Real Estate

How to Build a Cheap Home – An Economist’s Recommendation

I am a real estate agent and an Economist. I also am a do it yourself/quasi homesteader. That being said since I have been a real estate agent for years and a cheapskate all my life, I have observed how others construct a home cost efficiently. I have lived in different parts of the world I have observed how people build their homes.

You can have it all for less than $20,000 in the United States of America. You can live in a tiny home for less, but I am talking about a nice home, that you and your family can live in and feel comfortable.

Build an inexpensive home and save money

A nice small home

Tax deed, not auction

Buy land on tax deed. Buying land on tax deed is not the same as tax auction, buying on auction or tax liens. Buying on tax deeds means buying land after the county has tried to auction it and they can not sell it. You can find these on any county website.

I personally know farmers in my area who have bought land for $100 dollars an acre. They put a few dairy cows on their land and they make more than you do at your office job working 48 to 50 weeks out of the year. I am not saying that to be rude, I am not a rude person, just to make you aware and I wish people made me aware long ago. I had to find it out the hard way.

Buying land that is in growing or popular area is not possible. Expectations drive up prices. People watch too much HGTV and want it all for a bargain. For example, in my popular beach town, real estate prospects want a few acres on the beach to ride horses. Maybe in the 1820s but not today. Set your expectations on a homestead that is fairy-tale like, not hype.

Large homes waste capital, resources and need constant cleaning. This is an old fashion idea, to have a ostentatious house. For what? To impress people, to flex?

Read my post here – buying a big home is a waste. If you have a big home I would sell it and consider all the alternative economic and life opportunities there are with the free capital generated from the sale.

You need to buy land in a remote place nobody wants to go or be. Then you can buy cheap land. If you write to me I can recommend some places. I can recommend states and areas and no flood zone regions.

These will be cookie cutter homes and the developer will have a nice profit and you will pay an HOA and have no freedom.
Being poor can make you rich if you use your brain

Zone A not R

I recommend an agriculture area. You will have the freedom to do what you want. You do not want an agriculture area next to a large farm as the pesticides and herbicides are airborne and will affect your health. You just want some backwater place.

These homes have no space and you will pay a lot for them. I would not buy a home here. Yes they are spacious, but there is no freedom and you pay a mortgage all your working life. You will be thinking about your neighbors. I really do not want to do that.

County Taxes and regulations

Most rural areas have less restrictive building codes, but you want to make sure. You want to check with the country. For example, my county requires an $11,400 dollar impact fee to put a shove in the dirt.

  • You want a $50 dollar to permit not a $10k building permit.

If I were ever homeless

My goodness I would just beg for a few thousand on the street and buy a piece of land and start from there. Colonists homesteaded for hundreds of years and they built a great country. I see so many homeless people living their cars. I understand for multiple reasons, but I would just buy a saw and start to build.

What about location and culture

The whole world has a culture. For example, in Alabama, once the state where sitcoms joked about, as My Cousin Vinny, it now has high tech regions, a branch of the US Chess Federation, and the Mises institute centered there.

My point is the world has grown up and people are educated and there is something to do everywhere. I teach college and it almost seems the smarter students come from the countryside, and the city slickers just know about cell phones.

You also have the Internet and Amazon to buy anything anytime you want. So do not worry about culture or consumer deprivation. Your mission is to have a place to live that you do not work your life away.

Think of the movie Chitty Chitty Bang Bang, you want a good life not a showy life.

Location is the most important

I would say the Southern US is easier because the winters are less serve and you do not need heating. You also do not have Lyme disease. You need to think like a homesteader even if you are not. You can grow more seasons out of the year, so your garden can provide most of your food.

A garden saves money

If you can find a nice plot of land say, five acres you can call your own for a few thousand at most, perhaps a few hundred, you will be all set. Here is my post on gardening to save money.

  • You can get a logging company to clear it for free and they sell the lumber.

Ironically from tree companies, you can request free wooEconomistd chip and this will mulch what will be your future garden as the decomposition of wood chip turns into rich soil no matter what the initial soil status is.

Simple deer fence from local bamboo and will grow grapes on it, it will look nice. To buy 500 feet of fence would cost thousands of dollars. This was free.

New technology for your home construction

You do not have to worry about the grid, because new technologies circumvent this.

  • For building materials consider aircrete.

For building material, I would use aircrete as the price is about $8 a square foot to construct with. This could be your base and obviously, you add more around it later. But if you use aircrete for your construction, and you build this yourself, your cost is a fraction.

I was initially thinking hempcrete but aircrete is cheaper. It is concrete with a compressor and water and soap. If you mix seashells into the concrete it will make the strucure stronger. This is the basis of coquina. Coquina in my town of Saint Augustine is standing strong after 500 years.

The ancient Roman’s used coquina. If you can mix shells and concrete and the right combination of mortar air use a compressor for air. You will have light strong bricks that will last. Research coquina and aircrete.

Six homes and no job

You can look into other types of construction material. Cordwood homes are another alternative, but cost more. This guy as six homes paid in cash and never really had a job, I think. When making economic decisions think about all costs including opportunity cost of building a home. I do not know any top executives who worked their lives away who own six homes in cash.


Use Pex. You can start with a manifold and do a home run on each connection. Pex will last and the total cost will be less than $400 dollars depending on the size of your home. Pex you can do yourself. You can run it through the roof and drop it down the wall. If you ever need to replace it, all is visible and you will not be digging through concrete. You also have total control over every connection to shut them off if you need to. I would add a water filter at the end for your drinking water.

If possible I would dig my own well. You can rent a machine or do it with a shovel depending on how deep your water table is. I started with a shovel here with my garden well. If you want to go deeper there are techniques with compressed air.W

Water heater

  • Day 1 Hot water is overrated, you can use a cast iron stove/heater.
  • Day 2 Tankless or solar.


Day 1 You can use an outhouse. You can roll your eyes but be mature. This was used for most of human history.

Day 2 Think Roman arches. You can bury the plastic tank and then have a drainage field with arches like an infiltrator system. You can dig this with a shovel.


The price of solar has come down so much. Consider this. However, there are many new alternative ways to get energy. For the actual wiring, that is one place you might need help as I have only done a little electrical work.

  • Build that cheap house

You get the idea. The point is you do not have to spend, a half million for a house. You can build most yourself. People in Poland where my family is from almost all build their own house and have it paid off before they are 30 years old. Can you image that?

What is the point of working so much if all you are doing is paying off a life debt called a mortgage?

Mark Biernat

What will you do with your savings?

With all the money you save, just bank it. Create a stash of money and invest in your own businesses. My friends that work in NYC in professional environments have a sad life. They work all day and live for a few weeks vacation. Better is to be human. Live life and let your creative talents shine doing things that are out of the box.

Also, there is great satisfaction in knowing everything is new and works and you are not fixing other people’s problems.

So if you are thinking of buying a cheap home, maybe better is to build one. You can live in a temporary structure while you build it. To an American, it might sound alternative at best or hippie-ish. But much in much of the world, this is normal.

You can build a home for less than $1,500. But for nuder $25,000 you can live in the lap of luxary.

Another Economic Crisis

There will be another server economic crisis. I do not know when. However, the debt bubble can not last and an over extension of credit is causing malinvestment in the capital structure. Therefore, start thinking in terms of your economic future now.

If there is another financial crisis then you will be well positioned to purchase homes and property cheaper or stocks or just ride it out.

Remember, the grasshopper and the ant in Aesop fables. You want to be sober and industrious for yourself and your family. Even if others around you are do not see the metaphorical winter coming.

You can have a magical life with your family and more than you ever dreamed, as long as you learn to make wise economic choices. Investment should be based on real savings not an extension of credit. Remember the I=S equation in economics, make this real and if it is, you will be fine in any economic crisis.

Even if you do not build your own house, start thinking in terms of frugality and prudence. Think in terms of economic virtues. Ultimately living a good economic life is synonymous with understanding economic virtues.

I can recommend you read about the ideas behind the Austrian economic school of thought or simply how Americans when they built this country did it with little more than rugged individualism.

Inexpensive homes can be nice like Thomas Kinkade.

Why not leverage the best of both worlds and have the convenience of obtaining tools and capital goods to construct the home within the US and the concept of how other people do it with alternative methods in the rest of the world or other times in history in the USA. This is how you build a cheap home. Write me if you have questions as I have experience in real estate and economics.

Real Estate

Buying beach front property – Mistake

Buying property on the coast

I live on a semi-tropical island off the coast of Florida in St. Augustine. The island is called Anastasia island. It is tucked safely away in the Florida’s Northeast corner. It is an area that does not get hurricanes, nor major tropical storms. St. Augustine, the oldest city in North America has received one major storm in its history. In contrast NYC has had four.

Ocean front where I live

Therefore, you would think it would be a peaceful little island near this 450 year old town, it would be a safe bet to buy real estate on the ocean. Except for one thing. One little thing makes almost all beach real estate a deal breaker.  It is windy. Not the Wizard of Oz type wind, but just gusty.

My argument is it is not a deal breaker because of fear of home destruction or anything like that, rather it is more about lifestyle. Day-to-day lifestyle is more important than any abstract real estate valuation mind you. In theory they are should somehow correlate, but they do not. The unspoken nuisances no one talks about is wind. It makes life on the beach a bitch.

I love walking along the beach in the morning

My whole family lives on the coast

My brother and folks live in Jupiter in south Florida. They literally have beach front properties.  My family grew up not on the coast but near. They make the same comment, it is windy.

If you are considering beach front property I highly recommend you think again. The reason is the wind gets so strong that you can not enjoy your back yard.  Sure the ocean view is nice, however, that gets old fast. It would be better to be off the beach and have some protection of trees.  Then you could have lawn chairs and sit in the back. One a daily basis you want to relax in your back yard and read a book, not close yourself in some protected contract to shield from the wind.

Mr. Nautical does not recommend water front real estate

My brother who is Mr. Nautical and had a boat built from scratch based on historical designs sails up and down the eat coast and has a house on Cape cod and south Florida has said the same things. Do not buy beach front real estate. It is too windy to enjoy normal everyday life. He is looking to sell his mistake and move a bit inland. Even a 1/4 mile inland would be enough.

Better is to buy somewhere back from the water, and ride your bike to the beach.

Beach front properties and value

I have always thought beach front property is over priced disproportional for what it is worth.  Now more than ever I see  scores of empty units and homes in Florida now for good reason. They were over-valued and still are.

Beach front homes sell for over a million dollars where I live. Yet in the county not far away,  homes that have some land and reasonable size sell for 150,000 dollars. These are nice homes. People have gardens and play areas for their kids and drive to the beach. You really do not need to pay 1.5 million for a house because it is on the beach.

Some lady I know is selling her home for 1/2 million. I would personally pay 50,000 for it. It has been beaten down by the wind. I simply would not like to live there. Price is subjective. Do not simply take 15% of asking price, but ask yourself, what would you personally pay for this plot of land?

Beaches disappear

My brothers beach has disappeared. I think the Army corps of engineers will eventually rebuild it, or though some controversal funding. But just because you buy some notice water from property does not mean anything. In a few years the water might wash the beach away or be right up on your home or leave you with jagged rocks to trip over. Real estate agents love to sell property on the water but do not be sold.

Now my family has lake front property in New England. This is much more reasonable because it is not the ocean.

Just because I love the beach does not mean I have to live right on it

Traffic on the ocean and other considerations

The Entire coastline is often a tourist mecca. noisy bikers and drivers not looking where they are going driving up and down. Now I have no regrets about living on an Island but I am glad I am not right up on the ocean but a little further back were we can enjoy a little peace. We were living in Europe at the time and I did extensive research on the web for about six months for the optimal place to live. The best place is near but not on the ocean.

P&C insurance on beach front property

I worked for many years one of the larger P&C insurance companies in Boston. They charge a fortune for the VIP life of ocean front property. You have to factor in inflated insurance costs because of property and casualty home insurance. You have to factor in accelerated depreciation from the air eroding your home and things. Our bikes are new yet covered with rust because of the air. Beach properties are nothing but and expense and in this market a sinking asset.

Even if I was made out of money, which I am not I would not buy it unless I was trying to impress. I am not trying to impress. Life should be about lifestyle on a day-to-day basis and it would be a hard argument to tell me the windy stormy beach is worth the price.

When was beach front property worth it?

Here is an example. In Stonington, CT after WWII many Portuguese fishermen bought homes at cheap prices. In fact, the Portuguese in WASP blue blood New England were a bit of an odd lot. They were not accepted and people did not want to live around them. I grew up in New England and I remember this.

Then something happened. These poor fishermen got rich as the gold coast of NYC expand further out into CT and somewhere between Boston and NYC rich Yankees wanted a home by the sea. Homes bought for under 10,000 were selling for several million dollars. The opportunity cost of the land became too high to use as a fishing community. This was a specific time in this nations development. It was also a premium for a certain generation, but not as much for todays America. This type of opportunity does not exist today. If anything we are in a long-term reverse trend. Again I personally would recommend not buying beach front property, there are better values out there. There are better ideas for appreciation.

Thank you for reading such a long post on buying ocean front property, if you have any questions or comments let me know.

Real Estate

Are eBay homes a good value?

Have you ever browsed the listings of residential properties on eBay real estate? I have and recommend you do, if for nothing more than for curiosity factor.

What strikes me is the inordinate number of cheap homes listed on this auction site. My first reaction when I see a home for ten thousand dollars is: ‘ what the hay, why not?’. Even if it is a lemon, 10k is not a lot of money to lose. That is, if you compare the lose of people who have bought half million dollar homes, that now have a market price of 250k since the 2008 real estate bust.

Building in anytown, USA which has potential to become a cashflow machine if purchased at the right price.

It is true, we are all looking for the edge, or want to try something radical that will give us the edge, when in comes to money and investing. It is very tempting to bid on a house listed on eBay when you see such unbelievable prices, this is why I wrote this post.

Now, I personally am not going to buy a house on eBay Real Estate, or at least I have not yet. However, If I owned an investment property I want to flip I might sell it there mind you. That because eBay is nothing more than a marketing tool. The purpose of this post is to answer the question are eBay homes a good value?

Expectations with eBay homes

Caveat emptor is common sense if you are searching homes on eBay. However, everyone knows that I should think.  So the purpose is to look at this from another angle, that is, can you buy an eBay home and get a deal if caution is exercised?  Are there any good values or is it just junkmen peddling scraps from the junk heaps of excess and unwanted home inventories?

Other real estate websites compared to ebay

The eternal optimist in my would like to say there are good values.  However, I have been searching houses for months and comparing them to what is listed on the market on,, and Yahoo Real Estate. The reality is the raw quantity of inventory is greater on real estate websites than on eBay. Further, these website provide more detailed information regarding historic value, than on eBay. The best  is for historic sale prices and Yahoo has the easiest to navigate. You can cross check the address you find on eBay with the historic values based on actual sales.

I am not an expert but these are my personal observations. Again this post is more an exercise in curiosity.

I would give the same advice about HUD homes. That is homes listed on the HUD website you will find on these other real estate websites as well, however, alongside other homes. Why limit yourself? That is what I say.  I prefer to look at a website that does a better job in aggregating and comparing apples to apples.

  • Therefore, if you are searching for a home to live in, instead of an investment I recommend real estate websites not eBay. This is because you will have more choice. It is just  the sheer numbers.
  • If you are in the market for a home to live in, I would say at about 70,000 dollars you can get a nice home in many places in the USA. However, you might find a few that need cleaning for under 50,000 dollars. For under 30,000 they need a new roof or something. Of course if you have 1/4 million to spend or take out a mortgage, you are in a different league. I am just talking about the low end homes, as these are the ones that have really dropped in price from the crisis.
  • The States where the best values are obvious, like Florida to North Carolina. Michigan and states way up there are too cold and demographics are not favorable in the long-term.

However, one advantage over say a Zillow is you can browse European and international property with ease in the UK and Spain, for example if you go to –  – for example. It is interesting to compare with the US property market. And eBay is a trusted website as well as paypal the main payment system.

eBay homes as an investment to trade

The only type of home I would buy on eBay is a speculative investment. That means something I might buy for a ridiculously low price and hope the market will turn around or I fix it up a bit with local guys and sell it. But this is a little like a penny stock.

Further, most eye catching listings have a ‘hidden minimum bid’, in addition to a ‘buy now’ feature. So you can see a nice home going for 10,000 dollars with 1 day left on the auction, but that does not mean it has passed the sellers secrete minimum bid.

So why sell on eBay?

If I can use a metaphor. I own website ‘domain properties’. That is a number of websites that produce income. I have thought of selling these on the most popular website that creates a market place for these. But someone told me, try eBay as the market is not as efficient and sometimes you get better value as a seller as there is an impulse factor. Ebay is efficiently priced for selling consumer electronics, but not as efficient for odd items that people are not buying and selling there, this includes homes.

What about auctions not just listings?

Online auctions are where the real value can be. Because let’s be honest, real estate is not liquid and requires a lot of capital so there are fewer players and the market has more inefficiencies than the stock market. This creates a barrier to entry. When there is barrier to entry markets are not as competitive.

That is the bottom-line, eBay has auctions and some houses that do go for less than you would expect because most people are not so adventurous to bid on an online home. You can make money this way. It gives the average guy a change to participate in an auction. I have been following these homes and have seen it. Sometimes the seller in my opinion wins and sometimes the buyer.  But the question is what will you do with this house after you win?

I have also noticed that people on eBay real estate are more into buying several homes, having a portfolio and then trying to flip them. I observed this in a few homes I have tracked homes for a while passively. I have been tempted to give it a try, that is flip a unit or two because they are so cheap, even without physical inspection. I have not as I think it would be a little reckless. I always pick up the phone and talk to the sellers. Even just to probe them for information.

Further, I have observed what I think are people, buying homes on eBay fair and square and selling them again on eBay to the next guy at double the price. I checked this by cross referencing historic sale prices. There is not thing wrong with this, mind you, it is just what I have observed.

A note on homes that could be rented

The rental market is hot in some parts of the USA as there are many people displaced from their homes because of bank foreclosures or did a short sale. However, homes advertised as great rental properties on eBay I do not believe it. Like they say in Missouri ‘Show me”.

That is people say you can make up the investment price in a year. If that were true, it why would the owner be selling it. I think at least three times earnings is the rule for selling productive assets with less tangible value. So if you can collect 10,000 dollars a year in rent from a unit, the bare minimum the price should be is 30,000 dollars.

  • But this is Real Estate and in the rental market it should average 15 times annual earnings. Yes, 15 times is the real ratio, and you might see some markets go to 20 and others to 10 but not 3 or 1 times earnings. This is because the property is an asset in itself, like gold, it is a real asset.
  • New York the ratio is 39, in Vegas 6, Phoenix 7 and Miami 8. There are two types of markets. In Europe we call it the English and German market. The English model is generational wealth and home prices are at unrealistic prices and can afford to stay there, like NYC or Boston. In Nevada they are the German model, which means the average guy can buy a home. The values are in the lower end of the market as these are the homes that got hit the worst. Also the super high-end, but because of capital constraints for most people this is not realistic.
  • Therefore, I am skeptical about sellers who make these claims.

What about the 10,000 dollar and under homes?

In 2010 the foreclosure rate in the USA was 2.23%. basically the worst year ever.  Homes are on average at the 2002 level. That is a national average. Some markets are much worst and abandon homes are everywhere.

For example, in Flint, Michigan there are some abandon homes that could be repaired. But I personal would not want to live there unless I had to. I know at one time it was a great place to live but like Detroit, this are will not recover for a generation if ever. They are not going to open new car factories and people are not moving from South to North in the USA. You would be living in a future Ghost town like in the old west.

I have seen an investment company or two purchase homes built-in Michigan and then sell them piece by piece. To do this the barrier to entry is obviously capital.

I have also seen an Investment company buy homes one by one and then bundle them in a package deal. On such deal was 58 homes in Flint, Michigan for 98,000 dollars, total not each.  The company made a large profit as they picked many of these abandon homes up for 100 dollars.

Look at five main things with caution

  1. Inspect – Get a building inspector or engieer to list all the things wrong with it or potential replacement time for items, old homes are always work. I also cruise around the town looking at Google street views. I would also call neighboors if I was serious about buying. I know this is a bother to people, but his is business and I want to know what people next door might say about the ara. Also is a great source of information.
  2. Deed/Title search – will you be the only owner? This is very important.
  3. Taxes owned and other payments – most of the time this is not a big sum of money, but check it anyway.
  4. Environmental – Lead paint, radon, near power-lines, near and airport (higher rates medical problems). I would check these.
  5. Area – Is it in a shady or seedy area and who are your neighbors? I personally do not care about racial make up but I check out crime statistics and make sure there are no freaks in the area. Do people maintain their yard.

Where the values are?

Better  than Michigan is Pennsylvania and better yet is Florida in terms of value for home on eBay. I guess the question I keep coming back to is, is this a homestead you will live in, flip or renovate and sell or rental property?

What determines a good location?

Look at these stats to compare Zillow’s historic prices if there are real values.

  1. Unemployment rate and growth rate
  2. Price to rent ratio
  3. Forclosure rate

Auction Vs. classified?

I think the auction has the better prices. Classified is just that, that is, an ad or marketing tool (Look I have seen desperate people selling homes on YouTube. It gives it a personal touch, but this is not the place either).

An auction on the other hand does not mean you own the property, rather it means you won the bid, but either party can pull out. Unlike other eBay Auctions it is not a binding contraction the same way. It is a strong commitment. But because of the rating system there is a strong incentive to be honest. I always check the seller to see what else he is selling.

Conclusion on eBay homes

  • This website is better for the seller, as eBay is a marketing tool
  • Sometimes auctions do have values, but you need to put it in the perspective of homes in the area and dollar per square feet etc.
  • If you have extra capital that you are not worried about losing, fliping homes can work. Track them yourself historical sales yourself. I prefer to trade in liquid assets like stocks, than real assets like home.

Let me know about the crazy idea of buying a home on the worlds largest auction website.




Real Estate

Real Estate Investing 101

How to Invest in Real Estate

The ideal real estate investment is investing in a home that is undervalued. The most undervalued home is a foreclosed home. I am not the Real Estate pro in this article, but rather my old landlord was. It was lessons I learned from observing him amass a fortune in real estate. He runs no seminars or anything like that; he is just a real estate mogul. The rest is my research. The most valuable part is my online resource guide at the end. I have spent countless hours on these sites, so if you have any questions, ask. The forum at the end is an excellent resource that is almost as good as knocking on your neighbor’s door to ask about the area.

The biggest risk in home investing is buying too much home. A larger house than you need and can afford.

Investing in foreclosed homes and distressed homes

My old landlord Chris Bunker was one of the most grounded businessmen I knew, in addition to being a good man. Over his lifetime, he bought old homes in Beacon Hill, Boston, and renovated them. He did this because he had an interest in history as well as some hands-on experience with renovation and building management.

At last count, he had over 100 units in an area where homes go for 350,000 dollars. You do the math in terms of his portfolio’s net worth. He was not a slick-looking investor type. He looked more like the unsuspecting millionaire next door.

He said his formula for success was simple. He bought run-down homes in down markets. He fixed them and never sold them. He just collected rent. His whole family was involved. He also restored them to their old historic glory. I lived in one and really enjoyed him telling me the history of the building. It was on 65 Hancock street and once owned by John Hancock. The beams were actually from dismantled Wooden British ships. He bought it after a fire destroyed it, and the previous owners left it to abandon. He took pride in his renovation and was not looking to flip real estate.

  • He was a trend investor with a yield and value focus.

Is it ethical to buy distressed homes in a down market?

Are you and everyone else out there selfless philanthropists?

Chris is a man of compassion and not someone who flipped properties. He bought old, abandoned and run-down units and with toil made them livable for people at a fair price. I can not see anything unethical about that.

Money in perspective – Money and material goods in this life come and go. It is how you treat people with fairness; that is what counts. If someone can not pay the bills and loses their homes, it is often for reasons like health or job loss; buyers often feel real compassion for these people. However, you personally are not taking their home; instead, the bank does. You simply want a chance to own a home, too, like everyone else. Almost everyone who loses a home in a couple of years bounces back. They learn the risks of real estate.

Why do people lose their homes? In addition to the true hardship reasons mentioned above, it is more often a case of overextension. People often lose their homes because they overextend. It is human nature to extend often, look at Ancient Rome or Spain. Why did Germany attack Russia or Japan, the USA? Because humans are wired to overextend, they buy too much home. Know the risks of buying a home.

Therefore, if you are buying where someone else has failed, there is nothing wrong with this. You just want the American dream of homeownership and should not feel guilty about buying something that someone else has abandoned. Especially if you move your family in and take care of it like Chris did, and make it nice for everyone to enjoy.

It was some of the best years of my life living in one of his flats, and I am grateful he had the initiative to buy homes that were distressed.

Homeowners with a sense of entitlement

Also, let’s check in with reality. Just because you live in a home does not mean you own it. The bank owns it, unless it is 100% paid off. They are lending you the right to live there in one sense. Do not feel entitled. I do not.

I live in Poland, and many families I know personally live in 300 square feet of homes. So homeownership is very relative to one’s expectations. In Eastern Europe where I live a lot if not more people than not, pay homes with cash. They take small homes and over time, add-on to them. What is a small house? A family might build a 250 square foot house. I kid you not. I see a lot of these in the countryside. Then they add to it. In the USA, credit is king. But just because credit is available, you only have equity in a small part of this house — most of the residence the bank owns.

My message is if you want to feel safe at night, do not buy too much house — plan for the worst-case scenario when it comes to financial loss to mitigate the risk.

Some things Chris did right with real estate investing:

  • He bought historic real estate, which over the long terms, rarely loses value as it is history. There is always a premium associated with this property and Chris said a lot of rules that have to be followed to keep it historical, but it is worth it.
  • He bought homes that were distressed, not homes that were ready to move in. Americans put a too large premium on ready-made things in packages. And they pay the price. Most things good do not come in ready-made packages. Ready to move-in homes is premium homes, homes where market value is over book value.
  • He did not flip real estate but rather generated conservative rental income and was patient with each purchase. He was not looking to make a quick buck in real estate but rather was content on building a portfolio of dividend-yielding investments. Handpicked investments that appreciate but bought for income. Many people build stock portfolios this way. Dividend-yielding investments are safe and steady compared to assets bought for appreciation, which depends on supply and demand and closer to zero-sum investing.
  • He did this for fun more than for profit. Perhaps this is the most important point. Warren Buffet himself says the only thing different from most guys and himself is not their lifestyle, as he lives in a conservative, frugal way. But rather, he gets up in the morning and invests because that is his passion.

Where to buy Real Estate?

I am not an expert at buying distressed properties. I would say I know what I am talking about when it comes to stocks, but I am not an expert at real estate investing. But many experts are now bankrupt, so what does it mean to be an expert? It means understanding the economics of investing. From my 10,000 feet level flying over in the sky looking down, listening to others who are, here are some takeaways about where.

  • Location – Consider demographics – What is happening, where are people moving. Are they moving to Detroit or upstate New York, I think not. These are like the penny stocks of Real Estate. If the property is that cheap in these cities, it is for long-term supply and demand reasons not oversold in the short-term. It is like a trend analysis. Good stocks do better in up markets than down. In a down market, a good stock will appreciate let’s stay 5% while in an up 50%. The same is with real estate. Pick markets that have long-term positive demographics. People will always move to sunny California, Florida, or Hawaii. These are not historic properties but something similar; they have an intrinsic appeal.
  • Location – Do not buy in a slum or an out of the way forest, unless you want to live there. These areas might take 100 years to appreciate. I remember my father use to comment as we drove through the Poconos, back from my Grandmother’s house in Philadelphia, that the land out here will be worth something in 100 years. It is true. That was 40 years ago, and the forests are still empty and not the most desirable places to by land. Again the trend is your friend. Choose places where there is potential for life and appreciation, something that is very cyclical and down for cyclical reasons, not demographic. Look at someplace that is in stage 1 or 2 in trend analysis.
  • Location – Chris targeted the higher end. I would target the lower end because of capital constraints. But I would do it in nice areas. Like in the game Monopoly, I would rather own Park place ( the cheap on in good area) than Baltic Avenue (the expensive one in a cheap area), unless you are living there for your primary residence. For a living, it is a different story than investing. I would live in a reasonable area in terms of safety and buy a modest home with as little mortgage as possible.

The main take away is, find a cyclically down area and fix them and build a portfolio rather than flip them.

Americans like turn-key package deals

Real Estate agents will tell you, everything too cheap is junk. But again, it goes under the idea that Americans like the package deal.

See, I think the secret to making money in Real Estate is this. In a down market, if you want to make money in real estate, just for profit, is to target homes on the lower end of the market (middle class home, not thing fancy, the Wal-Mart shoppers homes, which most Americans, including myself, are) that need to be fixed up with about 10,000 dollars of repairs. Why? Americans place a large premium on comfort. Ten thousand can make a run-down home look good.

There is a huge inventory of homes coming on the market. This will happen this year. Do not believe the market is stable; there is still a lot of downside risk.

Good homes have come down, but there in my evaluation the low-end market of homes that are not falling apart but look on the outside as they are and are really undervalued. There are scores of homes in the USA that have potential.

Again the reason is we Americans have a significant premium on comfort. We pay too much for this economic concept of ready-made. Why do people use Windows instead of Linux? Windows is a push button, Linux is free but requires a little bit of work. That is, they love to buy food in packages or houses that you can just move into. Also, fear and horror stories are big with real estate as they are often leveraged investments. But if you pay cash and buy at a value, your risk is less. If you do your homework, you will have less risk than the average guy that buys a ready to move into the home. Think about all these guys who are underwater now.

So look for fixer-uppers. If you clean one room and slowly work on the house, you can get great value. All you need is the water to work basically, and you can live in rustic conditions with a little imagination.

Trust, but verify in Real Estate investing

Things to be wary of when investing in foreclosed homes or short sales

  • The title is the most important part. Make sure you are the only owner on the title, make sure there are not junior owners, or you are buying into a junior partnership holding. Make sure there are no other liens on the title, including tax. Ask the title company you are using for a 24-month history on everything about the house, minimum.
  • Find out the whole history of ownership behind the homes, so you know the real story.
  • Talk to the neighbors and find out the real story. Did something go wrong and are haunting (figuratively) this old house that friendly real estate agents are not telling you. Be a social butterfly. I am fairly anti-social, but to find out the real deal about a location or property, you need to be a detective or at least look behind the numbers. Real Estate agents are basically your enemy in many cases.
  • Look with your own eyes – Be a nitpicker when it comes to looking at the house and ask a lot of stupid questions.
  • Get a home inspector – This is a given.
  • I am not interested in forsaken houses – This is pure speculation on my part, but I have observed friends that have bought homes that were distressed and bad energy from the last seller (they were bad people), and the new owners also live subsequently had problems. Maybe this is a coincidence, but maybe not. For example, I knew a family that bought a house that was lived in by a powerful guy that was captured by the law for doing bad things (importing not legal things from southern countries, use your imagination). The legal authorities, too the house to auction. The couple who bought it started on the road to divorce almost the moment they moved in and their son started to take those substances in a big way, while before he would never have considered it. They were living in an upper-middle-class area.
  • All toxic red flags devalue property even if you do not care. – Lead paint is important to know about as well as Radon, Chinese dry wall if the former site was an industrial site (this causes health problems even 100 years later like the tannery district in Boston). They may not be important to you, but to me and someone else they are — nothing near power lines or anything else unusual. I remember a Real Estate agent tried to sell me a home that was near a power line and said there is no evidence this causes health problems. I said no, thank you and got another agent. Please do not buy it near an airport. In East Boston, the Real Estate agent tried to sell me something near Logan airport. She said people have special soundproof windows. But you know cancer rates are higher in this area too so it is not worth it and those property values never fly high in price.
  • Go to the unit during rush hour – Real estate agents take you to the place at 2 p.m. In the afternoon, when it is the most peaceful. Go during rush hour, when cars and noise are buzzing, see if you would like it then.
  • Price history is all found online. Look at the price and know your maximum you would pay before you negotiate or talk to anyone. There is too much inventory now even to consider the sellers price.
  • Community and maintenance fees – Many homes such as Florida homes make you pay a community fee. Well, if the community is not robust in two years or so, your fees can be astronomical. I would not get involved in anything like a community unless I knew a lot about it. In an aging population with no new blood, the fees can get too high to make it worth it.
  • The trend is your friend. Markets move in patterns, not just stock markets but real estate markets. Use 12-month moving averages to observe where turning points and where prices are in what stage of the cycle. This is better than listening to speculation in the Real Estate market on the news or from a realtor. I do not understand why people do not consider moving average turning points with real estate prices?
  • Trailer homes and manufactured homes – Nothing wrong with these if you have no money, but the significant danger here is you have to pay high monthly fees for the land it sits on.
  • Property dossier needs to be put together.
  • Do not go for hooky real estate seminar ideas – I remember this neighbor of mine want me to lend her money on a promissory note, and she would buy real estate to rent to others. Do not get that complicated. Also, housing for government assistance families gets tricky, skip it. Please keep it simple. Buy undervalued properties mostly with cash if you can and fix them.
  • Do not believe late-night TV ads that you can get rich fast with foreclosed homes – It takes patience, do the research and hire not just any attorney or specialist but someone who has done these type of transactions before.
  • Pre foreclosed, during foreclosure and post-foreclosure homes. I think most are best to buy. Maybe you will not get the ultimate value as things get more competitive, but buying pre-foreclosed homes can have complications I do not understand.
  • Price should never be what the real estate agent wants – Not even close, it should be based on supply and demand. Economics is about the subjective theory of value, not absolute; it is essential to understand this.
  • eBay homes– It is a great place to start and ask questions to sellers to get you familiar with the activation process. Auctions are no different from eBay items. Get used to buying and selling on eBay, and it will get you familiar with the home auction market also. It is the same with a few extra checks.
  • HUD homes are in some ways like eBay homes. Try to watch HUD homes in your area and make your determination on if you feel they are valued correctly. Often they are only slightly discounted from market value, but there are again some deals.
  • If you plan to sell the house – Your profit should be at least 20% than you bought it for. This is a rule of thumb on short sales and foreclosed properties.

Resources online to look at for getting a good deal on real estate

When it comes to buying real estate, you can 99% of your research online. The extra 1% is the really important research like the walkthrough and title search. However, there are resources where you can start looking:

Online tools for finding a home on the Internet


  • Your credit score for mortgages –,, – Credit reports to check your credit. Or for the combination, you can get this free once a year.
  • – against predatory lending

Home Inspection

  • – home inspectors

For sale by owners


Government-owned homes for sale

  • HUD homes_for_sale
  • Freddie Mac real estate

Best resources for finding homes generally

  • – Largest forum from real people what an area is like. Well monitored and moderated.
  • – Browse all day and send messages about homes you are interested in.
  • Use street view whenever possible and webcams on the area. Note what is going on and be a real estate sleuth.

Last words of advice for beginners, do not be desperate. Use your intuition about if the other people are desperate. I noticed something about people who wait and are patient about price; they usually get it. If you can not walk away from a house, you already paid a premium.

Let me know if you have any trusted resources to add or your 2 cents based on experience or knowledge about real estate investing.

Real Estate

Moving to the US

Emigrating to the United States of America

I am an American that has lived for about seven years in Europe. This year I might move to the USA. It is a big change for my family and I. But moving to the States is based on a number of factors.

The decision to move back is not easy. Here I have friends and extended family. We have a nice life, free health care and a lot of interesting culture and opportunities to travel. Why do I want to move to the USA? Rainy weather and six months of darkness are not for me. If you draw a line from Europe to America you will notice that Europe actually sits up in the latitude of northern Canada. This explains the large variations of daylight and strange weather.

Why I am moving from Europe to America

Reason 1: The primary reason I want to move back is the weather. I want to move back to the USA to a more sunny climate. The weather in Europe is dark and rainy. This is because it sits at the tail of the jet stream. If it was not for this jet stream Europe would be in an ice age. It is this warm moist weather that saves Europe from its Northern proximity. Think of foggy London and Sherlock Holmes and this is Europe. Further, the cities are polluted as they have narrow streets and are overcrowded. European cities were designed for the Middle Ages not in the American way, large and expansive. Yes, they are charming, but too many cars take the fun out of this.

Reason 2: Real Estate is expensive, as is everything. Even in poor Eastern Europe real estate is at western levels. For some reason, even with an oversupply and tighter credit markets, Eastern Europe has high priced real estate. I have often said, for a cheaper price I could get something in sunny Florida on the beach, than a small Eastern European flat in the blocks.

Even in Greece where there is a crisis, any decent western style apartment is a half-million dollars, go figure.

I have many times bragged how cheap things are where I live. But the Eurozone is catching up and prices are now approaching western Europe, which is more than the USA because of VAT which is 22%.

I still think the USA is more expensive than Eastern Europe where I live. But maybe not.

So I am moving to the USA for the weather but also economic reasons.

Working in the USA

Since I do not work or need a job I can live anywhere I want. Considering my family has two passports we can live almost anywhere in the western world. Wow, talk about too much choice. I do not need to work and I have two passports. But before you are too jealous my life is exceedingly hard in other ways. I am lucky only in money and politics, and of course love.

The US job market is strange and I do not blame people for feeling poor even though they work hard. I in the past have thought Americans have lost perspective and are a little spoiled as the level of poor is not the same level as the rest of the world. Yet, on the other hand, life is hard now in the USA in terms of paying the bills.

Why the USA is not easy to live. For example, we have spent the day street viewing lots of places in the USA as we search for a place to live. Besides the wealthy suburbs, the rest of the homes look better in the Polish countryside than the USA. The Polish country, it looks richer. I am not joking. I have spent countless hours looking at places to live with the Internet using ‘street view’. On this street view, I see many questionable areas and people who I would not trust living next to me. So the USA is great if you have big money to live in a nice area. But for the average American, it is not the dream it uses to be.

Further, if I were to live in the Polish countryside I know everyone and everyone knows me. There is basically no crime. In the USA, I have to choose where I live carefully.

Where to live in the USA?

It makes me laugh inside when I see the ratings of the best cities to live in the USA. Come on, who would want to live in snowy Minneapolis? Look if you could live anywhere the best places are warm and sunny. On the East Coast Florida for example or Hawaii. There is no way I would bring my family to Oregon for example where it rains all the time. Sure it is beautiful, but people in Hawaii and Florida seem happier. Life is easier.

Right now I am looking into St. Augustine, Florida. Although I am a New Englander, my folks live in Jupiter (the city in Florida, the planet). But this is too expensive for my blood. As I say, I do not need a job but I am not a multimillionaire yet.

I have also considered North Carolina which as a nice change of seasons but warm and cheap. In fact, if you have a job lined up it is one of the nicer places to live. North Carolina is cheap and charming.

If anyone has any suggestions I am very open.

What I need to do to move to the USA

My wife is an EU national so she needs a green card or an I-130 visa. I will go to the US consulate this week and fill out an application. I think it will take about six months. Our daughter is American of course.

My wife needs to sell all our Ikea furniture and when we get to the States we will order some more. We will send all our personal things via Polish Post. It is not that pricey.

I guess we will have to get a car. A car is like legs for Americans. I have not had one in years. I am thin and healthy. But I am moving to America.

My budget for living in America

  • Health Insurance 500 dollars
  • Food and soap 1,000 dollars
  • Utilities 150 dollars
  • Internet 65 dollars
  • Netflix 12 dollars
  • Rent? dollars, this is the big variable now.

If anyone sees anything wrong with this budget let me know.

A car will add more if we need one. We do not know if we will live in a city or on the beach.

But let us say my total monthly expenses are 2,500 dollars.

I try to live simple life so I can focus on work and my programs I am writing. I do not have any credit nor have I really ever had. I have savings and investments. So I guess I am lucky. It makes life low stress. But I have no illusions, moving to the USA for us will be hard and there will be many unexpected shocks.

If anyone has any advice about the big move to the United States of America, I am all ears. This could include the best place to live and how much it will cost.

Real Estate

Big homes are a mistake

Too much house – biggest personal finance mistake

Do not spend more than you earn. Everyone knows this.  The one exception is your home.

I am a Licensed Realtor in Florida. I know what I am talking about.  I should be telling you to shoot the moon, buy big and enjoy your life. However, since I am honest and not into sales, I will tell you what a good investment really is. A small home, not a tiny home mind you but just a home that is not too large.

Think Thomas Kinkade and home sweet home, not something out of the movie  “The Big Short”.

If you are talking about your own personal house, rather than an investment home, you should buy small.

Read my lips: the biggest mistake people have in real estate is buying too much house. Since they can get a mortgage now, because current income is rosy, they buy their maximum or close to it. However, I have seen too many people live a life of stress with too much house.

Cons of buying a big house:

  • More cleaning
  • More yard work
  • More repairs
  • More in utilities
  • Less marketable as few people in the market for large homes compared to small homes
  • More you are a target for lawsuits
  • Less room for personal additions as styles change. For example, we have a house that is 1665 square feet. If we want to add something it will be fully our style. But if you start big, adding on does not make sense.
  • Family is less close
  • In Poland Ph.D. s and Doctors I know lived in small quarters growing up, in contrast, kids from large homes were often messed up.
  • Less money to travel with.  When people buy an experience, rather than a tangible asset, this is a characteristic of a successful entrepreneur.
  • Better is to buy land that you can garden or generate income off of if you need to.  I personally have a 1/4 acre under cultivation in my garden and it pays most of our food bill.

A big home is a financial mistake and in my mind a sign that you have an ego problem

You need to be in a financial positive to maintain a positive cash flow over a lifetime. This is real security. Learn the economic lessons others are paying for with their life savings when their house is foreclosed on.

I believe in the cash flow theory of security. In fact, I use to have a bumper sticker in my room as a teen, that said ‘happiness is a positive cash flow’. I am writing this not out of arrogance or I know better, but because I personally see people’s lives destroyed by big homes. A rich man is one whose income exceeds his expenses, whatever that level of income is.

Neither a borrower nor a lender be – Shakespeare

The biggest mistake people do is too much house. If you take out a 30-year mortgage you cannot lose your job for 30 years or at least need steady employment. In today’s, economy that is not real. In the old days, you could just sell the house and pay the mortgage if you were in trouble. Now you are in trouble as home prices are going or at least flat.

Sell your house to pay off the mortgage is true today only if you bought your home ten years ago in many cases. In fact, the US housing market might not really start to take off for another ten years. But today there is still deflationary pressure on the housing market with no end in sight. Even if the economy recovers, the secondary housing market is a lagging indicator like unemployment and it will take years before some markets start to show life. The only hope for homeowners is inflation.

Therefore, it is the biggest mistake someone can make financially, buying too much house. Big homes are a mistake.

  • I am a Realtor and licensed Real Agent in the state of Florida. I see people dreaming of homes they can not afford, yet they feel somehow they need it and deserve it.

Why I have no debt

Me, I have zero debt. Never had any. It sounds crazy, right? Americans believe in debt or at least a mortgage. In contrast, in Poland where I live now, people often build homes with cash. They build more modest homes, but they do it over ten years pay cash. Once they have it, it is theirs.

I am not saying it is better, rather, if you step back from the whole process, objectively you do not need to buy a big house with a big mortgage. In fact, I might take out a mortgage this year, I am considering it. But if I do it will be for a very modest size house. I would rather pay it all in 5 to 15 years and have a small house all my own, than a large house which the bank will end up owning. I am not greedy. I may be an unrepentant capitalist but I am not greedy.

Big homes equal big ego

Maybe I am casting judgment too hard, but look all the movie stars that have multiple large homes, just because they can. For me, it is a waste. I would rather be like Warren Buffet, who lives in the same modest home he was married in 1959. I am from preppy New England. I see the large homes from Avon, CT to Lexington, MA with 4,000 square feet. I only scratch my head and ask why would anyone need that big of a house, except to build walls from their own family.

Often when people get really rich, they just buy a modest condo in Florida. Only egomaniacs need a super-sized home.

Living in a modest size home does not mean you have to live as a student, you have to choose your living space based on your personal heat-map of use.

Heat-map of what really matters in a home purchase is the square feet of high traffic rooms

One idea when looking at a house is not the absolute size of a house but the layout. The layout is more important for household happiness.  The reason is if you look at a heat map of the places where people actually spend time in a house it is:

  • kitchen
  • bathroom
  • bedroom
  • family room

It is not:

  • dining room
  • porch
  • living room

Also, consider:

  • The location of the Kitchen to the garage so you can unload packages easier rather than haul them up steps or through a maze.
  • Is there a window in the kitchen?
  • The location of the laundry room,  where are you going to carry clothes with your daily loads of wash.
  • How close you are to your neighbors.

Each family is different but it is something to consider, and this seems like uncommon common sense, but the flow of the house is more important than the total square feet.

Kitchen and bathrooms are where you should invest your space, as well as bed and living. Forget elephantine antiquated ideas like dining rooms and poaches unless you have a lake view.

The idea is to maximize square feet in rooms that count and make sure the home has a layout, especially a kitchen in relation to other room you like.  As a Realtor, I am in scores of homes that do not make sense even if they are large.

There are many grandiose homes where people can not make payments to maintain. I live in Florida, the rich downsize and enjoy their lives through travel. It is a new way as people are more aware. old school: the house is wealth – in contrast – new school: time is wealth.

Why do you need a large house anyway?

Besides heating costs and other maintenance, it makes families distant and cold. A big house is for show.

When I was growing up in the USA, the average home size was 1,400 square feet. Now it is 2,500 square feet. Now I live in Poland, I would say the average here is about 650 square feet. A generation ago it was 300 square feet. Witnessing these differences myself, I would not say kids grow up happier in larger homes than smaller homes. In fact, I would say the converse is true. When you grow up like my father did, with eight people in two rooms or my wife did with seven people in two rooms, the family tends to be very close and stay close their whole life.

When teenagers grow up in a smaller house, instead of having their own room to escape in and lock the door, you teach your children chess or read books and spend more time with them. This is what my wife’s family did. You could argue, except for your ego being pumped when you compare yourself to your neighbor a large home is bad for your family.

Privacy is important for peace of mind.

Small rooms = great minds | big homes = consumers

Even today, my own family, the three of us, we live in about 700 square feet apartment (renting is only bad in a booming market). My daughter at 2 years old is learning three languages, English, Chinese and Polish and is learning chess as her fourth language. In such relatively small quarters in a cold dark place like northern Europe where you are inside 6 months of the year. What else is there to do but interact and use your imagination. Better than saving for her university education, I would rather spend time with her now. I am not poor, mind you. Nor am I cheap. I would rather stash cash away and invest it. We might build a house this year but again it will be very modest.

My 2-year-old and I playing chess on the floor of our small apartment in Europe. If we had a big house there would not the same interaction. She would have a playroom all to herself. Here, on the other hand, we play on the kitchen floor, but at 2 she is playing chess. By default, I spend more time with her. She is very happy to have her daddy in arms reach all day.

Think of all the great minds from Mozart to Einstein that grew up in small houses. In contra,st many rich and famous kids never amount to anything more than consumers.

Da Vinci – Large rooms weakens minds

Today people buy big houses and I do not think US kids are happier than Polish kids at all. In fact, when I read the high percentage of US kids on medication such as anti-depressants etc I wonder what is going on. When I read about the high level of divorce in America, something not found in places like India or Poland or Romania, I wonder why?

House sizes is even slightly inversely correlated to happiness.

Or at least there is an optimal size, rather than bigger is better. For most families between 1,000 and 2,000 square feet is more than enough home.

A better solution is to do like the Europeans, live in small houses but take six weeks of vacation, traveling with your family. I mean families in relatively poor Poland take a couple of vacations a year with their kids. If I was a kid, I would rather have the experiences of walking through the old ruins of ancient Rome or seeing the old town of Montreal with my family than living in a foofy house.

What about Tiny homes?

I am not a fan, they are too small for a family, maybe a hipster living off the grid, but a family needs some practical space unless a temporary structure while you build a larger home.

Better is to build a Cordwood home. You can look up any of the books by Rob Roy on the subject of Cordwood construction. You might have a small home but make sure it is HGTV for you. This will lead to greater life satisfaction.

If you are an investor and are buying a house as an investor to fix it up or part of your investment strategy this is, of course, a different story. But I am talking about a personal financial decision, not a business decision.

Therefore, for your personal finances and your personal life do not buy too much house. Big homes are a mistake.

Real Estate

Investing in Polish real estate

Empty apartments are all over Poland from over investment

I am an American living in Kraków, Poland. I am also a Polish citizen and an investor. My view of the Polish real estate market is this, if you want to buy a house to live in for the next ten years, that means owner-occupied, I think this is fine. But if you are speculating on investing in Polish real estate you will almost certainly lose money. All these photos are within a five-minute walk of my flat and this is not even all the empty buildings, there are, just a small sample. There are 1000s and 1000s  of apartments waiting for an investor or someone to take them off the builders and agents hands, in a short radius of my residence.

This building they told me would be filled three years ago, it is still empty

Every day, I see a new investment being complete and my wife jokes good, I think they should build more, and sure enough, they do. This is nothing more than a speculative bubble that is in disequilibrium for the long-run. I know many people in Poland in Real Estate from builders to agents to a lawyer to investors and they all think the market is overbuilt and unrealistic.

Warning against investing in the Polish real estate market

  • Oversupply – There is a huge over-supply in the housing market. Foreign investors build on speculation and local people can not afford their asking price. I see scores of empty investments, new and old apartments empty, and they are empty for many years.
  • Weak Demand – Every person I know is building their own house in the suburbs. No one person I know is moving into new construction. The price per meter in a city is about 3-4,000 dollars a meter. In the suburb, you can build your own house for about 500 dollars a meter.  My sister-in-law finished a beautiful large house in the country for 300 dollars a meter.  So what person will pay 1000% more for a house that is not built to their design. Usually, some ugly block of flats that is some investors dream of making a profit with no care about design or the people who will live there.
  • Mortgages are hard to get – For normal people it is not possible to get credit since the crisis.
  • The population is decreasing or flat – Even a popular city like Kraków where I live, has a decrease in population every year, partially because of the birth rate but also emigration to warmer or high paid countries now that Poland is in the EU.
Construction everywhere because real estate operates on a lagging cycle economically.

If you just consider supply and demand and not even the tight credit market or long term demographics, the market is too high.

More investments then the market can handle in Poland

My friends in the Real Estate business have said they are selling nothing.

One of the countless Polish houses waiting for an investor in Kraków

I have heard people putting money down on new construction and the builder goes bankrupt. I think the housing market in Poland is a mess.

Empty lots for sale everywhere or new buildings going up only to remain vacant for the next five years

The good news about Polish real estate

Poles are hardworking sensible people. The country is getting rich.  With time income levels will rise. However, if the average income is 1000 dollars a month, this should be the average price of a house per meter.

The whole city is for sale as people move to the suburbs and still more investing

Right now it is 300% this. Prices only really increased from 2005-2007.  To me, that is a speculative bubble. Before that is was about 500 dollars a meter instead of 3-4,000 dollars a meter. Some someday in the far future incomes will rise and prices will come down and there will be equilibrium in the market.

Poland is in the tail end of an over-investment construction cycle

Until that time, I would not walk but I would run from investing the Polish real estate market if you are considering buying. Me personally I will build my own house. It is cheaper and to my design. It will be my primary residence, not some speculative real estate investment in Poland.

Many buildings are empty waiting for an owner.

Let me know when you think this market will recover, but some people say ten years.

Many buildings that can not sell are offered for rent but are still empty

I am someone that lives in Poland and know about the real estate market first hand. It is not a good investment.

Real Estate

US housing market prediction

There is a strong case that the US housing market will collapse, and go down with a double-dip recession. I have rarely believed negative economics forecasts. I think they are often exaggerated to get headlines because negative news sells more. However, consider these very real economic factors which could substantiate a negative US housing market prediction. I will give both the reasons for and against a second dip in the housing market. If you feel anything is missing please comment.

The case for a double-dip in the US housing market

  • Bush tax cuts will expire in 2011. Economists Arthur Laffer has argued increases in taxes in the middle of a troubled economy will be enough to push the economy down further into a real crisis.
  • Obama fiscal stimulus money and breaks for home buyers (8,000 dollar credit), cash for clunkers, etc is running out. Demand is exhausted and anyone who possibly could buy did. There is no more pent up demand. People are more in survival mode then spending mode, more concerned about shoring up finances and preparing for retirement than purchasing a new home.
  • Monetary policy, that is the lowing of interest rates is ineffective. The Federal Reserve has lowered rates so far that nothing is helping now if anything we are moving towards deflation. They are pushing against the wind. This real estate bubble was caused by reckless credit. Everyone got credit. Me personally I am almost waiting until I have a lot in cash to buy a home.
  • The strong dollar will decrease exports and decrease interest for foreign investment in US real estate. Also with a strong dollar, real estate investors will move money abroad to take advantage of the currency.
  • Unemployment is still very high and it will take many years for this to drift back to normal levels.
  • The US Federal government absorbed toxic real estate assets but still no solution in the long-term or replacement for Freddie Mac and Fannie Mae.

Positive economic factors in the US housing market

  • In the last 80 years since the Great Depression, there has been no real prolonged contraction or double-dip in the real estate market. Market prices have taken time to adjust, up to ten years, but no double collapse.
  • Market reversals come when people least expect it and say there is no hope. Prices in the US market have come down and even a small sign of improvement could bring a lot of cash on the sidelines to the market.

One prediction of the US housing market

The US housing market will continue its downward trend

The market might not recover for ten or fifteen years. However, above is one scenario where the trend will continue until prices are bought back in line with supply and demand. Right now people who wanted to buy have bought one with the Obama credit. Now the people in the market are junk dealers looking for cheap bargains at the scrap heap. Most families are worried about their jobs and people tell me they are pretty stressed out. They will not be making large purchases. Besides that the velocity of transactions are very light and there is nothing holding prices up to their current levels except a downward resistance on the part of the sellers.

Therefore, we can conclude the US housing market is still in disequilibrium. Markets are all about equilibrium. I think it would be very hard to make a case for positive prediction in the US housing market when the current market suggests disequilibrium as supported by the factors listed above.

Real Estate

US housing market

The purpose of this post is to give a realistic assessment of the USA housing market. Nothing negative or optimistic, simply reality based on the economics of supply and demand.

Why is my house not selling?

I have heard people say that they lowered the price of their home 10% or even 20% and it is not selling. They do not understand it. They say it is a bad market for real estate. This is not true. It is the price that is bad, not the market.

Their home is being offered at say $500,000 dollars and no one is buying. There is a simple reason why the house does not sell. The price is too high for market conditions. If the price the home was $1 dollar it would sell. Guaranteed for $1 dollar you could sell your house. Price is determined by supply and demand if the market does not clear inventory it is always a price issue.

I look all the time for houses across the US market.  I am not impressed. I live in Poland (although I am a US citizen) and for the same house near a modern metropolitan area, in the USA it is 300% more.  People might say oh but this is the USA. I say Oh but this is the center of Europe. Housing in the USA is very expensive. The only reason it was affordable was an easy credit. The market prices are still artificial. I look in the USA in states like CT and people say they are desperate to sell their homes, but nothing moves. This is because people have not really lowered the prices much. They prefer it to even be empty for years.

Why housing prices are downwardly rigid

Prices of homes resist adjusting downward because:

  • The seller bought the home at a price that was too high, has a mortgage and does not want to sell it at a loss, as real estate is a highly leveraged investment. Therefore the seller somehow believes that selling price is connected to the price they paid, this is the case.
  • Sellers believe the cost is somehow associated with the selling price. Builders will often use this argument that they can not sell the unit for less than they paid for it. The reality is they can, they do not want to.
  • People’s expectations are too high for homes. Depending on how you calculate this and what do you consider the long-term the average appreciation in real estate is not more than 4%. A  lot of the data on the Internet stops at 2008 or even 2009 somewhere. However, if you are honest about calculating the return, you will not find returns too much over 4%.  However, many people are expecting a 10% increase and have factored this into the price.
  • Government programs try to artificially prop up housing prices, however, these are usually only temporary as the funds will eventually dry up.

In all four cases somehow people believe that price is not connected with supply and demand or people can not afford to take a loose.

The opportunity cost of waiting to sell

I fully understand why people do not want to sell. It is because this highly leveraged investment will wipe them out personally if they sold it. So the question in the housing market really is a matter of opportunity cost. That is if I sold my house today could I buy some other investment and earn a better return? If housing will go down 5% a year for the next 5 years and take 15 years to return to the price I paid for it, it might be worth investing in something else during those 15 years of waiting.

The problem now is the return on other investments are equally poor across other asset classes. Bond yields are very low and the Stock Market is anybody’s guess. The gold market is at dizzying highs. Therefore, in an economy like this why would you sell your home at a loss.

When the US housing market will recover

The housing market will start to show signs of life after 2017 maybe.  When unemployment will come down to about 5% the market will start to recover. Real estate is a lagging economic indicator, so income needs to increase, people need to feel safe and banks need to liberalize their credit policies. However, the problem is there is no return to the craziness of the last ten years and Fannie Mae and Freddie Mac the engines of this housing price increase are delisted from the market. 95% of the mortgages in the US are connected to these government agencies. Republicans want this to start the privatization of the housing lending market. But even so, it would take years for anything to happen. The housing market is gone and not coming back to life.

When you have a price collapse the price will move up slowly as people who need to sell will get out and not wait for a profit. They will feel lucky just to get out. This will satiate demand and prevent the price from moving up further.

Further, I know many people, including myself who just rent. They do not want to get burned in such a sluggish market.  Inflation-adjusted housing prices usually take about ten years to come back. This crash was the largest since the Great Depression and it is global. It might not be for 15 years that earnings will have risen enough to make the home prices sell at close to realistic prices.

We are 3 years into a 10 to 15-year cycle.

US housing prices still have a long to come down

Above is my (I am an economist, not an artist) graph of US housing prices with some key years. It is only the nominal prices not inflation-adjusted. Inflation-adjusted would show longer periods for prices to adjust. But to be optimistic let us look at nominal prices of homes. The main point of this graph is the peak was so high that the period of adjustment will be many years. The moving average price is certainly still on the way down. The trend is your friend. Do not buy when the moving average is going down, you will lose.

This market downturn is an anomaly. It is not a normal cycle, it is stuck in long-term disequilibrium.  New home starts and the secondary markets have collapsed. Homes will not sell. If you are trying to sell a home now I would not be too optimistic. There is a coming second crash in the housing market to bring prices down to average US home prices to under 100K.

Real Estate

The peculiar homes of Florida

Florida homes from a foreign perspective

Why do I have a perspective regarding the unusual homes of Florida? Because I live in Eastern Europe and have not been to the USA in many years even though I am an American citizen. Coming back to the USA I have a fresh impression on things that residents might not see if you are around it every day. If you have ever considered a residence in Florida, please consider what I write and leave a comment.

The first impression of Florida homes – stratification

Florida homes give people the impression that society is very stratified between the rich and poor. I just go back from a vacation visiting my family in Jupiter Florida. Both my brother and parents have a luxury apartment in Jupiter Island and Jupiter, Florida respectively. I think Jupiter Island is the richest town in America. In fact, Tiger Woods is building a home on Jupiter Island in Florida down the street from my brother. I told him why don’t we turn around in his driveway. My brother chooses another driveway. Tiger’s Florida home looks like a castle. On the other hand, there are people living in trailer parks not far away. Florida home tells a strange and interesting story. There are many people who are rich and have always been rich. There are many people who are poor. In fact, I have never seen such stratification until I went to Florida.

Florida retirement communities are not for me

There are other people that live in retirement communities that will soon be abandoned Why? These people moved in as a group when they were 65 and now they have all grown old and can not even play golf. The young retirees choose newer retirement communities to live in and those Florida homes have little value. Therefore like the 19th-century shaker communities, the only way you could grow the community is to get new converts. Many of these little retirement villages are built in the middle over know where. People here every year about a few in the community who have gone to the great beyond.

For me, it would be a bad dream to live like this. I guess it was a particular generation, that dreamed of working for one or two companies their whole lives than taking that they had and retiring to Florida in a community. There is nothing wrong with this at all. I just prefer people of all ages and walks of life. I think life is for living. I want to be part of a community of young and old my whole life. I would rather life in the Polish village (I live in Poland now) than some Florida retirement village.

If I live in Florida I would live in a normal city like Miami, where there is action.

Why a large house in Florida is a bad investment

The large homes are equally unappealing to me. I have to believe these are built as investment assets because even I had 10 billion dollars I would not have a need for a Florida home with 27 bathrooms. What a decadent waste of money. Look at Warren Buffet, who lives in a simple humble home. Large Florida homes are the worst real estate investment as they are very personal in style. Bit homes are everywhere and they are a lot to maintain. They are ostentatious and showy. I think it is a waste of productive capital that could be used in a better way. They are not cozy.

On these wealthy Florida streets at 8 Am you will see a legion of workers, gardeners, maids and cooks, almost a traffic jam.

Gated community living

The modest rich all live in gated communities. My wife asked what do these people do for work. My brother replied, nothing. These are moneyed people. Again very boring and isolated from society. If I was going to live a secluded life I would prefer a village or small town, not a gated community of retirees. This is very boring.

My advice on buying a home in Florida at any age

Living in Florida is fun because of the sun and ocean and there are many things to do. However, you really have to understand the types of home that people live there and the why they live in them are not for the usual reason. The best way to live is to find a Florida home that is in a normal town with a balanced economy. Live with people of all ages and origins and social classes. If you do this, rather in some gated community or castle of a house or retirement living, you will have a richer life in the sunshine state.  This is my advice about Florida homes.