Saturday, January 25, 2014
There Is No Answer Book
Back when we were in school we were taught that there was both a right way of doing things and a right answer. As many have observed, the public education system was optimized for providing workers for the industrial age. We were taught how to sit in rows; how to follow a set of instructions; and most importantly how to get the right answer. We were rewarded when we answered the question correctly and punished when we were wrong. Although there are principles, such as avoiding consumer debt, that are an important part of personal finance, there are no right answers. Sorry folks, there is no teacher and there is no answer book. As I have said on many occasions, there is no one size fits all answer to the question of your financial life. Recently I sold a house for about $50 K less than expected. What lessons did I learn, if any from this disappointment? The big take away is, don’t try to sell a house in an extremely depressed market. But what were my options? Listed in order of perceived desirability. 1) After five months, sell the house at a lower price. Now I am no longer paying insurance, taxes, and utilities on a second unoccupied house in another state. 2) Winterize the house and wait. It costs a few hundred dollars to drain the pipes and put antifreeze in the toilets, but who knows, in the spring the real estate market could be worse. The stock market doesn’t look too healthy and job growth is nearly nonexistent. Although this option lowers the utility bill, insurance and taxes continue at full rate. 3) Turn the property into a rental. This might make sense if I still lived in the same area, but 500 miles away? This option provides income until the market turns, but I have seen what renters can do to houses they don’t own. Then there are the continuing maintenance costs associated with 40 year old home that is growing older by the day. So, I took what I believed to be the best of three bad options. I feel better because I offered the buyers owner financing. I will receive 4.2% on a five year mortgage with a balloon payment. I didn’t want to invest more than $75,000 in what I perceive as an overheated stock market. Bonds and other fixed income investments don’t pay spit. 4.2% on a secured investment seems OK. This morning I watched a nearly worthless youtube video. A group of award winning real estate agents were interviewed by a well know marketing billionaire about the keys to success. It seemed that most of them were trying to give the “right” answers to the billionaire’s questions. Needless to say, these stock answers were of little value. One of them tried to dig a little deeper. It seemed he was motivated by fear. He came from a very impoverished background. I heard more than a little Scarlet O’Hara in his replies, “As God is my witness, as God is my witness they're not going to beat me. I'm going to live through this and when it's all over, I'll never be hungry again. No, nor any of my folk. If I have to lie, steal, cheat or kill. As God is my witness, I'll never be hungry again!” All of these successful real estate moguls told stories of pretty impressive self reliance. If they didn’t like something that was going on in their lives, they changed it. They didn’t wait around for a Government handout or a teacher who would take them by the hand and give them the “right” answer. All of them were frighteningly competitive. I wouldn’t want to face any of these characters (even the women) in a mixed martial arts cage match. They would win or die in the effort. Like all of us, life gave them problems. They are solving these problems with a mixture of intense curiosity, independent judgment (they all had different answers to the same questions), hard work, and A LOVE OF THEIR CHOSEN GAME. Maybe that is all I need to learn from my only attempt to sell a piece of real estate.