I have a friend who is extremely fearful of purchasing a home, even though he’s gainfully well-employed. He keeps hearing from his friends and family about how they are underwater on their mortgages, how they can’t make ends meet, and how it’s all because of the bad loan they got to purchase their home.
What my friend doesn’t realize is that, although he has a great reason to be cautious, those who are lending money for new purchases are even more afraid of failure than he is. This wasn’t the case a few years ago, but federal and local lending regulations have stiffened. That means, if he can get over his fear and ask for a loan, the bank will decide if he can handle the payments. With stricter and more stringent requirements, historical bad loans are scarce, and the onus has shifted from the ‘stated income’ loan of the past to the current system of in-depth analysis of buyers’ qualifications.
It’s interesting to me because we learn from experience to fear; we all know that children are taught to avoid fire. Left unsupervised, they will put their fascinated palms on the stovetop. But in this financial environment, real estate is one of the safest investments; to me, the stock market much more volatile and much less predictable. And burying your money is a practice that’s antiquated and goes against the principle of highest and best use. At least with a piece of property, you get something tangible; I drive by my apartment buildings and I can see the lights, feel the cold concrete, and hear the rush of water through the pipes.
Especially in Hawai`i, where we have the nearly guaranteed benefit of appreciation over time, I don’t know why anyone would shirk a real estate investment, especially one where they are afforded the benefit of living in that investment, avoiding rental expense, which–let’s face it, pays someone else’s mortgage.
I’ve been practicing real estate since 2002, and the median house price has doubled in that time. Sure there have been slight decreases in price, but this is the historical norm in our lucky state. Buy something in Texas, and you’ll find out pretty fast that we have a unique environment that allows for even bad loans to eventually make good.
As for my friend, it’s okay to be afraid. But I advise him to not let that fear make him immovable like the proverbial deer in headlights. And the safety net is there, if he just asks the bank.