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Thursday, November 19, 2009

Bunker Mentality: If markets go south, maybe you should too

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        My brother Bob, the portfolio manager, wrote the following to me the other day after a triple-digit rise in the Dow Jones Industrials:  "OK, now I'm at least unlocking the door of the doom bunker, so I can be ready to dash in."

        I asked him to hold the door for me. This current stock market is defying the laws of gravity in an environment of massive national debt, double-digit unemployment and a housing market that, despite what the National Association of Realtors tries to tell us, will stumble around for at least a few more years. 

        I am not an investment expert, nor do I play one at this blog site.  But I do have some skin in the game.  This stock market is

I have begun to pad my doom bunker with cash.

scary, and I have begun to pad my own doom bunker with cash.  This hurts because most of those stocks I am cashing out of only made it back halfway from the Lehman Brothers crash last September.  But as we learned last year, half a loaf is better than the alternatives.

        I also don't feel any strong optimism about the housing market in the near term.  There are just too many foreclosures on the horizon and not nearly enough new employment prospects.  But for those who have deferred their dreams of moving to that golf course home (or any place in the southern U.S.), now may be a good time to relocate, assuming you are above water in your current home.   Moving now could actually be a hedge against any badness that ensues.

        My wife and I, for example, are going to sell our primary home in Connecticut in 2011 or early 2012, a year after our daughter

We have lost more than $100K.  Waiting for the market to come back makes no sense.

goes off to college.  Let's fast-forward one year, for the sake of argument, and assume our timetable to relocate to South Carolina was next year.  Would the fact that our home's value has suffered a more-than $150,000 loss in the last three years give us pause?  Would waiting another year for the housing market to turn up again matter to us?  The answers are absolutely not.

        We bought our Connecticut house in the early ‘90s and saw its value increase steadily until 2006.  We didn't use the cash in the house as an ATM; we took out a home equity loan along the way, but paid it off in just a couple of years.  Like many Americans who bought their homes pre-2000, we are ahead of the game, with some equity to put to work in our next home.

         We also know that our house is worth what someone will pay for it, not what the Joneses two doors away got for their house in 2007.  (We really do have neighbors named Jones, but we do not try to keep up with them.)  If the average of three appraisals we get on our house comes in at ‘X,' we will expect to get ‘X' as the selling price, no more and, we hope, no less.  As in the stock market, pigs get slaughtered in the housing market.

        It may not seem like much, but the government would give us a $6,500 tax credit if we bought a new primary home before

If my Uncle Sam wants to buy us a dining room set or living room furniture, who am I to argue?

next spring.  The tax credit, which originally applied to first-time buyers only (at $8,000), is being extended to people who have lived in their primary homes for five consecutive years.  If my Uncle Sam wants to pay for our fancy dining room set or living room furniture, I'm okay with that. (I promise to pump it back into the economy.)

        Also, for those who have good credit ratings and a desire to finance some portion of their dream home, mortgage rates are still as low as 5%, assuming a 20% down payment.  We don't plan to add any debt to our portfolio, but for others, low rates could spell the difference between their dream home or nothing.

        We have a place in South Carolina already, but we plan to live in a city as well.  We are going to rent a city apartment for a while, confirm that we like whatever neighborhood we choose, and keep an eye on real estate prices.  If we see a bargain, we will buy it. That same approach will work for many people considering a home in a golf community or in any neighborhood in a golf rich area.  Some homeowners in southern communities are now desperate enough that they are willing to take the monthly cash flow from a low rent in lieu of a ridiculously low sale price (or foreclosure). 

        Most of us entering our leisure years are going to downsize our living space.  All things being equal, that means our next

By moving from north to south, some folks will save 40% on expenses, as much as $40,000 a year or more.

home will be comparatively less expensive than our current one, and a lot easier to manage.  But those savings may pale in comparison to cost of living savings if we move from a high-cost state to a low-cost one.  If you live in the Chicago area, for example, and want to move to your dream home next to the classy Thornblade Club in Greer, SC, you'll save 22% in living expenses.  Other savings include:  Philadelphia to The Landings in Savannah, GA, 27%; Boston to Avery Ranch in Austin, TX, 30%; Stamford, CT to Grande Dunes in Myrtle Beach, SC, 38%.  (Data from ACCRA Cost of Living Index)  If you spend, say, $100,000 annually on gas, dining expenses, real estate related expenses, food, utilities, healthcare and the like, you could save as much as $40,000 a year by moving.  In just a few years, you could even make back what you lost on your home's value over the last four years.

         And that can certainly help you keep up with the Joneses.

 

If you are contemplating a move to a golf rich area and want some ideas or a referral to a highly qualified real estate professional, contact me and I will respond promptly. 

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Those moving from many areas in the north to southern communities, like Belfair in Bluffton, SC, will save tens of thousands of dollars in cost of living expenses each year.

Read 3863 times Last modified on Thursday, 19 November 2009 06:37
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Larry Gavrich

This blog was conceived and is published by me, Larry Gavrich, a former corporate communications executive who founded HomeOnTheCourse, LLC, in 2005.  Our firm advises baby boomers and others seeking a lifestyle in which golf is a major component.  My wife Connie and I own a home in Connecticut (not on a golf course) and a condo at Pawleys Plantation in Pawleys Island, SC, on a Jack Nicklaus layout.  We began our search for our home on the course more than 15 years ago, and the challenges of the search inspired me to research golf communities and write objective reviews of them.

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