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Page 2
As I have said before, it's best to buy only what you can afford, and don't speculate.
I have little sympathy for those who are buying properties with nothing down and/or interest-only loans for speculation. They will deserve what many will eventually get--because they hurt everybody. I've heard building developers are already doing what they can to screen out speculators who only buy to flip. What they want to avoid is the type who will set a "stop loss" and sell if the prices don't go up or decline by a certain amount. A 5% stop loss is nothing for a speculator who is used to volatile investments, but a builder with 10 empty units at $400,000 to sell sure doesn't want an "unoccupied, never lived in before" unit to go on the market 5% lower than what he is selling the inventory he holds for. A $20,000 loss for the speculator means the developer sees a $200,000 loss on the inventory he holds. Moreover, we all know few people want to buy investments that are going down so the problem is even larger for a builder who has speculators bailing at a loss before the building is sold out. At times, I feel silly not taking money out of my home for increased cash flow. My home equity has appreciated so much that I could easily increase my standard of living by taking on more debt. I see others take out home equity loans to live high on the hog, but they could be in for a rude awakening if the market ever goes against them. Some look at taking $50K out of an appreciation of $250K as "profit taking" but they forget you have to pay interest on that money. If rates go up someday as they were in 1984 where I couldn't get a fixed loan and a variable loan cost me 14% a year, then they might have to sell their homes to reduce those large payments. The bottom line is you are safest to not consider your home an investment but as a place to live. What I do is consider my home equity my "old age insurance." If I am ever disabled or forced to live in an "assisted living facility" then my home equity is my long term care insurance. This will save me having to pay an insurance company high fees later in life and I don't have to worry about relying on the government to take care of me. Sadly, far too many people in the US have no shame and spend down their assets when young so the government takes care of them, but that is a discussion for our political discussion forum.
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