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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: John Vosilla who wrote (48724)	1/4/2006 2:32:50 PM
From: GraceZ	Read Replies (5) of 110194

My father bought his first house with $300 of his own money and a 20 year 3% GI bill loan back in 1952, the total sale price was $15k. The house (the fourth house he owned) he left us in 2005 sold for 15 times that first house. My sister bought her first house in 1978 with $1400 of her own money, the seller paid the closing costs and carried the note. Since it was a residential property that had five other units she was able to move around to each unit and fix each one up until she was able to sell the improved property. She did this repeatedly until within twelve years she rolled that original $1400 into about 5.6 million equity in RE. She lost 80% of that equity in the washout of 1991 because she refused to exit once it was clear RE had peaked.....didn't want to pay the tax (sound familiar?). She thought she could simply move her investments to areas that hadn't appreciated yet and her gains would be safe. She was wrong because when RE retreats it does it in marginally less desirable areas first. My husband bought his first house in 1972 with $2000 borrowed from his mother (he paid her back) and a loan from the seller, he carried the $600 in closing costs. Because it also had a second unit, he was able to pay 70% of the mortgage and expenses with the rent. He never would have been able to pay the mortgage with his regular income of around 8k a year. He was able to take the income which rose significantly over the years from that original house and buy three other properties over the next 10 years. All those properties are either 90% paid for or are sold and the retrieved savings now sits in financial assets. I bought my first house with savings of $1000 down and $6000 in closing costs back in 1987. I bought my second in 1991 with 20k in savings and my third in 1994 with 25k in savings. We then proceeded to put around 80k of savings as well as our own labor into improvements in all our properties. A large part of the increase in value in my RE is value that we put in there with our own hands and contruction supplies we paid for out of savings, just as my sister did with those first investment properties. My husband and I are not unique in this regard. Everyone I know who owns housing has added value to their RE holdings with improvements and their own sweat. Repairs are a much smaller subset of what they spent on their houses. Not much has changed since my father bought his first house except more people own their own house than ever before and they have a much larger portion of their family assets in RE. People that were never able to borrow to buy a house are now able to borrow from traditional sources so they don't have to resort to the higher cost owner financing that my husband and sister had to when they bought their houses. Back then a single mother waitress with two kids couldn't get bank financing, nor could a 23 year old zoo keeper with no credit history. The leverage one can employ is still every bit as breathtaking as it was back when my father bought his first house with the help of a generous veteran benefit back in 1952. Oddly enough my husband sold that first house just a few months ago to a guy who used 17k in savings for the down and closing costs, plus an 80k loan. The guy used around 200k in personal savings to do a complete remodel. Of the two dozen offers I got on my father's house, none involved borrowing, they were all cash offers and the buyer is now doing a complete remodel with cash. The idea that people have been taking money out of RE in the last five years is totally in conflict with the stats. They have more of their assets in RE than ever before both in percentage of household assets and in aggregate.

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