Thursday, January 22, 2009
In a buyers market like we have in Chicago, clients who are looking to sell their current home and purchase another have a tough choice to make. Should they sell their current home, or purchase their next home first? There is no one-size-fits-all answer, but here are a couple of scenarios to consider:
A. Sell Home 1, Then Buy Home 2: In this market, you have a lot of control over the purchase of your home. If you sell Home 1 you will know exactly what you have to work with financially as you approach the purchase of Home 2. You will also get a better price on both homes. That is because you will not be under any pressure to sell Home 1, therefore you will not be tempted to jump at a low offer. You will get a better price on Home 2 because you will be working with a definite timetable, and will not need to make your offer contingent on the sale of your home. A seller who has to deal with a sale-of-home contingency will, almost by definition, expect more money for the sale of their home. Sellers look for two things when they are selling their home: top dollar and security in the sale. Which would you rather give them?
B. Buy Home 2, Then Sell Home 1: This option is often the most comfortable one for people who want to move up. There is something that is difficult about selling the home you live in when you don't know where you are going to go. Finding your new home first gives you the motivation to sell your current home. The whole process falls together better in your mind when you go out and purchase a home first. The risk of this option is that you will lose out on Home 2 because you are not able to sell Home 1. This is a significant risk in a market where there is a 7-month supply of homes on the market. Also, as I noted above, you will have to give the seller more money if you use a sale-of-home contingency, and you will feel significant pressure to sell Home 1 as quickly as possible, putting you in a position to take less money for it. This pressure will come from the knowledge that you could lose Home 2 at any time because of the "kick out" clause in the contingency. This allows the seller to kick you out of the sale if a non-contingent offer comes along and you are not able to remove the contingency because your Home 1 has not yet sold. This possibility is heavy on people's mind after they spend significant time, money, and mental energy to work out the purchase of Home 2 (ie. negoitiations, home inspection, and planning for the future in Home 2).
C. Buying Home 1 First Without a Sale-of-Home Contingency: This is only an option for people who can afford to carry mortgages on both homes. For a seller to accept a contract under these circumstances, they will require proof that you are able to carry both mortgages. In a sellers market, a move-up buyer could prove their ability to do this--sometimes only with a high-interest loan they could qualify for, but would not actually want to take. This strategy worked for people in a sellers market because they would turn around and sell Home 1 the following weekend, then be able to qualify for a more favorable loan on Home 2. The worst case scenario of not selling Home 1 was extremely unlikely. In the current buyer's market, someone using this strategy is very likely to end up with an unfavorable loan or at best paying two mortgages for a while. Of course, those who have the financial means to carry two loans, and to qualify for two loans that are of a reasonable interest rate may choose to buy first and hold onto both home as long as they need to.
Another option is to get a bridge loan to hold both houses until you can sell House 1. If finances are tight for you this will put a lot of stress on you, and may put you in a desperate position when you are negotiating with a person wanting to buy your home.
For most people, I recommend getting Home 1 sold before you put a contract on Home 2. You should go out and see what is available for you to purchase before you put your home on the market. This will give you an idea of the types of homes available to you. It will also give you the motivation you need to get your current home sold.
Tuesday, January 20, 2009
Monday, January 19, 2009
Friday, January 16, 2009
Thursday, January 15, 2009
For my 15th anniversary at work, I was taken to the restaurant ‘16’ at the new Trump Tower. When I called and made the reservation I asked what the corkage fee was. The hostess said why, they have a 500 bottle wine list. I told her that I had a favorite wine I would prefer. There was a $50 corkage and it couldn’t be anything on their wine list and she would have to check and get back with me. Needless to say they didn’t have a ‘98’ Chateau Margaux, a first growth bordeaux. When we arrived the bartender didn’t know what it was and was surprised that I brought my own wine. Our waiter, though, was very impressed and I let him have a taste.. I’m such a snob, I had to take my own wine to Trump’s restaurant.
Wednesday, January 14, 2009
Monday, January 5, 2009
No, 2008 wasn't just a bad year. It was an awful year. A Johnstown Flood kind of year. The kind that wipes out proud, century-old institutions, decimates entire industries, and leaves everyone decidedly poorer and the world profoundly shaken in its wake.
Enough of that. On to 2009.
I have no crystal ball. But a sense of history, some basic economics, common sense and just a dash of congenital optimism leave me convinced that this one won't be all bad.
Oh, sure, there will be layoffs like we haven't seen since the Great Depression. And you can expect to see a proliferation of empty storefronts and a heap of broken businesses.
But why focus on the negative? Here are five good reasons why 2009 could, if you make the most of it, be good for your financial health.
1 This will be a good year to invest in stocks.
No one can tell you exactly when or where the market will bottom. But most business-cycle experts agree that the bottom will be found sometime this year, and that it probably won't be too far below where the market is today.
So a smart strategy will be to put some money in the market today, and keep doing it over the course of the year. If you're still shaken over massive losses from last year, this may be hard advice to swallow. But the biggest mistake you can make as an investor is to ride the market down, lose faith, pull out and miss the upturn.
Even in the Great Depression, the market bottomed out in 1932, with the Dow Jones Industrial Average at 41, down from a peak of 381 in 1929. By 1937, it had climbed back to a respectable 194. That didn't make investors whole. But for those who stayed in, it certainly soothed the wounds.
2 It will be a good year to invest in real estate.
This one's a bit trickier, since real-estate prices are "sticky" on the downside. Homeowners don't like to admit that the value of their pride and joy has fallen by 30%. So they'll put their house on the market at an inflated price and hope some fool will bite.
I was at a Vermont ski resort last month and noticed this oddity: Brand-new condominiums were selling at a price considerably below those of second-hand condos of roughly equal size and location. The reason? I assume it's because the resort owners have a better sense of the market's real value than the average person, still desperate to recoup a bad investment.
But here's the thing: Fixed-rate mortgages are already at historic lows, and the government is going to use every tool in its bag to get them lower over the course of the year. So if you find a piece of property you want, if the seller is willing to recognize how far the market has truly fallen, and if you have good credit -- three big ifs -- you can benefit from a once-in-a-lifetime double bonus of low prices and low interest rates.
This strategy requires some patience. Just as real-estate prices don't fall as precipitously as the stock market, they don't rise as rapidly, either. You may have to wait a decade to reap the full benefits.
3 Americans will learn to live within their means.
Around our house, the crisis is already having a salutary effect. Our teenagers suddenly seem to understand that unlimited dinners out with friends aren't a birthright, and that blue jeans don't have to carry triple-digit price tags.
Multiply that by 300 million, and you have a nation that has rediscovered that you can't spend what you don't earn. Houses are no longer ATMs, and credit cards no longer come with each day's mail.
That sudden realization, of course, is what's causing the economy to swoon. But this reckoning was inevitable, so it's best to get on with it. Let's hope these lessons last for decades.
4 President Obama will have a historic opportunity to reshape public policy.
Speaking at the Wall Street Journal's CEO conference in November, Mr. Obama's chief-of-staff-designate, Rahm Emanuel, said the words that have become his team's rallying cry for 2009: "You never want a serious crisis to go to waste. This crisis provides the opportunity for us to do things that you could not do before."
The Obama team is busily preparing a stimulus package that, when all is said and done, will total between $750 billion and $1 trillion -- far larger than any fiscal stimulus in the history of the world. And with the economy still sliding downward, it's a good bet few politicians will want to stand in the way.
That will give the new president an opportunity to do things his predecessors could only dream about. Roads will be rebuilt, schools will be refurbished, medical records will be computerized, and windmills will be constructed, all across the land.
Will some of that money be wasted? Of course. But the sums involved are so huge that there's a good chance someone, somewhere, will benefit.
5 Your (federal) taxes won't rise.
Never mind those campaign calls for higher taxes on the wealthiest Americans. Truth is, no politician is going to push for general tax increases in the midst of a severe recession.
You may wonder: How is the government going to pay for that trillion-dollar stimulus package? Or the multitrillion-dollar bailout of financial institutions, auto companies and anyone else sideswiped by the current crisis? Or the continued wars in Iraq and Afghanistan? Or the (still) rapidly rising cost of the baby boomers' retirement?
Well, that's the sweet secret of the current crisis. While the American people are learning to live within their means, the new American government has discovered an unlimited (for now) line of credit. The United States may have led the world into this crisis, but the world now seems more than willing to lend us unlimited amounts of money to lead the way out.
This, too, is unsustainable. A reckoning will come. But that's a problem for 2010 and beyond.
In the meantime, enjoy the new year!
Friday, January 2, 2009
What are your New Year's Resolutions? What are you going to do to help you, your family, or your health? Are you setting resolutions? If you were to set a resolution, what would it be? What would you like to see happen in 2009?! At the very least, set a course for compassion, generosity, and improvement.
I'd like to share a poem I came upon. Unfortunately, the author is unknown.
How Beautiful the Turning of the Year
How beautiful the turning of the year!
A moment artificial yet profound:
Point upon an arbitrary chart
Passing like a breath upon the heart,
Yearning with anticipation wound,
New hope new harbored in old-fashioned cheer.
Even when the boundary line is clear,
We recognize the oneness of the ground.
Years, like circles, do not end or start
Except we lay across their truth our art,
Adjusting dates as they go round and round
Revolving to a tune long sung and dear.
Here's to hoping your "Turning of the Year" is full of joy and hope. And here's hoping that 2009 is Your Year to Shine!!