Monday, April 28, 2008

PSA for people considering RE purchases

If you're considering buying real estate because it's "such a bargain now", I highly encourage getting some perspective. For example, take a tip from the jewelery business, where they always mark up by ~500%, so they can give huge discounts and still make a good profit. You don't think the store is taking a loss when they sell you something for 60% off, do you? Likewise, why would you think housing is a bargain if it's 20% off from a 300% markup?

Next, ask yourself this question when considering a real estate purchase: if the value declines by 25% and stays there for 15 years, and the refinance rate goes up to 15%, would I be ok? If yes, you can afford to make the purchase/investment. If not, you cannot afford it, and if it works out it will be by virtue of luck and not of prudent investment or forethought. Note that if you can afford it that doesn't mean it's a good investment; it just means you're not doing the investment equivalent of pushing all-in with the next 10+ years of your financial well-being holding 9 high.

Things to consider.

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