Wed 29 Apr 2009
As many of you know, I’m trying to involved in real estate investing.
You might think that right now would be a great time to be buying homes since the market is depressed. In some ways, you’d be right. In other ways, you’d be wrong.
Here’s what I’ve experienced recently that frustrates me, but there isn’t anything I can do about it. I’ve been trying to buy some houses that were purchase in the early 2000’s.. 2003-2004.. that timeframe. If you do the market analysis (which I do) you will find that the market is currently very close to where it was then. Homes are worth very close to what they were worth then.
Let me repeat that in another way: A reasonable price for a home who’s condition hasn’t materially changed would be the same now as it was in the 2003-2004 timeframe.
Alas.. sellers don’t see it that way. There are a few different reasons for this.. 1) they are holding onto the fantasy that a home always goes up in value, and, the one I want to talk about, 2) they are underwater.
Underwater, you ask? Yes. Underwater. In other words, they owe so much on the house that they can’t (or don’t want) to sell the house for a reasonable price.
Perfect example: Someone pays $100k when they buy in 2003-2004. In the 2005,6,7 timeframe the house goes up to $150k in perceived value on paper. The market drops and the home is now back to being worth $100k.
The problem, however, is that the people refinanced when the home was worth $150k. They then took this extra money and spent it on wine, toys, education…. what they spent it on isn’t important. They spent it. They spent money that they didn’t have based on the paper value of a house that they weren’t selling at the time.
Now, though, the home is worth $100k, and they owe more than that. So, they won’t sell their home for a reasonable price because they “just want to break even”. That’s what they say. They say that “they aren’t looking to make money. They just want to not lose money.”. If I’m offering them the same amount that they paid, they aren’t losing money! If they refinanced and spent the money, they have already spent money that they didn’t have in the first place. I’m not responsible for that. It’s not my fault that they spent that money. I’m not going to now offer them more than their house is worth just because they essentially took money out of their home already, before selling it.
Anyway, I don’t expect that me writing this will actually accomplish anything, but it makes me feel a little better, anyway. Have a great day!