Contrary Like the Rich

It's been proven, time and again, that the wealthiest among us do not make the same choices as the majority of us. For example, a recent poll found that most individuals with investable assets in excess of 2 million (that is, assets excluding principle residence) thought that now or the near future was a good time to purchase real estate. I’m not sure if I agree, but I do believe we are headed for a good time for buyers. So if now seems like a natural time to search out some valuable real estate and grab it at a steep discount, lucky you, you’re not alone.

Several years ago I when I was looking for my first house, I was renting an apartment in a quaint little neighborhood in Baltimore City. I had lived in the neighborhood for almost a year, and had already made many great friends and truly grown to appreciate the pre-WW1 Victorian architecture. I had also discovered several local shops, restaurants, and markets where I could buy everything I needed. I no longer needed to drive to get what I needed to survive and loved it. I sold my car and took the bus on the short ride downtown to my job at the time, as a tax consultant with Ernst and Young.

My co-workers at E&Y told me I was an idiot and worse. “Everyone knows real estate in the city never appreciates, if you want to make any money in real estate you need to buy in the county, everyone knows that!” Everyone did know that, which is why I was able to buy a gorgeous 3-bedroom 1-bath Victorian porch front row home with inlaid parquet floors and a perfect tin ceiling for $80,000. This, when my coworkers where buying cookie cutter homes in the suburbs for $250,000 - $500,000, and because of their distant commute to the office, they had to maintain cars and pay $200 to $300 a month just to park them downtown (not to mention insurance, gas, and car payments). I was saving a bundle, and felt that I had found a real value. I figured out that what I was saving would allow me to accumulate the same amount of savings in 10 years that it would take them 30 or more years to accumulate.

I really didn’t care what everyone knew, I cared about what I knew; that I loved the neighborhood and the house. I believed that the carefree, pedestrian lifestyle it enabled me to have was a tremendous value. Even at that time, there were cars parked in my neighborhood with values close to what I had paid for my house, and I believed the real estate prices in the neighborhood would at some point appreciate dramatically. At the closing I joked with my agent, “we’ll sell it when we can get $250,000 for it.” She smiled politely, I’m sure thinking I was a total idiot, but I sold it 6 years later for $260,000. I absolutely doubt my old co-workers homes appreciated at a pace anywhere near that.

I bought the house because I believed it to be a value when no one else did, and I happened to be right. The rich buy assets when they are a value, and sell them when they are expensive, they buy low and sell high. Supply and demand, when everyone is a seller, be a buyer, and when they are all buyers, be a seller, be a contrarian.