The Scenario: A Bad Investment
As I write this, I live in a rental home in Michigan. Meanwhile, my home in NY is listed at 25% below what we payed for it 6 years ago. In fact, my wife and I invested much of our savings on improvements to help move the property. Yet, this financial loss could have been avoided, if I only followed my instincts.
What Happened: I Failed to Trust My Instincts
As my wife and I moved from Boston to NY, we struggled to find a home. Westchester County NY, where we were to settle, is one of the most expensive housing markets in the country. Ideal for NYC commuters, yet nestled in rolling hills along the Hudson river and minutes from farmland and state forests, it is beautiful. As a result, the few houses on the market were incredibly expensive.
When we finally found one that met our needs, I was sticker shocked. The listing price was more than I ever thought I’d even consider paying for a home. Yet this was a modest 3 bedroom with a small yard.
My instincts told me to run, but we managed to convince ourselves otherwise. A market study, home inspection and consultation with friends and family all reassured us this was okay. I still remember the words of wisdom from one family member:
Always buy the most home you can afford, because the value always goes up.
So much for always.
As I contemplated the investment, I was constantly reassuring myself we were doing the right thing. I was anxious to get into a home after living in an efficiency in Manhattan for several months. I wanted to settle with my wife. Yet throughout, I heard a small voice screaming, “are you nuts?! The mortgage payments are ridiculous!”
What I Learned: Trust Your Instincts
Because I chose to ignore my instincts, we now carry a large mortgage on a modest, empty home in NY. The mortgage and taxes consume most of our income and we don’t even see the benefit.
It may have been the hard way, but I learned many great lessons from this decision, including:
1. Trust your instincts: New for me, I often find myself explaining something just doesn’t “feel right” about decisions. It may not be as clear and concise as facts, but I’ve found better outcomes on many occasions.
2. Don’t justify a decision you already made: If you find yourself seeking facts to support a decision you already made, stop. Chances are you’re in the wrong position. As we sought facts to support buying the home, we should have still been asking, “is this the right decision?”
3. Don’t buy in Westchester: Okay, so I actually loved Westchester county. However, the reality is when you seek to invest in the most expensive area (be it real estate, stocks or elsewhere) consider cheaper options. The most expensive option leaves little room to grow and much further to fall.
In comparison to many, I realize we are very fortunate. Fortunate because we have a roof over our head, we’ve not suffered a foreclosure and it could have been much worse. Still, I hope you’re able to learn these lessons from my own experience, before you make similar mistakes of your own.
Question: What other lessons do you see from my failure?
Note: This post is the second of three on some of my greatest failures and the lessons learned. My hope, in exposing my scars, is somehow helping you avoid the same mistakes.