This guy makes me want to roll my eyes with his Idiot Logic
A friend of ours.. acquaintance really.. bought a $300,000 house with the intention of flipping it.
The assessment by the market is $150,000.
He paid 100% more.
He thought after 2 years he could sell it for $600,000 and buy a nicer detached home in the same neighbourhood.
What did he forget?
1. IF YOUR HOME’S VALUE GOES UP, SO DO THE OTHERS IN YOUR AREA
If you can sell your home at double its value, a $600,000 home today, will cost $1.2 million, give or take.
I call this “Idiot Logic” when people assume that they’re the only ones smart enough to have come up with this strategy, and that NO ONE ELSE would be able to see what they’re doing.
2. HE BOUGHT THE HOUSE ON CREDIT
You’d think this is impossible right? But he put down the 5% he needed for the down payment on the home, by borrowing on credit cards (19% interest) and a line of credit he already half maxed out (no idea what the interest rate is, but it sure as hell wasn’t 3%).
3. HE BOUGHT THE HOUSE WITHOUT NEGOTIATING
Full list price. He figured: “Why negotiate? I’ll just be re-selling it, what’s a few thousand here and there?”
He didn’t even bother lowering the price.
4. …AND WITHOUT SEEING IT
Saw a few pictures online, did the 360 degree tour and called it a day. Signed the papers, moved in and wanted to wait while the prices increased.
You know, I think he’s the master of Idiot Logic. I think he might even have a PhD in it.
*face palm*
4 Comments
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sherry@savespendsplurge.com
My goodness.
Well, I think buying a home as a quick flip or quick investment is very risky. I’d rather have something easy to liquidate and not quite so customized so that it will not appeal to so many buyers.
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raluca
And yet, if he’s really lucky, everything will work out for him :).
He might get an inheritance, he might strike it rich, he might sell at the right time to people like him.
It shouldn’t happen, but it might. For the rest of us, luck normally follows good decisions, hard work and preparation.-
sherry@savespendsplurge.com
He will more than likely get an inheritance. We have understood that both sides of their family have stores of $$ stashed away… they are just very long-lived folks.
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He’s very optimistic to think his house will double in value in just 2 years. It usually takes many years. We bought our current house nearly 2 years ago, a few months into the housing boom in Sydney, Australia. The previous owners made almost double what they paid but they bought the house about 8 years prior. Had they sold about 6 months later they definitely would have made over double what they paid for originally because that’s when things really went crazy over here.