From: "Ed Zollars, CPA" 
Newsgroups: misc.invest.financial-plan
Subject: Re: Newbie Question Re Buying Home
Date: 11 Jul 2004 19:30:01 GMT
	iQBVAwUAQPGUJ/l/I4+O31e5AQH5pQH8CsoOuaC+UrI0dsMoKLkehlcS7oy5cEC+
	/jzpDckv5ZD+5gMzEcBWCGImR7XaqmNwKTya35Z+7jEf73JTPArwtA==
	=L9F7

Amy McCall wrote:

> My
> question is does it make sense to buy the modest coop and be able to
> sleep at night or buy a more expensive coop or townhouse elsewhere
> that might appreciate more in the future even if the maintenance/taxes
> are higher? 

Generally I would agree with the advice that you should treat this 
something other than an investment.  That is, being able to sleep at 
night is worth a *lot* and there are alternative investment uses for 
the amounts you are pushing towards the house.

That said, I would just make sure I understood *why* these 
particular coop properties hadn't appreciated in the past few years, 
and be sure I could live with the underlying issues.  That is, have 
they failed to appreciate because they are problems with the 
building not being kept in good repair by the association, is there 
some major issue with the specific location, is just that studios 
aren't the type of property that buyers in the area are interested 
in or that most properties in the area aren't coops (which are 
unique beasts)?

That said, I find that for a lot of people a home is an item of 
consumption that they can convince themselves is an investment, for 
the reasons you mentioned.  And for that reason, they tend to 
believe it's "OK" to greatly overreach when buying a residence. 
And, in fact, they view the price they paid for their home to be an 
ego boost of sorts--heck, I live in a "$XXX,XXXX" home, so that 
means I'm successful .

My own take is that if you can avoid that and view the home 
dispassionately for what it is (fulfilling the requirement for 
shelter) and then use the funds you aren't spending on housing for 
other, more diversified investments, you are probably going to be 
ahead in the long run.  As well, my gut reaction right now (which 
may be wrong , so take it with a grain of salt) is that the 
current housing price boom can't continue forever--and when the 
bubble bursts, it will be much like the tech stock crash.

So, personally, I think it makes a lot more sense to not put 
yourself in a position where you could face a major cash crunch in 
the near future if prices don't continue to rise and/or interest 
rates go up.  Too many people right now forget that even if we allow 
the view that their home is an investment, right now for many people 
it's a highly *leveraged* investment--and leverage adds tot risk. 
Add to that the number of people paying "at their budget limit" with 
interest only ARMs and you have a disaster waiting to happen.

--
Ed Zollars, CPA
Phoenix, Arizona