I always thought that Irrational Exuberance only afflicted the uneducated and stupid. But it appears that it will take hold of anyone, regardless of race and class. This a very long entry but I feel that presenting these two articles will better illustrate my point.
January 15, 2006The Great Escape
By JOHN FREEMAN GILL
MAHBOOB AWAN, a dignified, matchstick-thin Pakistani immigrant, had $20,000 and an escape plan. Weary of the hustle and squalor of his 26 years as a New Yorker, fed up with the cramped, roach-infested apartment that he shares with his wife and two little boys in Kensington, Brooklyn, he wanted out.
"New York has nothing for me," said Mr. Awan, a 56-year-old former newsstand owner. "If you want to live on welfare, the city is best, city pays rent for you. Otherwise, if you want as a human to make money and pay rent, you can't survive here."
Mr. Awan, dressed neatly in a charcoal sports jacket and almost-matching slacks, was sitting in a packed ballroom of the Marriott Hotel in Downtown Brooklyn, where a frenetic event billed in a brochure as a "Gigantic Land Auction" was unspooling. The brochure, printed in the reassuring colors of Old Glory, breathlessly promised "E-Z Financing! E-Z Qualifying!" on "300 Properties to Be Sold!!!"
Mr. Awan hoped that one of these parcels of vacant land, offered in 10 states from Massachusetts to California, would provide the missing piece of his dream of escaping from New York. "Anybody I see who leaves here," he said of the city, "I see two, three years later, and they get healthy, wealthy. That's reality."
The auction, which took place in October, was the fifth major event held in New York over the past 15 months by a California-based company called N.R.L.L. East L.L.C., which buys land from a variety of sources, including bank foreclosures, and auctions them off under the name LandAuction.com. Mr. Awan has attended all the New York auctions.
About three-quarters of the 783 registered bidders in the Marriott ballroom lived in the city, most of them in Brooklyn, according to the auction company. With starting bids as low as $100 for property in enticing locales like Florida and Hawaii, the auction attracted many working-class and middle-class strivers: bus drivers, security guards, grocery store owners, waiters. Many were immigrants, some drawn by ads in the Korean, Chinese and Spanish press.
These would-be property owners, many of whom had been shut out of the city's gravity-defying real estate market, crowded into the cavernous ballroom as a promotional video played on two giant screens, its bubbly announcer declaring, "You can really own a slice of America for very little money!"The first real estate auction I ever attended was at the Jacob Javitts Center held by New York City in 2003. It was there that the city unloaded property that landed in their possession onto to the open maws of the hungry masses. It was insane. People were bidding left and right. Some of the properies were returned to the chopping block because people did not have the certified checks or thought they could pay by credit card. I quickly learned that the people who truly benfit from auctions are the ones who either live next to the property that is up for acution allowing them to expand their holdings or people who had inside information about the property in question and were able to make a profit even if they spent an exorbinant amount of money during the auction. It is in my opinion that auctions are not the place for first timbuyers or investors because it requires deep pockets, quick thinking and lots of experience. Mr. Awan should not be buying property in this manner. He should be utilizing traditional methods, investigating areas of interest and taking his time to research these properties.
An auction is ground zero for irrational exuberance. The environment does not allow novices to make the proper decisions in their purchases.
Shortly after 9 a.m., the auctioneer, Mark Buleziuk, wearing formal black-tie attire, stepped up to a podium as a "parcel map" appeared on a screen depicting a residential lot in Holmes County, Fla., a site the brochure described as "a world away from the hustle and bustle of the big city."
As Mr. Buleziuk lifted his gavel, a transformation occurred. His lips began moving faster than the human eye could follow, and out surged a mesmerizing torrent of syllables, punctuated by rapidly escalating dollar amounts. The bidding was on, pinballing around the room, with 300 properties sold over eight frenzied hours.
The affair had the feel of a traveling carnival of commerce. While Mr. Buleziuk's relentless patter of opportunity poured through the speakers at deafening volume, several tuxedo-clad auction workers charged up and down the aisles like hypercaffeinated groomsmen, gesticulating wildly and hollering "Heyyyy!" each time a bidder raised his number.
"Hey, now, seventeen-five!" Mr. Buleziuk cried. "You're a horse in the race, and you're in second place - and down the stretch they come!"
For customers who wanted to investigate properties, LandAuction.com had made available for free, before the auction, maps showing the land to be sold, along with a brochure containing a description of each site. The brochure's pages were as richly adorned with exhortations to do research as the Marriott ballroom was decorated with red, white and blue balloons.
"You should inspect any parcel personally before bidding," read a notice at the bottom of virtually every other page. "Investigate before you buy! Look, listen, and inquire. Spend your money wisely."
Despite these urgings, many registrants acknowledged that they had done virtually no investigation and were bidding on land they had never laid eyes on. "Whatever they tell me in the booklet, that's what I go on," said a Haitian-born elevator operator from Brooklyn who would identify himself only as Harry and had just bought 10 acres in California - he wasn't quite sure where.Ok. This guy is an idiot. And unfortunately he is not alone. Let me put it this way. NEVER EVER BUY A PROPERTY SIGHT UNSEEN! DO NOT BELIEVE WHAT YOU READ OR HEARD! LOOK AT OTHER UNBIASED SOURCES OF INFORMATION WHICH INCLUDE ACTUALLY GOING TO THE PROPERTY!
The dream can prove elusive for bidders who buy land without doing their homework. At an auction in Midtown in October 2004, LandAuction.com listed a 1.5-acre parcel in the upstate New York town of Cairo; the brochure promised the buyer that "four seasons of outdoor adventure await you in Greene County's great northern Catskills."
Mr. Awan and a nephew emerged as the winning bidders for the parcel, for which they agreed to pay about $8,800. But when they arrived in Cairo to visit their new land, they discovered that it might have behooved them to take more seriously the brochure's warning that "this property may lack road access." The land, some of which floods periodically, could be reached only by trespassing on neighboring property, and the neighbors refused to grant access.
Of his decision to buy the parcel, for which LandAuction.com had paid just $2,700 two months earlier, according to Greene County property records, Mr. Awan later said, "That was a stupid movement I made."Ya think? Due diligence should be applied to all expensive purchases. I have to admit Land Acution.com business model is absolutely fantastic and is the wave of the future for real estate sales. What I think is brilliant is that they are purchasing land from all over the country and are able to charge a premimum for the land through the auction process.
After being asked about the matter by a reporter, Michael Schack, a senior vice president and general counsel of LandAuction.com, contacted Mr. Awan's nephew. "I explained to him that if he or his uncle felt that what they purchased did not match the descriptions in the brochure or the information provided by LandAuction.com," the company would refund their money, Mr. Schack wrote in an e-mail message.
A spokesman for Attorney General Eliot Spitzer of New York said that the agency had received no complaints against N.R.L.L. East. But customers who bought land from N.R.L.L. Inc., a sister company, have not always been thrilled with their purchases.
In 1999, the district attorney in Santa Cruz County, Calif., filed a civil complaint against N.R.L.L. Inc., accusing the company of misleading customers into buying "unbuildable" land outside Santa Cruz. The company admitted no wrongdoing but settled the case, agreeing to refund purchasers' money. Mr. Schack, the LandAuction.com spokesman, who also speaks for N.R.L.L. Inc., said in an e-mail message that the company had had no prior knowledge of whether the land was buildable. He added that each successful bidder was required to sign a statement that he had been encouraged to inspect the land before the auction and had either done so or elected not to at his own risk.I have mixed feelings about this. These companies are not out to save the world. They are not out to fix the homless problem. Their objective is to simply make money, which I have no problem with. Afterall this is America and one of the pillars of democracy is capitalism. Afterall this why millions of people risk their lives to come here. At the same I think simply requiring customers to sign a statement that he had been encouraged to inspect the land before the auction and had either done so or elected not to at his own risk is an act of CYA on NRLL’s part. At the same time customers need to make an effort to educate themselves and engage in the process of due diligence. Is N.R.L.L really at fault if customers zealously engage in these unsafe practices?
The Race for Property 21
Mahboob Awan is a bounce-back man, buffeted by difficulty but confident in his resilience. Professionally, he has reinvented himself multiple times - as a newsstand owner, as proprietor of a variety store, as a cabdriver - and amid the frenzied bidding in the Marriott ballroom, where bargain hunters in jeans and backward Yankee caps speed-walked about, he cut a placid, contemplative figure.
Seated on a plastic folding chair, he listened calmly as the auctioneer announced Property No. 21, a 1.9-acre lot in the small southern New Jersey town of Corbin City, 24 miles north of Cape May and a half-hour drive from Ocean City. "I bid 21, if they stop at my price," he said. "If not, I stay quiet."
The bidding began at $5,000 and ricocheted around the room, quickly soaring above Mr. Awan's $20,000 limit. "Sold it for $110,000!" the auctioneer shouted.
Mr. Awan shrugged. "Already I own place as where they're selling," he said in his imperfect English, referring to another Corbin City parcel he bought earlier in the year.
Mr. Awan was an old hand at LandAuction.com extravaganzas. Since the company's first New York auction in October 2004, he had purchased four properties in the Northeast, including a parcel near the Canadian border in Clinton County, N.Y., that he has never seen.
His prize acquisition, in his view, was a 123-foot-by-75-foot wooded parcel in Corbin City, which he bought for $9,000. Mr. Awan thought he might build a house on it, to escape the pollution in the city. Ideally, he could live there with his family while realizing his goal of importing marble from Pakistan for use in people's bathrooms. It was to provide storage space for shipping containers full of marble that he had hoped to buy the second, larger Corbin City parcel at this day's auction. But he figured something would turn up at a later auction.
More immediately, he had a big trip planned for the next day. It was Ramadan, the holy Muslim month of fasting, and though Mr. Awan, a practicing Muslim, was in no position to journey to Mecca, he planned to make a more modest pilgrimage to his patch of land in Corbin City. He had recently paid $575 to have the parcel surveyed. After 26 years of paying rent in Brooklyn with no equity to show for it, Mr. Awan was going to view for the first time the clearly delineated boundaries of the future he hoped to inhabit.
Their Own Little Forest
Mr. Awan's search for his future had begun seven years earlier, shortly after he was wed in Pakistan to a soft-spoken schoolteacher named Samina. His wife, who became pregnant soon afterward, remained in Pakistan while he brought his mother to the United States to help her get medical treatment for back pain.
While living largely off stock market investments, Mr. Awan rented a 620-square-foot shoebox in an apartment building on McDonald Avenue, in a neighborhood that is home to many working-class Muslims. But when his wife came to America in 2000 with their infant son and stepped inside her new home for the first time, she was devastated. "When I first came here," Mrs. Awan confessed recently, "I cried when I saw the place that we live. So small."
With the addition of a second son that year, the apartment became even more uncomfortable. Nowadays roaches amble across the floor as if they own the place, and the only decorations in the main room, aside from children's crayon scrawls on the dirty walls, are a carbon monoxide detector and a calendar from a drugstore.
Corbin City promised breathing room. "To the northeast is the Tuckahoe Wildlife Management Area, an area great for bird-watching," declared the LandAuction.com brochure.
Mr. Awan was undaunted by the disclosure in the brochure that "this property does not have public water or sewer available." To someone who has reinvented himself so often, the tasks of getting a well dug and a septic tank installed seemed eminently manageable.Okay. He’s an idiot. I am not an expert in plumbing but I do know that it is not cheap. You are talking about at least a couple of thousand dollars not to mention the eternity it will take to get the permits to dig a well and install a septic tank. If the town is concerned with contamantion from private wells and septic tanks they might throw every legal barrier to prevent Mr. Awan putting them up.
So he forged ahead. The day after the October auction, Mr. Awan tucked the deed to his Corbin City property into the pocket of his jacket, climbed into his 1991 Chevy Caprice with his wife and sons, and hit the road.
On the Garden State Parkway, the industrial New Jersey scenery was gradually replaced by lush green trees. Three hours after leaving Brooklyn, while heading northwest on Route 50, Mr. Awan suddenly pulled his Caprice off the road beside a mass of trees. The four Awans tumbled out of the car and stood beside the highway as trucks thundered past, peering at a flimsy wooden stake from which a strip of pink plastic fluttered in the wind. This was the northeastern corner of their property.
The Awans' land, sandwiched between Route 50 and a looming aluminum warehouse on the lot behind them, was a scarcely penetrable little forest. Looking incongruous in his black loafers, Mr. Awan scrambled up the trunk of a fallen tree and tugged awkwardly at dead branches. But amid the tangle of nature and the whoosh of passing trucks, he and his wife saw possibilities. Yeah. Possibilities for foreclosure and bankrupcty.
While Mr. Awan and the boys hammered cast-off plumbing pipes into the ground to mark their land's boundaries, Mrs. Awan allowed her mind to roam. "When you come here," she said, "you can write poetry, too, I think."
It also seemed possible the land might one day help her improve her relations with her husband's siblings, who all have big houses in Brooklyn and New Jersey. "His brothers and sisters say they won't come because our house is so small," Mrs. Awan said. "I used to cry a lot, it depressed me so much." But her husband had reassured her. "When they hear that you own land and a house," he said, "their tone and attitude toward you will change." Their dim view of him and his family will never change as long as he keeps up with this stupidty. It is obvious that a primary motivation for Mr. Awan’s Quixotic quest to build a home is due in part of family pressure. He is probably reminded of social standing with his wife’s tears and his kids sharing the same bed with cockroaches which is a tremendous amount of pressure on any man. But he is going the wrong way of doing this.
As she spoke, Mr. Awan and his older son wandered back. Putting his hand on the boy's shoulder, he kneeled beside him and pointed skyward. "That's yours there," he said. "Those trees are yours."Pray to Allah that is not the case son.
An hour after the Awan family had headed back to Brooklyn, Robert Ohlsen sat at the bar of the Buck Tavern, a restaurant he owns in Corbin City, taking a break from overseeing the installation of a new awning. Mr. Ohlsen had attended the auction in Brooklyn the previous day and bid unsuccessfully on the 1.9-acre Corbin City parcel. Though Mr. Ohlsen thought it had sold far above market rate, he wasn't surprised that it fetched such a high price. "The audience," he said, "was filled with a lot of dreamers."
When told about the little parcel the Awans had bought on Route 50, Mr. Ohlsen did a double-take. "He can't build on that," he exclaimed, shaking his head emphatically. "It's zoned all highway commercial."If Mr. Awan had simply did a search about the area on google or had called the village he would have figured out that this purchase was a white elephant. REMEMBER! REAL ESTATE IS LOCAL! EVERY AREA HAS THEIR OWN WAY OF DOING THINGS. I am not just talking about laws but also culture. Ignore them at your own peril. Mr Ohlsen did not make the same mistake as Mr. Awan because he knew that area was not zoned for residential he also had the wherewithal to bow out when he saw a parcel of land that he was interested was going selling above market rate.
Bouncing Back Once More
Over at Corbin City Hall, Janet McCrosson, the municipal clerk, confirmed the nonresidential zoning of the Awans' property, which, according to Atlantic County records, LandAuction.com had bought the previous fall for $2,500. "As is, nothing can be built on it," Ms. McCrosson said. Regulations also preclude using the land for a business, because it is far too small. "It is not as wide or as deep as the minimum it has to be to use it for anything," she said.
She said that Mr. Awan could apply for a zoning variance, although she did not recall the city's ever approving one for an undersized lot like the Awans'.And it probably won’t ever happen because it is not worth the town’s effort to grant him that variance.
None of these restrictions appeared in the LandAuction.com brochure. What did appear was a blanket statement that the company assumed no liability for "zoning, building codes and regulations."
Asked about the restrictions, Mr. Schack, the LandAuction.com spokesman, wrote in an e-mail message that the company had been unaware of any limits on the use of the Awans' Corbin City parcel. "However," he wrote, "many of our experienced buyers will purchase properties at these prices and then assemble others around (or sell to the neighbor) into a larger and thus more valuable or developable piece of property."This might sound like another CYA response from LandAuction.com but I understand where they are coming from because each town have different laws and regulations would add to their overhead to create a service. Also it is not in the best interests of LandAuction.com to have their customers to be well educated since customers would not be making as many mistakes at they are now if they knew the rules of the area.
A few weeks later, Mr. Awan sat barefoot on a sagging mattress in his apartment and thumbed through his real estate documents, talking about his good fortune in buying the Corbin City property. "There the air is coming from the sea, washes the pollution away," he declared happily. Mr. Awan is in deniable. Buying a property because the sea washes the pollution should not be the primary reason for purchasing it. You f**ked up. Face it. Then get over it.
Asked what he would do if he learned that it was true that local regulations would not allow him to build on his Corbin City land, Mr. Awan did not waste a moment second-guessing himself. "Clinton County, easy, I move there," he said, referring to the LandAuction.com property he had bought, sight unseen, near the Canadian border. He added, "I can work, survive in two countries." How f**king stupid can this man be? How do you know if you can even live there if you haven’t seen the property or know the zoning laws? Didn’t you learn from your last mistake at the CatSkills? What about your family? How do you think the stress of what you are doing is going to affect them?
By this month, Mr. Awan's plans had changed again. He now thought his escape route might take him as far as Georgia, or even Texas. "I go, circle around, look at different states, see where luck takes me," he said, his confidence unbruised. "It's nothing impossible for me."Mr. Awan’s situation can be remedied very easyily. First of all his wife needs to take a chair and beat him into unconsciousness. While he is knocked out she should take control fo the family’s finances before he gives them a one way ticket to bankruptcy. Then after he wakes up sit down with him and figure the next course of action. Mr. Awan is correct that the cost of living is quite expensive in New York City. He is obviously business savvy since he has been able to operate a newsstand which is considered to be one of the most competitive businesses in New York City and has made money in the stock market. He should simply find a business that he knows he can work successfully and move his family into a state with a lower cost of living. There he can give the life that he dreams for his family without making any stupid mistakes.
Let’s be honest here. This is a man who is 56 years old. Time is a commodity that he can’t afford to be frivolous with. He needs to put together a viable firing solution that will provide for his family and ignore the urge to simply rush in.
There is a engaged couple in my building that closed on a farmhouse for $385,000 which includes 24 acres of land. Of course this property is located in Rhode Island which means they will both need to transfer there to work. They were looking for homes in the 400 range in the New York City area but it was all junk, They made an executive decision that if they wanted to enjoy a higher standard of living on their budget it would require some drastic changes on their part. This is the type of strategy Mr. Awan needs to adapt.
People, you don’t need to live in New York City to have the life of your dreams. There are other places where your money can go further, however once you leave New York it is very difficult to return since the amount of money you pay out New York state won’t enough for a down payment in Manhattan. But that is the tradeoff to getting the life that you want.
Although I am harsh on Mr. Awan , I empathize with his situation. I have no doubt his in-laws talk behind his back and probably insult him at family gatherings. His kids probably get ragged on by their cousins for being the only kids who don't have a mortgage and having to wear hand me downs. His wife probably gets reminded by her side of the family that she really bet on the wrong horse and that the only reason why she hasn't divorced him is because it would cost money to do so. In America, one of the foundations of the class system is money, that is why alot people are able to cross over. However in some cultures if you don't have the right last name no one will talk to you. No matter how much money you have. The pressure of succeeding is probably compounded on Mr. Aman cultural background which is leading him to follow his emotions yielding him with more problems.
If he is really serious about leaving New York City then he needs to find a place where he can run a successful business and has a decent school system. If he is unable to afford private colleges and univerisities for his children then he should definitely look at state schools which are far more affordable and provide a comparable education. The SUNYs, as far as I am concerned kick ass.
The second article from New York Times
deals with the other segment dealing with Irrational Exuberance.
January 20, 2006
Second Homes Without a Second Thought
By TERI KARUSH ROGERS
SEDUCED by balmy breezes, scenic vistas and local charm, travelers have long been known to stuff their valises with impulsive purchases, many of which lose their appeal as soon as they resurface back home. Ill-fitting T-shirts, stone statuettes and gaudy textiles can be tossed pretty easily onto the scrap heap of what-was-I-thinking vacation booty. But the problem is more complex when the buyer has acquired the ultimate ill-considered souvenir: a contract to buy a vacation home or a time share.
Two and a half years ago, on her way out of Mendocino, Calif., after a short vacation, Rebecca Kopriva, a research professor and psychologist, drove by a cramped, shabby beach house. It looked as if it were about to slide into the ocean, but it was listed for around $350,000 - a great price in an area where more conventional beach properties were starting at $1 million.
Enchanted by the setting and envisioning an eventual seaside retirement, Ms. Kopriva, who is now 54, flew home to Washington, D.C., and without ever seeing the inside of the Mendocino house, made an offer on the property contingent on the results of a geographical survey.
When the survey showed that the cottage was not, in fact, destined for a swan dive into the Pacific, Ms. Kopriva closed on the house - two bedrooms, one bathroom and about 900 square feet - without revisiting it. She was confident that it was worth $200,000 more than the price and counted on rental income to help her cover costs in the years before she retires.
Her ensuing troubles began with a troubled renovation. "The fact that I lived across the country was the problem," Ms. Kopriva said. The contractor's written proposals rarely coincided with what she actually saw, she said, when she was able to fly out to look at the work. The job was scheduled to be finished in August 2003, but when she visited in March 2004, with the rental season only two months away, there was still much work to do. Ms. Kopriva decided to simply stop the work, but at first the contractor "wouldn't give back the keys," she said.Donald Trump is well know to have properties all over the country. One of the reasons why he is able to own these properties is that he has a network of people that can manage these proepries. I suspect that the contractors were aware of Ms. Kopriva’s living situation and took advantage of it. Since it was such a hassle for Ms. Kopriva to travel across the country, it allowed the contarcts to play fast and loose with the renovation.
In the end, she gave the contractor about $40,000. She estimates that the renovation, completed with the help of a new contractor found by her new property manager, ReMax Shoreline Properties, cost her $10,000 to $20,000 more than she would have expected. And because the house wasn't ready until July, she also lost several months of rental income she had counted on.What would have been the optimal strategy was for her to hire someone who was reliable and to hire someone else, preferably a family member, to keep an eye on the contractor and to put a foot up their ass everytime the contractor screwed up.
She had also underestimated the cost of upkeep and advertising. Over all, she said that while she has never regretted her purchase, owning the house has been "more expensive than I ever would have thought." And after the toil and expense, she hasn't been able to stay there much herself. "The last year, I've probably been there three or four times, usually just for a couple of days," she said. This is what happens when you are lead by emotion. You begin to obey the law of diminishing returns. Simply put, you do not get the adequate return from the amount of initial funding.
STEVE GAMES, chief executive of Prudential California Realty in Southern California, estimated that impulse purchases now make up about 40 percent of his agency's regional sales to buyers whose primary homes are elsewhere. The number of impulsive buyers - whether motivated by a pleasant vacation or already out looking and ready to buy after one visit - has shot up in recent years, he said, "because there's so much wealth looking for a place to land." He sees impulse buying most "in places like Newport Beach, Laguna Beach, La Jolla, Beverly Hills, the west side of Los Angeles, Malibu," he said, "those kind of places that are glamorous." Branding plays a key role in real estate. There is an unquenchable desire in all of us to be associated with something prestigious or bigger than us. This is particularly effective with impluse buyers. When you are hopped up on the Irrational Exubernace juice you don't care about the numbers, all you care is that you want it.
Eric A. Hathaway, who owns Montana Signature Properties, a Christie's Great Estates affiliate in Big Sky, Mont., said he had seen a change in the profile of the buyer who leaps into a home purchase in a vacation town. "It's been the wealthy up to this point, and it is now starting to become the baby boomers," he said.
The boomer second-home buyer in general, whether impulsive or not, is affluent and family-oriented. "These folks are not having to work full-time anymore - the pendulum is swinging back to the family," Mr. Hathaway said. "It's no longer a guy who goes on a two-week fishing holiday every year." When family feelings are stirred, expense can take a back seat.
These are ideal customers. Drenched in emotion these customers are unable to discern the forest form the trees.They are the wet dream of every real estate broker.
Jack Cotton, 52, a manager and broker at Sotheby's International Realty on Cape Cod, impulsively bought - and overpaid for - a 1,000-square-foot condo in Naples, Fla., earlier this year. On vacation with his wife and their 20-month-old son Max, Mr. Cotton agreed to fork over $520,000 - even though the appraisal came in $30,000 short. Then, over the next few months, he laid out $150,000 for a renovation that he had expected would cost $50,000.
Why did it all happen? During his original vacation to Naples, he had connected strongly with Max, spending whole days with him. "He knows who I am again," Mr. Cotton said. "How am I going to put a value on that? I'm going to wait and put off a year of that?" It seems that irrational exuberance can also infect a broker. I am really surprised he actually went through with this. I think he would have been better off taking that money and setting up a trustfund for his son. Then setting up a schedule so he can interact with his son on a daily basis instead of doing it once a year. I am sure his son would be a helluva lot more apprecitive of not having to pay a fortune for student loans than family memories of a vacation home they go to once a year.
He sees the allure of a vacation place as a healthy impulse. "The reason you want to purchase something is you want to extend and anchor the great feeling you have when you're in that destination," he said. "It's a way of having it never go away. It's like having a Porsche in the garage. You know you're never going to drive 130 miles an hour, but you know you can. I feel better just knowing it's there."Impulse combined with real estate purchases is never, ever healthy. Usage plays a key role in real estate. If you are not get enough use out of it what was the point in buying it? That's like marrying Jessica Simpson and never seeing her naked. However Mr. Cotton is onto something. In a recent article in the New York Post it stated that the wealthy are more focused on experienced based purchased. According Suzanne Kapner's New York Post Article "RICH BUCK LUXE "
Instead of buying another fur coat or diamond brooch, a growing number of affluent consumers are instead spending money on their homes or on experiences such as memorable vacations, analysts said. Unlike Mr. Awan, this demographic has the money to pull this off.
(Mr. Cotton further acknowledged that on a whim, without consulting his wife, he more recently bought a $30,000 mail-order tree house for his son to use at home in Osterville, Mass.)His wife should beat him with a chair and withhold sex from him until he knows his role that he is not allowed to make big ticket purchases without her approval.
Nancy Eppler-Wolff, a clinical psychologist with a private practice in Manhattan, inserted a note of caution about the power of a vacation home to bolster family relationships. "If there are underlying issues and problems and one hopes or wishes that a house is going to solve those underlying issues," she said, "they will probably be disappointed." She has a point. Money is nice and all. But having a conversation with your children and having a game of catch can go a long way.
In interviews with 18 brokers and others who market vacation-home properties throughout the country and in the Caribbean, most said that 5 to 10 percent of their sales were to impulse buyers. When the property was a time share, however, that portion soared.
Mark Waltrip, chief operating officer of Westgate Resorts, a time-share company based in Orlando, Fla., estimated that 9 of 10 shares in fractional-ownership properties are sold to vacationers who buy on impulse.
Certainly, fractional ownership, usually for $10,000 to $120,000, is cheaper and comes with fewer responsibilities than an outright second-home purchase, making it less daunting as an impulse buy. But time-share marketers also cannily aim to capture buyers in the midst of "a real-life, real-time comparison" - while crammed into a hotel room with two teenagers, perhaps, or experiencing a rare interval of family harmony.
"People don't wake up and say, 'Hey, I'm going to buy a time share,' " Mr. Waltrip said. "It's that whole emotional experience that drives the impulse."
It can also set the stage for an extended pecuniary hangover.
Andrea Laidlaw Lautenbach, 33, an orthodontist from Portland, Ore., ended an idyllic week in Cabo San Lucas in September 2001 by putting down $3,625 on a $14,500 time share in a one-bedroom apartment.
"I had finished my residency in June of 2000, and I had just started buying into the practice as a partner," she said. "I was paying off my student loans, I was single, working hard. I think part of it might have been, you're in school for so long, and you start making good money, and you're on vacation, and you're not thinking about all the financial responsibilities that you really have."
Her buyer's remorse began in the cab ride to the airport. She found she couldn't sell without losing money, so she held onto her investment, refinancing it through a low-interest credit card and paying it off in about two years. "I appreciated it once it was paid off," she said. She is very, very lucky. However if she had just focused on taking care of her student loans and living a frugal life she would have never gotten herself in this mess.
Her initial regret, however, was hardly unusual.
Allyson S. Nick, a developer for a condominium resort called Somerset on Grace Bay, which is under construction in the Turks and Caicos Islands, said that about 10 percent of her buyers back out when the trade winds give way to a slap of fiscal reality back home.
"It's like the gum at the checkout counter," she said. "It's very attractive when you're there." Buyers remorse. It seems a lot of that is going around.
Moreover, she said, the fantasy-charged atmosphere of a vacation can spark temporary delusions of grandeur.
"You know how you go to Ferragamo or Gucci and you love a handbag and you get the bill and you're too embarrassed to say 'I just can't spend $2,500 on a bag right now?' " Ms. Nick asked. "That's some of it. - they're playing a bigwig thing and they get put on the spot."
Fortunately, even as emotions can trigger the impulse buy, they can also act as a bedrock to withstand aftershocks. For Ms. Kopriva, the struggle to keep things afloat at her Mendocino house was worthwhile partly because of the feelings it can evoke about her early life in California.
"I do love the place," she said. "When my mom passed away in 2002, there was definitely a hole that was left with not having a home base in California. I didn't see it just as an investment - I saw it as a connection." If buying this property makes Ms. Kopriva's happy. She can afford to be happy.
When you look at both these articles, the people involved have a lot in common. Despite having drastically different lifestyles they all were guided by their emotions and made some really bad decisions. It doesn’t matter whether you have 20 dollars and 20 million dollars, it pays to keep a cool head and determine if the purchase makes sense and your reasons justifies the cost.
I implore to all of you buyers to make sure you understand the numbers. Whether it is a primary residence ,secondary residence or an invesment property you need to a sensitivity analysis that allows to see the best and worst case scenario of what you are purchasing. Remember, real estate is illiquid. Unlike a stock or bond it is very difficult to get sell off real estate especially when the market tanks. The average holding period of real estate is 10 years, So you better get it right the first time. You also have to be ready to make the hard decisions of whether to stay or go.
I always thought this turbulent mob mentality to buy had dssiapted but I realize it will never go away as long people are unwilling to correct the mistakes of the past. There is a deal out there for everyone. Sometimes it falls in your lap but it usally takes time and patience for it be discovered.
I know. I sound like a broken record but I see alot of this irrational exuberance and it is really frightening. There are people out there who are unable or unwilling to obey the rule of external obsolescence. They think that if they pour a ton of money into their property it will overcome those deficiencies. They feel justified in asking for insane prices because of the work they have done. But guess what? No one cares. Because it doesn't fit the buyer's tastes and it is going to cost them more money for the buyer to renovate it to their liking.
DETACH YOURSELF FROM YOUR EMOTIONS. THEY SERVE NO PURPOSE IN A REAL ESTATE TRANSACTION OTHER THAN TO LEAD YOU TO RUIN.