Are We Fooling Ourselves?

How many times do I hear the same questions? Howcollege loans that, after all these years, you settled up
long it's going to take? What is my forecast on Floridato pay at about $200 a month.
real estate?We're already passing the $ 4,000 mark and we're
I deal every day with different types of buyers: thejust starting the month. You haven't eaten any food,
investor, the vacation home buyer, the first-time homeyou haven't bought any clothes or shoes; you haven't
buyer, the luxury home buyer, the curious, you name it.thought about vacations, restaurants, movies, continuing
They will all have different approaches. For example:education, children birthday parties, or anything that can
Ideally, the investor would like to rent and cover totallybring a little fun to your life, you haven't bought any
or a significant part of his monthly mortgage costs, hisfurniture, gadget, nothing...And you haven't even put
insurance, maintenance or condo fees, and his taxes.aside a penny.
The vacation home buyer wants to keep his monthlyYour spouse is ironing the shirt and the dress that you
payments under control, because by definition he iswill wear at work tomorrow while watching the shaky
looking to have fun with his purchase, and not toimage of your antenna-powered TV, trying to ignore
create himself a new source of headaches. He addsthe screams of the dear child who has spent all day in
the mortgage payments, the condo fees (becauseyour mom's house -you can't afford private
they are usually interested by condos), and thepre-school- and while you are preparing something for
property taxes. And he will compare that to renting adinner, you are thinking that it's already the 20th of the
good hotel room or suite for a couple of weeks ormonth and in 10 days you will get a new batch of bills
even a month.and invoices in the mail.
The "empty nesters", which are in retirement age, andShould you have thought twice before buying this
trying to downgrade to a smaller place, once their kidscondo, instead of renting for around $1000 or 1200?
are gone, are a special case. They have been helpedYou bet.
by the "portability" feature now added to their 'saveNow, how many young couples you know, make more
our homes' protection. Typically they will pay lessmoney than our friend? How many you know who
property tax if they move. However, many of themhave a lower income?
have lived in homes where they can somehow controlThe fact is that real estate is not only an investment.
their maintenance expenses. Moving to a condominiumIt's not a share bought in the stock market. It's not an
building means monthly charges as a lump sum, plusIRA account, an annuity or a bond. It is part of the
eventual "assessments" charges for repairs ornormal life of our population. There has been a greedy
upgrades to their condo building. These "condo fees"and unreasonable raise in home prices that has not at
have sustained a relentless inflation during the lastall been matched by salary raises or income increases.
decade.Remember before the last stock market crash in the
The first- time home buyer makes his calculations andyear 2000, how new technology companies which had
unless he and/or his wife hold really great jobs, theynever earned a penny, saw their shares selling at
could quickly find out that, after paying the mortgage,incredibly high prices? Eventually everything went back
the insurance or condo fees, the property taxes, ato normal and people went back to common sense.
purchase is simply out of the question. Renting is a(or did they?). Can we compare that to what's
much better deal.happening with real estate? Why not?
Let's play with some figures.Isn't it what we are seeing now? With the difference
You graduated five years ago from a good college;that so many homeowners who bought at high prices
you hold a decent job. You are married, with a child,are stuck with high mortgages and can't even sell their
and your spouse is employed and brings some moneylittle piece of heaven?
to the table. Between both, you are making around $And the other half who refinanced and cashed out for
5,500 a month and that means that, after tax, you neta few years to maintain their lifestyle, only to found
about $4,600.themselves with a negative equity?
You have grown in a middle class family and are usedOur local governments, our cities and counties have
to a certain level of comfort. But you have made youraggravated the problem by unrestricted spending, and
mind and your first home is just going to be a crowdedwhile they affirm that they are seeking ways of easing
two-bedroom condo. What's available in a decentthe property tax burden without affecting anybody
neighborhood, (and I am not talking great luxury or new(which is of course impossible), home insurance
buildings on the beach) will cost you around $ 280,000.premiums have skyrocketed, and no big relief is in the
You were lucky enough to land a mortgage loan withhorizon, no change. Except for home prices. Because
only 3% down, and your savings allowed you to pay allhardly anybody can buy them any more. Now you ask
the closing costs, and that's fine.me when these prices are going to go up again; when
When you calculate your total home related monthlypeople will start buying homes again, when we will be
payments, you reach a figure of $ 2,500 per month.back to normal. Do you think I can perform magic?
That doesn't include your electricity, phone, cellulars, andNow let's take the vacation home case. There was a
other utilities. Let's calculate all these in about $220.time when Florida was a place you bought a nice
You won't have TV cable or internet at home. Youcondo for sixty or a hundred thousand dollars. You
can't afford it and after all, TV is not good for the kid,paid some maintenance fees and taxes at a total of
and you have enough internet exposure at work.around two or three hundred dollars a month and you
On the other hand, even though you have a healthwere all set. Today, you buy a two fifty or three
insurance plan, subsidized by your employer, you mighthundred thousand little condo, you're stuck with
have to fork out your part of about $250 or $300 aassessments and condo fees of five hundred a
month. From time to time, you must pay a $10 chargemonth, then the taxman comes and it's another five
to see a doctor, or something called "deductible", andthousand dollar bill to pay, and it just doesn't make so
even these expensive medicines for your kid'smuch sense. You will just look somewhere else or just
sore-throat infections; but we won't count that.forget about the idea.
You also need two cars, because you both work, andLast but not least, our investor studied the case of the
these cars need insurance, tires, and other goodies.$200,000 dollar condo he was looking at, and
You have been reasonable, nothing fancy, but you stillpondered if the thousand dollars a month he would
have to pay the monthly installments on both. So let'sgross in the best case, if all things ran smooth and he
say that this would mean an additional $ 600 or $700had a great tenant, would be a suitable return when he
for both cars, all included. - except, of course, the gas. Imust pay $1800 per month between mortgage,
was about to forget that! And at three dollar +, evenmaintenance, taxes and assessments.
for two small cars, it will mean another $150? $200?Pessimistic? I wouldn't be doing this real estate job if I
Ok. Say it's only $ 150. And you will change the oil anddidn't have some hope. Now if our legislators could
do minor mechanics yourself, and run on flat tires, notmandate some hope in the people who buy, it would
to overwhelm the budget. By the way, we forgot thedefinitely help.