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  1. #1
    Join Date
    Aug 2003
    Posts
    7,620

    Default What do they not get?

    Hi All,

    My frustration has led me to posting my thoughts here.

    2 couples that are friends of mine were presented with the same situation and both took the same action - much to my distress.

    The situation being:

    They want change in their lives so they think moving from their home is the answer. They approach an RE Agent for a valuation on their respective properties and of course they are told their houses are worth way more then they had anticipated. Fuelled by the great news they list with that RE Agent.

    "Why are they selling their house?" I ask them. (These couples do not know each other). The answer: "Well we didn't know our house was worth so much so we have decided to sell, get the $$, rent for a while or start looking for another house to buy".

    None of this makes sense to me! I ask them "have you thought of renting your house out and moving somewhere else either renting or buying another house?" Their answer - "no we haven't thought about that. Now that you mention it though - we couldn't afford to keep this house and get another one".

    I explain to them how it can work - you know...leverage of the equity in your current house to get a deposit for another house. Plus with the minimal mortgage on your existing house the increase you are borrowing will easierly be covered by the rental payments etc.

    In theory they get it. I also explain how property keeps going up in value so when they eventually buy another property they will have 2 properties with growing equity. They say they understand that too.

    So why didn't they do it? One couple sold their home and bought a house one street away. They pass their old home every day when they go to work. The owners of their old home are first time buyers like they were.

    The 2nd couple's situation is more frustrating for me - though. When I was explaining how it could work - renting their property out and then renting themselves until they find another property etc I told them I thought their property would rent for $350 per week.

    They of course didn't believe me - so I said "go and get a rental appraisal". They didn't. They have sold their property to investors who said they can rent it for $350 per week. They can not afford $350 per week and are now renting somewhere else.

    Their mortgage was approx $175K and they could have got $350 per week rent. Their property was beach front and growing steadily in capital growth. Basically it was costing them approx $235 in mortgage payments per week + rates.

    Even more frustrating is the fact that they only got approx $80K profit from the sale. I know they are now renting - paying $310 per week.

    In working through why I thought both couples chose to sell their property rather than keep it I realised that the driver for them was - the short term gain a few $$ now - to hell with the future.

    So what drives a lot of people IMHO is - preventing boredom and short term gain. With these 2 couples they were getting bored so thought they might as well move house. Then when faced with a couple of financial options both couples elected the immediate pay-back taking a few $$ in equity now over lots of $$ in equity later on.

    Cheers,

    Donna
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  2. #2
    Join Date
    Jun 2005
    Location
    Auckland
    Posts
    5,086

    Default

    Hi Donna,

    Good post - it is exactly the situation that many NZers will find themselves in now that the boom is over - the increased value of their house means that they can sell and take profit.

    The problem is that the boom being 'over' means that prices aren't going up so fast - they are still generally going up with some local corrections here and there for cash-strapped owners and investors. This means that renting for a while and then buying is false economy, and they'll find that there profit is soon eaten up.

    It is just one of those things that you have to 'get' on your own - like realising at 22 that there's more to life than getting smashed every Friday and Saturday night and missing Sunday!

    cube
    DFTBA

  3. #3
    Join Date
    Jun 2005
    Location
    auckland New Zealand
    Posts
    5,236

    Default

    I think what you are describing Donna is people without any financial education who are too set in their ways to entertain change.
    I have family who have seen my success and still sit with me kind of asking for help on one hand but saying they just can't believe it's true on the other. End result, they are renting or going backwards financially while I go forwards. It's very sad when it's friends but it happens everyday.
    My uncle owns a home and income that he has just finished paying off the mortgage. They want to retire to a beach. I've been offering to help them get out of their house and into a retirement property for 2 years. Now everywhere they want to live is more expensive than their property is worth. 2 years ago they would have had money in the bank. AND he's just got a small mortgage to buy a car he doesn't need and can't afford. And he's 71 years old and having to work full time. Buthe won't be helped. At least your friends have age on their side.

  4. #4
    Join Date
    Sep 2004
    Location
    Hastings
    Posts
    14,834

    Default Why They Don't Get It

    Donna

    I made a small contribution in another thread that touches
    on the very dilemma you agonise over. It also chimes with
    Dean's comment.

    It's in the Goals 97% thread
    https://www.propertytalk.com/forum/sh...3178#post33177

    Perry

  5. #5
    Join Date
    Jan 2004
    Location
    Whangarei
    Posts
    5,867

    Default

    People get scared about the wrong things. Having $250k more debt scares them even if it's paying for itself but leasing a car for $900 a month that's worth nothing to them after three years is "fun"! Go figure...

  6. #6
    Join Date
    May 2004
    Location
    Bay Of Plenty, NZ
    Posts
    3,604

    Default Instant gratification

    It basically comes down to people wanting the "I've got new toys/keeping up with the Jones's" syndrome.

    Friends of mine have just returned from England with many English pounds and have decided to modernise their own home, which is fine, but to the extent where it will become over capitalised.

    I suggested that they buy a new home and rent their old home and have both income and a better home. They aren't having a bar of it.

    Like Donna, I couldn't comprehend this, but hey, their train set.
    Patience is a virtue.

  7. #7
    Join Date
    Jun 2005
    Location
    Auckland
    Posts
    5,086

    Default

    It was summed up nicely for me recently:

    "He who dies with the most toys, wins"
    DFTBA

  8. #8
    Join Date
    Aug 2005
    Location
    Napier
    Posts
    61

    Default He who dies with the most toys

    Still dies. I have a friend who provides budgeting advice for people who have gotten themselves into bad debt. We were discussing budgetting one day and he did not know that every extra payment made on a mortgage saves thousands, Or that paying insurance annually instead of monthly saves money. This is really basic stuff and it was a huge revelation to him. There seem to be a lot of people who cannot be bothered educating themselves in the best use of their money. I think also it comes down to each person's level of comfort.

  9. #9
    Join Date
    Jan 2004
    Location
    Whangarei
    Posts
    5,867

    Default

    Omigod! Why is this person advising anyone on money if he doesn't understand compounding interest???

  10. #10
    Join Date
    Feb 2004
    Location
    Welly-town
    Posts
    1,095

    Default

    For a lot of people it isn't even about having the toys, it's simply about security here and now or the old school thinking about how important savings are.

    I know a number of people who have sold their houses because they were concerned about their ability to pay the mortgage. They ended up with $100k+ in the bank then went renting. To them the idea of having money in the bank is their backstop / security even if it will get spent on the rent (and other things) over the next 10 years.

    The concept that their home loan could be paid off in 10 years giving them even greater security is simply beyond comprehension. It's just one of those things they don't think will ever happen. Because they believe it, that's what they get.

    Scary.


 

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