Caveat Emptor

"This letter...is to inform you that your structure [home] has been located on submerged lands of the United States. Cease immediately all further construction activities."

Luckily, for the couple who had just bought this property, they were able to negotiate with the US Government under specific conditions outlined by the Corps of Engineers to proceed with construction of their home. Neither their real estate agent, the title company, nor their bank had any idea there could be a problem with the property.

What would you do?

I start this book with the preceding story for shock value. I really don’t believe that most people understand what they are getting themselves into when they are preparing to purchase a major investment whether it be property, stocks, or whatever. How many of us really think about the practical aspects of, say, a new car or another large expenditure.

In 2001, many people’s financial positions were destroyed by one of the worst stock market corrections in decades (the bursting of the dot.com bubble). Yours truly was one of these very unfortunate souls. I listened to the endless rhetoric of financial advisors and brokers who were always telling me to invest for the long term. Don’t sell, if you are a long-term investor. More recently, many people have been forced into foreclosure by banks and the unscrupulous mortgage brokers they buy mortgages from. These mortgage brokers were trained to literally say anything (read: lie) to get people to close and earn their commission. This “sub prime” mortgage mess is having a ripple effect across the entire real estate industry and my book will likely be used by most people to find a good rental rather than a new home.

It seems that, the larger the expenditure, the less time we spend on really investigating what we are doing. I suppose that we are trained from an early age that the big things will be taken care of by somebody else, or that we will be protected by laws put in place by our federal or local governments. Even though we know that this is not true, we continue to jump first and look later. Let’s not forget that most regulations that protect us are re-active, not proactive. In other words, its not until quite a few people get shafted that a government agency comes in to do something about it (maybe). Well, anyway, I digress.

Be careful when you are making a major financial commitment. Buying a house is a massive financial commitment. Despite what you might read in those real estate investment books, your property can lose value, or stagnate for many years. Real estate is no different. Even renting is a large financial commitment. Think about the time and cost involved in moving, in trying to get your deposit back, trying to find a new place to live. How much is your time worth? The main thing that separates real estate from other investments is that geography is involved. The location of the property you select is very important. You can’t pick up your house and move it to another part of the city (not for any reasonable amount of money anyway).

As energy prices increase and infrastructure (roads, bridges, etc) start to fail around the country, suburban locations will bare a greater burden of the consequences. Even if none of these problems come to bare, again, how much is your time worth? How much time do you spend every day in your car commuting?