Five Things To Learn From The 2008 Crash
Don’t do it again! Did we learn nothing? How money affects memory.
Remember when you were a kid and you wondered what would happen if you touched the stove? Yeah, you got burned. Here’s five other things you shouldn’t touch.
1. McMansions Were A Really Dumb Idea
Can we all just agree that McMansions were a really dumb idea? Having a kitchen big enough to mitigate a refugee crisis (but using it to make Hot Pockets) is just excessive. In light of the real estate crash, buying one of these monstrosities became even more of a DeLorean-style move. Trulia found that McMansion resale values are in the gutter, with price premiums dropping more than 80% in some parts of the country. So, next time your boss tells you your bonus check will be huge, just buy a new watch or something. A man went to the doctor and said “Doctor, It hurts when I bend my elbow.” The doctor thought for a second and said, “Then don’t bend your elbow.” Yeah, it’s kinda like that.
2. Dead People Shouldn’t Apply For Mortgages
In the height of the real estate madness in ’05 and ’06 it seemed like anyone could get a mortgage. In Ohio 23 dead people were even approved for loans. Banks that went under soon after the financial crash such as Countrywide, Ameriquest, Washington Mutual and Trump Mortgage (blink and you would have missed another of Trump’s short lived branding venture) were handing out mortgages to anyone with a pulse (and some without). The Dodd Frank Act has tightened lending laws but there are still some banks that may be willing to offer you more money than you should rightfully be borrowing. If this happens, do yourself a favor. Don’t borrow the money. Come on guys, let’s be grownups.
3. Home Equity Loans Are Like Jumping Into A Pool Of Quick Sand.
In the height of the lending madness, people were taking out Home Equity Lines Of Credit (HELOC’s) and going on vacation and buying new cars. A HELOC should only be used for emergency repairs on your primary residence that can only add value to the home and they should be something that you can easily and quickly pay back. Otherwise you’ll find yourself sinking further and further in debt, unable to pay off your primarily or secondary mortgage. Stop being envious of your friend’s Facebook recorded lifestyle. They’re probably broke too.
4. Investment Properties Can Get You In Big Trouble
Remember Carlton Sheets, the real estate guru with the late night infomercials that advised investors to “harvest the equity from their rental properties to buy more.” Millions of people did what he said and found themselves on a slippery slope. Unless you buy right, an investment property can be a terrible mistake. During the crash people were over leveraging themselves and buying multiple investment properties and finding themselves in big trouble when tenants wouldn’t pay and the market corrected itself. Are you really in a position to be a slumlord?
5. Flipping Houses Can Have Serious Pitfalls
It’s easy to be seduced by the flipping house TV shows. What those shows generally don’t show you is where the money is coming from to flip properties and how it’s being paid back. These days you can go online and find a ton of people willing to lend you money to flip a house but can you pay them back? In 2008 multiple flippers got caught with their pants down. And it was not a pretty sight. If your market has been enjoying a double digit percentage price increase, your market may have stopped rising by the time you want to sell your flip.
It’s easy to get caught up in the exuberance of the moment, but let’s use some of that wisdom we gained from past disasters. Happy Adulting!
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