My Grandfather and Real Estate
- Just a warning: This is very much a rambling post
I learned a lot from my Grandfather. He taught me about the way things were and ought to be. He was someone that had a heart of gold (stories of him delivering food to needy people or elderly that couldn’t leave their homes in winter – with no prompting or reward, it was just the right thing to do), he fought in World War 2 as a B-17E Pilot but never spoke too much about it.
Oh he loved his WWII movies though! Always watching them. He even set up a mock cockpit and taught me how to fly one when I was a kid. I don’t remember much on how to fly one so please don’t ask me to emergency land one!
I remember him telling me about real estate though. How times have changed.
He told me a story about how he wanted to purchase his first home, a starter home for the price of $3,000.00
I plug that number into a calculator and depending on whom you believe, in today’s dollars that is anywhere from $50K to $120K
He told me that he went to his father for advice on what to do. He of course didn’t have the full $3,000.00 to buy the house and was thinking of taking out a loan from the bank. His father just asked: “Do you have the money to buy the home?”
The answer was no.
“Then you can not afford the house” was his final answer and recommendation.
Now at this point in life my Grandfather was nearing retirement, his kids had kids, and he lived in a nice home on Second Avenue in town. Therefore I had a hard time, being of that young age, full understanding if he was disappointed in the advice he was given or if he was trying to dispense some of his own to me?
That $3,000.00 home would be worth a lot more in the years that followed. A bargain looking back via 20/20 hindsight. Though if he had lost his job, he would not be able to pay the mortgage and he would then lose the house. We don’t think of that much today… Not being able to afford our debts. We just assume we can. Just a simple emergency fund will cover it right? We purchase more home than we need and live right on the edge of comfortability for a year or two until our paychecks increase, equity increases and we look back and laugh wondering what ever we were worrying about.
I did it, most of us will do it.
But I think back to my Grandfather and see that advice coming back around full circle. Maybe not with houses yet, but with cars you hear that advice more and more. If you can’t pay cash, don’t buy it.
Especially in a time with 7 year car payment schedules and prices of cars that cost more than the first home my Grandfather wanted to purchase for goodness sakes!
Sure OPM (other people’s money) and leveraging allows us to afford more at an earlier time frame, but it gives the same opportunity to everyone. Therefore simple economics comes into play. As there is more demand, the price goes up. Now cars are overly expensive and so aren’t the homes we need to live in. Once when leveraging was a choice it is now a necessity.
We have gone from a one household paycheck to a two household paycheck just to get by. Prices increased again. Now you look at the next (Millennial and GenZ) generations who can not afford a car or house by themselves. So car payments have gone up from 3 years, to 5 years, to now 7 years? 7 years!!
The only way I see for people to reverse the trend is to start paying and living with less of what they want and more of what they need.
US-wide homes now larger by 74%, personal living space went up 211%
US-wide, homes built in the last 6 years are 74% larger than those built in the 1910s, an increase of a little over 1,000 square feet. The average new home in America, be it condo or house, now spreads over 2,430 square feet. It is also important to note that, parallel to the rise in living space, households have been getting smaller over the same period. In 2015, the average number of people in a household is 2.58, compared to 4.54 in 1910. This means that today the average individual living in a newly built home in the US enjoys 211% more living space than their grandparents did, 957 square feet in total.
Now don’t think of this post as some hippie let’s-get-back-to-nature type of post. It’s not. I likes facts and numbers. They don’t lie to you. Understanding why something is how it is, is always the first step. If you don’t diagnose the problem, then you’re only fixing/attacking the symptom.
The Low Tire Theory: You have a low tire, what’s the problem? You need more air in is, so fill it right? Wrong. If you have a low tire and you put air into it, you’re just fixing the symptom. The problem is that you have a hole in your tire. You can keep pumping air into it all day and night, but if you don’t actually address the problem and figure out what it is, you will never solve it. It’s why we as a country keep throwing good money at bad problems. We make it go away for a short time. It’s like a slow leak in the tire. It fixes it for a bit, but then the problem (or what looks like a problem) comes back. Now what? Throw more money at it? Or should be understand the true problem and fix that?
My Grandfather was a wise man and taught me a lot. I wish I had asked a lot more questions before he passed, but I wasn’t old enough or wise enough to think that far out.
As we come full circle, my next car will be purchased in cash. My house will be paid off this year also. I will be 100% debt free by summer of this year.
I’d like to think he would be proud.