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BOOKS
Buying Into the Real-Estate Boom
By JAMES R. HAGERTY
The Wall Street Journal
April 19, 2006; Page D11
THE AUTOMATIC MILLIONAIRE HOMEOWNER
By David Bach
(Broadway, 254 pages, $19.95)
One way to become a millionaire, apparently, is to write books about
how to become a millionaire. There is a nice circularity to the whole
enterprise. David Bach has already achieved best-seller status with
"The Automatic Millionaire." Now we have the real-estate version, and
it is true to the clichés of its subject. On page 206, Mr. Bach
describes his home in Manhattan's Tribeca neighborhood: "Our loft is
worth at least $1 million more than I paid for it three years ago." You
can hear this kind of talk for free at any cocktail party, but just
eight pages later Mr. Bach cannot resist another mention of that $1
million paper profit on his loft.
Forgive Mr. Bach for feeling chipper, though. Aside from selling
boatloads of books, he has made a fortune in real estate -- and he
wants the rest of us to share his experience. With "The Automatic
Millionaire Homeowner" he offers a primer on buying homes and becoming
a landlord. Real estate, he says, is "the best investment you will ever
make."
Do not a renter be: A gung-ho primer on buying homes and becoming a
landlord.
I was under the impression that Americans had cottoned on to this
notion some time ago and believe in it fervently, despite the recent
cooling of the housing market and all those empty condos waiting for
buyers or tenants. But Mr. Bach believes that we need more
encouragement. Too many of us, it seems, are still cowering in our
rental units, afraid to launch ourselves onto the one true path of
automatic affluence.
During the past few years, Mr. Bach notes, "some people were literally
able to buy a home, live in it for five years, then sell it and retire.
Done. Game over." Best of all, "it's never too late to catch the real
estate wave." If you are renting, "it's time to stop," Mr. Bach scolds.
"Not that there's anything wrong with people who rent. Renters aren't
bad people." Whew. "It's just that if you are a renter yourself, I
do not want you to continue being one much longer."
You need to become not just a homeowner but, as soon as possible, a
landlord as well: "Homeowners get rich; landlords get really rich." The
trick for landlords will be to find chumps who have not read Mr. Bach's
books and still want to rent.
As part of his pep talk, Mr. Bach recycles from his earlier works,
reminding us of the Latte Factor, "a concept of mine that explains how
the small things we spend money on (like lattes) can end up costing us
a fortune." Mr. Bach is so pleased with this Latte Factor phrase that
he puts a little circled "R" after it to denote that it is a registered
trademark. Eager to avoid offense, he explains that he actually likes
Starbucks and enjoys an occasional latte.
Having mollified coffee lovers, Mr. Bach goes to even greater lengths
to avoid offending Realtors. A former real-estate agent himself, he
assures us that a "great" real-estate agent will "make your homebuying
experience both enjoyable and profitable." He says real-estate
commissions are "usually 6%" but adds that you may be able to
sweet-talk your Realtor into shaving that to 5.5% or even 5%.
I hate to sound cheap, but I fear that the usually frugal Mr. Bach is
being a little extravagant here. After all, on today's humdrum
million-dollar homes, those 5% or 6% commissions start to add up even
faster than lattes. And according to surveys by the trade publication
Real Trends, the national average for commissions is 5.1%. Asking your
agent merely to match the average doesn't strike me as playing
hardball.
If you have an attractive home that's reasonably priced and you do not
expect your agent to turn cartwheels in the driveway, you might ask him
to try 4% on for size. Curiously, Mr. Bach makes no mention of other
ways to save money, such as considering agents who offer to list homes
for a flat fee or to rebate a big chunk of the commission to the buyer.
For all his happy talk, Mr. Bach does offer some common sense:
- If you're stretched, do not try to buy a mansion right away. Start
with something you can afford.
- Try to pay down your mortgage faster than you have to.
- Don't count on striking it rich in real estate overnight.
Mr. Bach also rightly urges people to shop around for a mortgage, but
he fails to explain how easy it is to be bamboozled by loan officers
who make it as hard as possible to make a true comparison with what
competitors are offering.
Mr. Bach tosses in some words of caution here and there -- reminding
us, for example, that real-estate prices can go down and stay down for
years, as they did in Southern California in the early 1990s. Still,
for Mr. Bach the glass is usually at least three-quarters full. He says
U.S. house prices have been going up an average of 6.3% a year since
1968. He doesn't trot out the curmudgeons like Yale Prof. Robert
Shiller who warn that the future won't necessarily resemble the past
three decades or so. Nor does he mention studies showing that over
longer periods home prices have barely outpaced inflation.
One of Mr. Bach's more dubious arguments for buying real estate is that
lenders have become so "creative," doling out loans that let you delay
the pain of actually paying the money back and spare you from the
indignity of having to prove you're employed and solvent. Yet this
creative financing may lead to a surge in foreclosures. If so, lenders
will dump houses on the market, depressing prices.
He also thinks that it's a good sign for real estate that "mortgage
companies now lend to riskier borrowers" in the booming subprime
market. "Even if you have bad credit or owe a lot on your credit cards,
you can still buy a home." In fact, these days you'd have to be a
flagrant deadbeat to fail to qualify for a mortgage. These deadbeats,
presumably, will be the only people left to rent the investment
properties Mr. Bach wants us all to buy.
Mr. Hagerty is a Pittsburgh-based Journal reporter covering real
estate.
URL for this article:
http://online.wsj.com/article/SB114539931592529227.html
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WSJ/Books: Hagerty, Buying into the Real-Estate Boom
