All Forum Posts by: Leon Li

Don't make assumptions about what anyone on this site knows first hand. 

My first primary residence was purchased in 1987 about a year after I graduated college. We were told by everyone, including the the lawyer at the closing we made a great buy and it could only go up, because real estate only increased in value in that "high appreciation market". It was in an area that was in commuting distance of NYC, walking distance to a commuter train, people were building everywhere, and real estate was HOT, as were job prospects. 

It was worth about 1/2 of the purchase price within 2 years when the market dipped. That was not fun. Luckily we didn't max out on debt and were able to save most of one of our salaries for a 20% down-payment on a house, but it took a few years. We moved out of state, and we rented the place out as it was too small to start a family  (at a loss, another lesson learned), and dealt with it long-distance for about 5 years until the market came back enough to sell it. (Sadly, you have to amortize the property at the value it is worth when converted to a rental, not purchase price).

We learned some hard lessons, and hope some other poster on BP will too from reading this. Obviously we continued to purchase real estate, however, we know the market is cyclical and even the experts cannot predict it. During the last dip in the market, we knew high-earners who purchased beautiful million dollar properties with low-money down who lost jobs and subsequently lost their homes and even marriages. High-income jobs are difficult to replace quickly, especially if you are tied to a location -- especially a location that corporations are fleeing. Having a strategy around how to deal with dips or loss of income is prudent if you decide to purchase property only for appreciation. Buying income property for cash-flow and using depreciation to offset rental income and tenants to pay off your mortgage is pretty fool-proof. There is a wealth of knowledge on this site, and the most successful posters are both teachers and eager students. 

@Leon Li

Telling her to purchase 500k worth of property with a 50k salary at 3.5% down is super irresponsible...