Suze Orman, “the nation’s go-to expert on financial matters,” has rushed out a new book, Suze Orman’s 2009 Action Plan, that begins:
“I bet you are scared. Angry, too. And confused. These are absolutely rational and appropriate responses to the global credit crisis…”
To which I have to answer: “Nope, not scared at all. Angry? Maybe disgusted is a better word. A tad pissed off about my dwindling IRA, and wishing I had put that money into an old house instead. Confused? Well, yes. Who isn’t?”
I have to admit, I’ve been feeling pretty smug through this recent financial crisis. I don’t need to worry about job security, because I haven’t had a day job in years. I don’t have to stress over my 401(k), because I don’t have a 401(k). I haven’t lost anything in the stock market, because I don’t have any stocks.
All I have are these five old buildings, all profitably rented out and with very little mortgage debt. Maybe they’ve temporarily lost 20% of their value, but so what? I have no intention of selling them any time soon. And no intention of retiring from collecting rent (which is what I have in lieu of those retirement savings Suze keeps going on about).
Suze would wring her hands, fix me with one of her penetrating stares, and advise me to buy stocks, now that they’re so cheap, and hold them forever. “Only stocks offer the potential for inflation-beating gains over the long term,” she writes. And she offers this example: “Let’s say you invested $1,000 in 1950, and left it in the market through good and bad times. You would have ended up [58 years later] with more than $73,000.” Whoop-de-doo. And what pleasure would you have gotten out of that?
Despite myself, I find Suze’s persona compelling (that hair! those teeth! those glitzy sweaters!) and I occasionally read her magazine columns, but her advice never seems to apply to my situation — and it often seems she’s DEAD WRONG when it comes to real estate.
Granted, she’s preaching mostly to people who have a single home, not investment property, people who were sure their “mountain of home equity would pay for retirement or the kids’ college tuition,” and who are now staving off foreclosure.
She’s right about banks “rescinding home equity lines of credit because falling home values make those open lines of credit too risky.” A friend of mine here in Brooklyn got just such a letter recently, and I’m sure glad I maxed out my HELOC (to buy another old house in Philadelphia) before this trend swept through.
And she’s probably right about paying off your credit cards, if only to raise that all-important FICO score so you have a better chance of getting a mortgage in this “frozen lending market” when you find the perfect old house. And no doubt she’s correct that it’s a good idea to save up 20% of the purchase price for a down payment, whereas 10% might have been enough in the recent past.
Her advice to go for a standard 30-year, fixed rate mortgage makes sense now, with interest rates at historic lows.
Where I differ with her is on her answer to this question: “Is 2009 the right time to get a good deal on a vacation home, so I can rent it out and make some money?”
Suze says no. “If you need to rent out this property in order to make the mortgage payments, then I would say do not touch this ‘opportunity’ with a 10-foot pole….If something happens and your tenants cannot pay the rent, how are you going to pay the mortgage?” And, she warns, “In times like these, more vacation-home owners are apt to want to rent out their properties…More competition for fewer potential renters.”
Suze is preaching fear and timidity. I doubt that’s how she made her own millions. It’s a GREAT time to buy country/beach/2nd-home real estate, if you can swing it. Of course I’m talking about unique older properties with charm and character and good feng shui, not cookie-cutter condos. Prices are depressed, sellers are depressed (and therefore negotiable), and there will always be people (people of means and integrity, whose credit and references you carefully check) who want to rent fairly-priced, well-located vacation homes (or primary homes, for that matter) that are more appealing than the competition.
There are so many things you can do with a piece of country real estate. You can:
- rent it in the high season and use it in the low
- use it in the high season and rent it in the low
- rent it all year round for the first couple of years to get a head start on paying down the mortgage
- get great satisfaction out of fixing up the house and garden, as necessary
- re-sell it at a profit when the market perks up, as it is bound to do eventually
The subtitle of Suze’s book, “Keeping Your Money Safe & Sound,” says it all. BORING! Buy a new old house for fun and profit!