Blonde moment

And the silver spoon.

Sunday, September 02, 2007

A long position…

In an asset class using leverage. In the stock market, this is called “buying on margin.” In homeownership this is called taking out a mortgage. Josh and I are looking at purchasing a house in the next nine months (lease is up in nine months). The terms of the lease are such that we can buy out of the lease with two months rent, so we’re free to buy when ready.

Josh and I have the once in a lifetime shot at buying a house that has sentimental value to the family and the opportunity ends really quickly. It is also a very personally inconvenient time to go through the work to purchase a house. (Whomever in the family who is really that interested, e-mail me.) But, because of the sentimental value (and lot size) it’s worth pricing the personal inconvenience.

So, Josh and I decided to take a quick look at what else is available because, if we are going to go through the great personal inconvenience right now of taking out the mortgage, we need to look at all options and not just the house.

For the same amount of money, we could also purchase a three bed/two bath on a large (though not as) lot with a finished basement. And so, here is where we flip a three sided coin, buy house A, buy house B (or any other house for that matter), or stick with the plan of waiting until after taxes.

Let’s say all the doom and gloomers are right and the housing market is going to Hell in a Hand-basket in the short run. Do I want to leverage myself with a home that I would have to do more work on, less work on, or do I want to wait a few months and be less leveraged?

With the market uncertainty, we’re waiting for now. Granted, renting is expensive, and probably more so then what we’d be paying for a mortgage. But, we have a low level of uncertainty in an apartment, no work to do, we’re buyers, we’re only talking $2,000 difference in rents paid, so we have time.

It’s my hope that both buyers and sellers take a hard look at the above. Buyers, you’re taking a long position in an asset class. Make sure you’re getting a good house* in case the market turns against you. Sellers, take a good look at houses and remember your potential buyer doesn’t have the emotional ties you do. They’ll have to do the work you’re not going to do.

HT to King and Chad the Elder for the discussion.

*I personally don’t believe there is a “right” house. Every house becomes the wrong house after buyers remorse sets in. The question people should ask is if it is a “good” house for a good deal.


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