe property taxes
annually? In 30 years I’d be either
close to dead or too old to be able to manage maintenance of a property. When I sat in landlord tenant court one day
and watched while an elderly couple in their late eighties got evicted from their
home which they purchased when they were a young couple I realized that the
real estate and banking scam of “The Great American Dream” was not going to add
me to their list of junkies! After all, we were talking about nothing more than
bricks and mortar or sticks and nails.
To the layman this connection might not be as obvious but to the
architectural and engineering professional such as me a building was just a
stack of bricks and mortar, sticks and nails, nothing more, and certainly not worth
so much that it would take me 30 years
to buy.
Taking on roommates or investing in rental property was the second
option that appeared to make purchasing property rather than renting property
seem more viable to me. But for me the investment
in a rental property that had two separate units was way too expensive, it
would still take me 30 or more years to pay off the mortgage with renters. I had rented rooms from some of my friends at
various times to help them with their mortgages but I was a person who enjoyed
privacy and that is precisely what neither of us had under those conditions. Having visited friends who were doing the
sharehouse thing, two in a one bedroom three in a two bedroom I was firmly
opposed to what amounted to dormitory life.
Even when I was in college I had a private room or apartment off campus
so why would I move backwards in my living situation to add the annoyance of
multiple personalities add clutter, add noise, add company, missing groceries,
etc. and you have a recipe for something I did not have any palate for.
There just didn’t seem to be any way I could avoid becoming
a sucker with a mortgage! I was so determined not to fall into that trap! And
let me assure you it is indeed a financial trap! After all I am a free spirit, a loner, I need
my independence and privacy and I don’t want to be tied down to anything that
could potentially take me for a ride. I
wanted to be the one getting the deal not the bank and realtor getting fat off
bonus and interest for a commodity that was overpriced from the very beginning! I struggled and struggled until I decided I was
not going to become another victim of the banking system. I thought about getting a group of investors
together but that would only increase the rate at which the property got paid
off and not eliminate the unjustified cost and the profit would be lost after
being split in multiple direction. You have
to do the math on that one to find out at what point you will actually experience
a profit on your investment… if its 30 years from now then you’ve been suckered
because trust me, the lender and real estate brokers are going to experience
profits starting right now!
The next battery of questions started to haunt me as I second
guessed my decision to remain a renter.
I like to call these affectionately, “The Economic What-If’s of Real
Estate Investment”!
1.
What if something catastrophic happened and I
was stuck with that mortgage and no way to pay it?
2.
What if I lose my tenants?
3.
Finally… What if I just continue to rent and let
some other sucker mange the mortgage and taxes while I preserve the ability to
come or go as I please at least until this market really stabilizes?
In this time of uncertain job security and in a market that
has been slow to create new job opportunities for the unemployed one must
consider the untimely event of the loss of a job or the possibility that an
injury or health condition will make it impossible to work and earn sufficient
salary to pay ones mortgage. In the past
when mortgages were relatively low and reasonable this might not be such an
issue but when one is facing a mortgage ranging from nearly $2,000 a month for
just a 1 bedroom apartment condominium the picture gets a lot more real! Paying that kind of money for a box stacked
atop a heap of other boxes with no lawn, no roof, no privacy… all I can say to
that is, “O Hell No!”
Most landlords will tell you that the problem is typically
not finding a tenant, its finding a good tenant who pays on time. But even a good tenant who pays on time is
not a promised thing, tenants come and tenants go! When looking at rental properties one must
bear in mind that the value of a rental is only so good as your ability to keep
them rented. Having one vacant unit for
one or more months can completely unravel ones finances when they are
predicated upon the receipt of that rent to balance the equation. Every time, every month you experience a
missing tenant vacancy you have to pull the rent out of your own pocket… For an
experienced, established landlord owning multiple properties this should be no
issue but for someone just getting started with little or no overflow cash in reserves
this is a serious issue. Of course this
is a risk every landlord takes so if one is going to gamble then one must
embrace the possibility of loss… I’m not a gambler by nature unless I have already
worked out all the angles… the unknown and unpredictable element of the vacant
tenant variable or the nonpaying tenant variable is definitely food for thought
but in my book a virtual deal killer for a small time investor such a I would
be… but in this case not merely an investor, a big sucker with a red bulls-eye
pained on my derriere…
So for now I went with option number three… let some other
sucker deal with the mortgage whilst I enjoy the leisurely life of being a
renter… For now at least it suits me well.
I am still not happy with the way local real estate has settled down
from the zany mortgage pregnancies of 2004-2006 and I believe they should come
down another $100,000 to $150,000 if not more to better reflect the stagnation
of personal income, unemployment and the rise in the price of virtually every
other commodity in this country… Something if not everything has got to give
and better real estate and retail prices than the entire American economy?
Being a frugal and cautious man I am still entertaining
those and other debates concerning the price point of retail commodities
including real estate. But the greatest concern I have had throughout
the entire real estate market crash has been for that demon we call the credit
rating system! Was I on crack in
2005-2006 or did the credit rating system utterly, fundamentally and
catastrophically fail? Since I certainly
was not on crack I have to ask myself if the rest of the country all the way up
to the oval office was smoking some strange and hallucinogenic intoxicant! Without a doubt the real estate and banking
industry was reeling high on crack while playing a dangerous game with the
American Economy. They created an
artificial housing shortage and therefore an artificial demand in order to raise
the price of rents and mortgages on a global level. But when the bottom fell out with the result
that properties once valued in the millions could now be only worth a fraction
of their former worth I could honestly say to my friends and colleagues, “I
predicted this economic downturn,” and they all had to bow their heads
admitting I was right! I am not proud of
being the stormcrow of economic failure but the signs were obvious! The path that banks in league with the real
estate industry were taking was not sustainable! It was not normal! Anyone with half a wit could see that something
catastrophic was going to happen when properties were being flipped over and
over again and each time gaining many tens or hundreds of thousands of dollars
in estimated value merely because some hardwood floors, travertine tile or
stainless steel ovens were installed… the whole fiasco was absolutely insane to
me at the time and yes, now I am that annoying man who is smiling and saying, “I
told you so!”
So what happened? When people make huge mistakes like the
real estate and banking industry did they usually get severely punished and
regulated by the government. But nothing
happened… everyone was walking around like zombies in boom-ville U.S.A. thinking
soon real estate prices would magically resume their former levels of outrage
and absurdity! Some of them are yet
holding their breath… most of them are losing their properties to foreclosure. The banks, are getting paid and their collusion
with Wall Street has as yet gone completely unpunished. In such a climate there is no small wonder that a growing number of people who no
longer have faith in the credit rating system and the entire idea of a long
term mortgage are opting not to own property but to let some other sucker take
on the task. We all know the credit
rating system failed to predict what its abstract system of hocus pocus mumbo
jumbo pretended to predict, the ability of a lender to pay his debt, but now
that all seems to have been lost to history… forgotten… as if Will Smith had
held a nebulizer before the faces of America and pushed the button!
So the American people did not rise up demanding that the
credit rating system used by banks to pimp and enslave them be abolished? They sat by while huge monopolies were not
only bailed out of financial ruin but glutted themselves with new victims of aggrandizement? Nobody balked and nobody cared… they just
wanted things to somehow go back to the way they were. But not me, I wanted things to go back to the
way the way they were fair, which in my estimate had not been since very late
in the 1970’s. I thought to myself,
every era has something to which its people are enslaved! Cars, Houses, Fine Dining (and drinking),
Travel and of course, Rent are all things which have enslaved us in the past
and present.
So I had to ask myself, why, in a time when the country’s
economy is doing its very worse since the great depression is credit rating
still even in existence, who in this terrible economy actually has good credit
and why? Didn’t he banks get enough
wealth selling criminally overpriced properties to people they knew couldn’t
afford them and then sell them back again to new suckers after the original
owners had foreclosed? Didn’t those
owners, the first suckers, have to pass a credit check? If the credit check failed to predict the
crisis that was to ensue what good was it in the first place? The answer is that it was then and is now a great
scam, a shameful and deceptive practise designed to profit on those who have
been deemed bad credit risks. Surely
everyone who was sold a house they could not afford was a bad credit risk but nonetheless
cleared by the credit rating business to own property. Because I had to answer myself with a clear “Yes”
all I could do to calm my spirit was to let out a great, disappointed sigh… I
thought to myself… smart kid, you held out!
But what a hell of a whirlwind this country has been in
since the beginning of the real estate boom and collapse… I’m no longer tempted
to invest in properties that would ultimately, inexorably suck money out of my
pockets and less tempted to invest in rental properties that hold the promise
of a monthly paycheck I must ultimately pay back to the lender. I’ve abandoned the Single Family Dwelling
scheme, I mean dream and the rental property dream because any way you slice it
I’d still have to own it, manage it, become enslaved to it! For now I am still playing out the battle of
renting vs Buying in my head, content to rent and let some sucker manage the
mortgage for me hoping when I do decide to take the plunge I won’t be just to
become another sucker who has given in to the hype, giving up his freedom to be
a renter rather than a buyer…
FIN
David Vollin
Administrator
www.forthebrothas.blogspot.com
No comments:
Post a Comment