YOUR HOUSE IS YOUR LARGEST SINGLE INVESTMENT

Remember when you were told this when making a decision to buy a house?  For years, everyone looked at buying a house as their single most important investment.  It was the goal for young couples as well as a key component in fulfilling the American Dream.

The goal was to pay it off and then when you retired, you would sell it and use the proceeds to buy something else and possibly have a couple of hundred thousand dollars left to use in retirement.  Some would buy and then move up to a higher-priced house as part of the long-term strategy for growing that long-term nest egg..

It is interesting to hear many business commentators shy away from this concept lately.  I have heard:

-                     A house is just something to live in.

-                     Don’t look at your house as an investment.

-                     Maybe you should cut back on your house ownership.

-                     Houses should not be looked at as an investment.

This is in direct conflict to years, if not decades, of sound investment strategies.

Investors were chastised after the NASDAQ crash in 2000 by all the investment pundits that they put too much emphasis on tech stocks and should have diversified their money into blue chips and mutual funds.  After the implosion of stocks like ENRON, WORLDCOM, TYCO, and others, blue chips were questioned and the Sarbanes-Oxley Act emerged to combat all the fault and lack of confidence in the stock market. 

At that time, the pundits came out again and said you have to diversify more and that the fourth asset class after Stocks, Bonds and Cash is real estate.  Part of your portfolio should be real estate.  Many (who still had some money left) went out and speculated on real estate.

The speculators went out and bought houses and condos and tried to flip them for cash.    Buying an extra condo and then flipping it, was a strategy of many speculators.

At one point, it was a relatively easy move to increase wealth.  The problem was like any other investment, it became a hot potato and anyone stuck with it at the end of the game would be penalized.  Well, that has happened and many have been stuck with a hot potato condo that no one else wants and no one believes that it is worth what they are asking.

Look at the amount of condos in downtown Chicago.  You can go to Craig’s List and find that some speculators are just trying to see if they can rent them out for a night or weekend just to try to make some money to help pay the mortgage or assessments.  And their asking price for a night in a two bedroom, two bath condo is cheaper than many of the single rooms in hotels.

Even sales offers from Trump Tower are appearing.  Someone was Emailing an offer to sell a unit for “30% -40% off market value at a price of $2,999,770 plus parking”.  Plus parking???  For that much, even if it is 30-40% off “market” it should include a couple of parking spaces.  And what planet are they talking about when they say “market”?

Will it sell?  Don’t be surprised to see an automaker picks that condo up for its executives to stay at when they are in Chicago.  How will they afford it?   That’s your bailout money at work.

Look at some of the new smaller condo buildings going into foreclosure as well because not enough units have sold.  Larger complexes have switched to being apartments just in an effort to get some cash flow.

MASSES ROBBED WITHOUT GUNS

It is funny how so many people are rushing out to buy guns right now – A LOT OF GUNS, to protect them from the anticipated onslaught of rises in robberies and crime in the declining economy.  In actuality, they have already been robbed electronically by falling stock prices in their 401K Plans and sinking home values.

Several months ago, I wrote about the ghost equity in your house.  That’s the equity you think is there but has actually disappeared.  If you thought your house was worth $500,000, maybe it’s only worth $360,000 but that’s only if you can find a buyer that has good enough credit as well as at least cash for 20% down.

Some people have not accepted this fact, yet there is case after case where people have gotten a lot less than what they thought they would be getting.  One good example that has a common theme is where someone wants to re-finance only to find that their house is not appraising out to where it was two years ago.  Here is a perfect (and real) example of this:

A family wanted to move into a larger house and had one built in a far northwest suburb of Chicago.  They put down $12,000 to get the builder started and figured by the time the house was built, they would get their house sold and the down payment would come from it.  The first house never sold in time and so they went out and picked up a $400,000 jumbo mortgage for the place figuring they could handle the cheap interest.  Now they want to re-finance and they go to the bank for a fixed-rate mortgage.

They find out that the $400,000 house is now appraising out at $300,000 and in order to get a mortgage they must put down 20%.  They need $60,000 for the 20% down for the $300,000 house but also need to pay off the $100,000 that the house dropped in value.  Bottom line they have to come up with $160,000 to get into a lower monthly payment.   There’s that ghost equity again - $100,000 where did it all go??????

This type of scenario is playing out all over the place and those caught up in it realize their ghost equity is gone.

One of my friends told me about his financial strategy in retaining what assets he has left, “It’s too late to invest in Gold, I am now investing in lead.”

CARLINI-ISM :  In the equilibrium of society when an economy falls, crime rises.  The only part of the economy that is going great guns, is gun stores.