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Weathering the Storm – Real Estate and the Queens Cup

The sailboat: Mile 43 is where I found myself, in the middle of Lake Michigan on a sinking 26’ sailboat. A distress mayday had been sent as we transferred 3 crew members to a nearby 60’ boat. We were part of the Queen’s Cup race from Milwaukee, WI to Muskegon, MI.

The waves were high, winds strong and a hard rain falling. It’s remembered as the worst weather in the 100+ year history of the Queen’s Cup.

A Coast Guard ship was on its way to meet the remaining crew, the captain, and the kid (me being the youngest crew member). It was tough sailing. Grit.

 Real Estate: It’s tough sailing for home buyers today. Home prices are up and rents are high.   Mortgage rates have increased (at this writing) to 5.061%. Only 19% of consumers think it’s a   good time to buy a home, the lowest reading since the survey’s inception in 2010.

Multiple offers are being submitted for homes with buyers paying cash, waiving inspections,   waiving appraisals, and paying over asking price – without knowing the true value of the home.

Some buyers searching for a home may tire and give up; others, because rates have risen, will   be frightened by the interest rate rise.

If you don’t tire, if you aren’t frightened by the rate rise, you have a modest  advantage.   Grit.

Small advantages matter, but you must still make all your other home- buying moves correctly.

The sailboat: We made the correct moves and discovered with high winds and our mainsail up, the force of the sail against the keel opened a slight crack in the hull. Water entered the cabin and was now 2 feet high and rising. We stayed the course, took corrective actions, and found the solution to stopping the leak. Small advantages.

Real Estate: We advise that you buy a home based on information, not emotion – not Panic, not Guilt, not to Keep up with the Joneses and not because some agent tells you: “You can’t lose.” You can…. lose.

How do you weather the storm of today’s real estate market? Your buying strategy must include a margin of safety. The concept is attributed to Benjamin Graham author of The Intelligent Investor.

If you understand housing and the future of housing perfectly, you need very little in the way of margin of safety (But my guess is you then suffer from the Dunning- Kruger effect.)

The more vulnerable housing is, on the assumption you want to buy a home, the larger the margin of safety you need.

The sailboat:  With water rising in the cabin, we were vulnerable (see my postscript). We didn’t understand our problem perfectly, but the Coast Guard and their advice provided our margin of safety

Real Estate: What should your margin of safety include?

1. The home should fit. Be careful you aren’t being sold a home and know the value of the home by asking for nearby comparable sales.

2. Stretch financially…but don’t stretch too much financially. You do know you can’t remove a bathroom door and use it to buy groceries.

 3. Be pragmatic about your needs and wants. Meeting your needs is more important in your first home. Your wants will get met in your second or third home – the Zen approach.

4. Plan to stay in the home 6+ years.

5. Don’t be afraid of a home that needs paint up, fix up, but do have a sense of what the paint up, fix up will cost. (Hint: It’s not what you see on HGTV.)

 6. Be timely in your search and home viewings… but be comfortable. To quote John Wooden,   “Be quick but don’t be in a hurry.”

7. Understand you will get one opportunity for an Offer. The days of counteroffers are gone for   now. Your first offer must be your strongest, but it must also have margins of safety.

Risk exists. If you have real estate questions or want to know how best to approach buying a home with a margin of safety, feel free to contact Seamus, Mike, or me.

Postscript: We didn’t win the race. When we reached land the boat was taken out of the water. The Coast Guard had shadowed us in.

I asked the captain how bad had things been?

The hull weighs 2,200 pounds. If we hadn’t done what we did – when we did it – we’d have gone down in 15 minutes, he replied.”

Don’t let the wrong real estate purchase sink you. Ask questions and get the information you need. We may not tell you what you want to hear but we will tell you our real estate truth.

Thanks for reading,
Michael D. Holloway

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