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Wealth for the Modern Kids Part II

In Part I of “Wealth for the Modern Kids” I asked “How will 25-40 year olds create wealth today?” The authors of Happy Money: The Science of Spending note, “The relationship between money and happiness is misguided.”

I could make a similar case that the relationship between a home’s square footage and happiness is misguided. Square footage costs money. That means you have to work harder and longer to purchase and maintain that square footage. One method to create long-term wealth is to buy a home but buy what you need and can afford.

I see four obstacles to home ownership for home buyers today – confidence, down payment, mom/dad syndrome and the Springsteen effect. We’ll look at them last to first.

1.  Springsteen Effect

You’re not going to buy a home because, as the Boss notes, “tramps like us, baby we were born to run.” The problem is very few of us “run.” You may think you will run (move) someday, or that owning a home will limit your ability to run, so you do nothing. Meanwhile, by not taking advantage of low rates and low housing prices, you lose valuable years to build equity.

According to the U. S. Census Bureau, in the 12 months ending in March of this year, 4.8 million people (or 1.6% of Americans) moved to a different state. Statistically speaking, you’re not going to “run.” The Boss runs – but there is only one Boss.

2.  MDS (Mom/Dad Syndrome)

“That’s the #%&#@ dumbest idea I’ve ever heard.” That was the sage advice of Gordy, my father, when I told him many years ago that I was buying a dump of a home for $24,000 ($55,000 in today’s dollars) and then rehabbing it to the tune of $64,000 ($147,000 today). Gordy wasn’t alone. The head of the City of Milwaukee’s real estate division believed the same and… He was close to Gordy’s age – both anchored in a different time.

Through the beauty of appreciation and equity, I eventually sold that home (tax free) and rolled it over into a condominium in Vail, Colorado. People who ski Vail are now paying off my mortgage.

Parents are “anchored” to their time and their dollars. They are also anchored to their present quality of life. They forget they did not have that quality of life when they purchased their first home, but anchors are tough to acknowledge and ignore.

Don’t get me wrong, parents are a good thing but if they are anchored to a different time their observations may limit your home buying decisions. Generally speaking, the home that Susie or Johnny are going to buy in their 20’s, is not (and should not be) the home that mom and dad now own. When mom and dad say the windows are bad I think they really mean “These windows aren’t as good as the windows we have.”

If mom and dad are going to offer advice, have them look from the perspective of when they were in their 20’s not anchored to what they have today. Absent that you run the risk, metaphorically speaking, of missing out on that Vail, Co. condominium.

Look, buying a home takes effort and sometimes that effort can be a difficult and frustrating process. The comments below are from Johah Lehrer’s book Imagine.

Every creative journey begins with a problem. It starts with a feeling of frustration, the dull ache of not being able to find the answer. We have worked hard but we’ve hit the wall. We have no idea what to do next.

We neglect to mention those days when we wanted to quit, when we believed that our problems were impossible to solve. Because such failures contradict the romantic version of events – there is nothing triumphant about a false start – we forget all about them. The feeling of frustration – the act of being stumped – is an essential part of the creative process.

Oddly enough, though he was commenting on Bob Dylan’s creative process writing “Like A Rolling Stone”, Lehrer’s words ring true for the home-buying process.

If you are frustrated and don’t have answers to real estate questions, (you may not even know the questions) or have hit the wall, let’s have a cup of coffee and we’ll talk real estate or…send me an e-mail with your question and I will share with you what I know. Next month I’ll finish with Down payment and Confidence.

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Homebuyer Associates
1835 N. Riverwalk Way
Milwaukee, WI 53212
Phone: 414-254-4129