Good Debt – Bad Debt – Be Careful

When our children were young my wife would take them down to the local hardware store just before Christmas to help them shop for a little gift for each family member. This was a big event for the kids. With their mother's help they would each purchase some small item, wrap it when they returned home, and put it under the Christmas tree. For the kids this was high drama and they would get so excited because they had the chance to think and plan and then make what was for them a really big purchase. My son Doug was about 5 years old at the time that he bought me a little plastic tool about the size of a matchbook. It had a small razor blade that slid out so you could open parcels or cut string. He was so excited and would chatter on about his carefully wrapped gift, never telling me what it was, but he would always warn, "Be careful, Daddy." It was his way of telling me that I would have to be very careful when I opened it up. That was good advice.

I am not a financial guru but I have always thought it wise to be careful when borrowing money for important things like homes, automobiles and education. I also thought it was a good idea for lending institutions to lend money when people had a job, credit and some cash on hand for equity. Clearly borrowers and lenders strayed off this tried and true path over the last few years and decided to take a walk on the wild side. We are now paying the price for those decisions. Bad debt is a huge issue in today's world.

Debt carefully managed can help build wealth for the future. The cost of living in today's world requires a certain amount of debt. I believe there is good debt and bad debt. My personal opinion is that good debt falls into three categories – home loans, auto loans and education loans. Anything else should be very carefully examined to ensure the loan is wise. I have found few if any loans in the "other" category that are wise. Even good debt can fall into the unwise category very quickly if you buy too much home, purchase a vehicle too expensive for your budget, or pile up an excessive amount of student debt. I know many people who live in homes that comfortably fit their income, who don't drive the latest and greatest but still get around quite fine. I also know lots of people who have graduated university with very little debt. Some have even managed to graduate with no debt. And these are people who did not have someone else pay for their education.

When our clients are considering a home purchase we refer them to lenders who provide good information about loan options and programs that work best for them. We trust these lenders to provide counsel and advice that will help our clients make wise decisions. Since a home loan is most likely the largest debt you will ever incur in your life, you want to make sure you do your homework and choose a loan that best suits your circumstances. Anyway, the short version is; be very careful before you get into debt. If interest is going to be your companion 24/7, make sure you are in control. Remember Dougie's advice – Be careful!

Thanks for helping me better serve our Real Estate Community.

How to Have Fun on a Low Budget

This past spring my wife Ninon signed us up to visit the US National Arboretum in Washington DC. She had heard about the Full Moon Walk. This is a five-mile hike through the "moonlit gardens, meadows and woods" at the peak of the full moon. We arrived at dusk and began the walk accompanied by a guide and about 50 people who had signed up. I had been a little reluctant at first; I mean who has the National Arboretum on their hot list of fun things to do? But as soon as we started I quickly warmed to the outing and began to be amazed at this unique and special experience. As darkness began to fall our sense of sight diminished. In its place our senses of sound and smell kicked into high gear. The sound of nighthawks flying through the meadows and dive bombing insects was really interesting. We immediately began to notice the smell of many different species of trees and plants. These smells only occur in the evening after the sun has set. It's at that point that their perfume is released and the air is filled with wonderful scents. We were introduced to magnolias, dogwoods, the Asian collection, and official state trees from every state. You would think that it would be difficult to see in the dark, but low light levels revealed many sights that we would not have noticed in the bright glare of the daytime sun. Kousa dogwoods with their white blossoms seemed to glow in the dark. We also visited trees with history – one giant willow oak measures 100 feet wide and is estimated to be 200-250 years old. Staff members have found civil war buckles that suggest troops may have passed by and rested at its base. Arrow heads found in the area indicate that an Anacostia Indian tribe had camped and farmed the area at some point. The sense of history and beauty of this forested area was a pleasant and deeply touching experience. In this 485 acre park I found what seemed to me to be a completely different world than the one I live in every day. We had witnessed something very special while viewing only a small part of the arboretum during a short window of time. The beauty and grandeur of nature were on full display in one of the busiest metropolitan areas in this country. It was truly an evening to remember.
There are other sites in our area such as the National Zoo, the Smithsonian Museums and Fort McHenry at the Inner Harbor in Baltimore that are here to be enjoyed. People travel from all over the world to visit these sites and we often forget that they are right here for us to see any time. And the best thing is, most are free – no charge. So next time you are planning a special outing don't forget these unique sites that are located right here in our own back yard.
Thanks for helping me better serve our Real Estate Community.

(Photo Courtesy of the National Arboretum)

Home Decorating and Value

Home decorating and renovation programs on TV are very popular these days. It is great fun to watch as an old, run-down home is transformed into a beautiful showpiece right before your eyes. Outdated designs and systems are replaced with better floor plans and new technology. It is amazing to see all the new products and ideas that have been developed over the last few years. Granite, quartz and Silestone have become the standard for kitchen countertops. Rich hardwoods and polished stone floor selections are almost endless. Appliances have been redesigned to be more energy efficient as well as attractive and functional. There are even refrigerators that will tell you what groceries need to be restocked. Window design and technology has taken quantum leaps over the past decade. Energy efficient windows are engineered to tilt and twist to allow cleaning from the inside. Electrical and lighting systems are more complex and involve engineered intelligence that beautifies and saves energy at the same time.

There are so many new gadgets to buy and projects to complete. Some of these programs make statements like "you will get $2.00 back for every $1.00 invested in this kitchen or that bathroom renovation." Many clients ask me if these formulas are accurate. They want to know if they put money into renovations and upgrades, will their home value increase as a result. There is no easy answer to this question but I will share a couple of thoughts with you.

First, be very careful about accepting at face value any formula that promises a specific return on a particular project. These statements can be misleading. Each case needs to be examined carefully in context of the local real estate market to see whether or not it applies. With the recent downturn, I have seen decorating and home staging projects that did not result in any value increase. They did however result in the home selling when adjacent properties continued to sit on the market. Having a home staged properly to look its very best is an important selling strategy, but one that needs to be approached with great care.

Secondly there are two types of value. The first I call tangible – the value that results in a specific dollar return by way of increased home value. If you put $5,000 into a home project, you actually increase its market value by an amount pretty close to the $5,000 investment. The second is intangible – the joy that comes from living in a home that has design features that make living pleasurable. In other words, you enjoy your new carpet, paint or kitchen so much you really are not concerned whether or not you will recoup your dollars invested in the upgrades. Only you can decide which is most important to you.

Looking at things differently (also known as thinking outside the box)

(It's 1967, and that's me on the left, with my friend Willie Baker standing in the middle.)

Today's turbulent housing market is creating a lot of stress in our lives. We cannot go from one day to the next without hearing the media tell about disaster stories relating to the housing crisis. However, there are opportunities right in front of us if we just look at things a little differently.

As a Boy Scout back in 1967 I participated in a two-week wilderness canoe trip with our Scout pack. We paddled over 120 miles between two communities in the Northern Ontario wilderness in Canada. We carried all our food with us since there were no stores nearby – this was truly the wilderness. Out of necessity our food was rationed and after a week of going hungry (14-year-old boys are always hungry) I became very resourceful at finding extra food. I took to fishing in the evenings to supplement my diet. Even that did not always seem to be enough. One evening we had a particularly fine meal planned – baked beans with molasses. The big pot had been simmering for hours and smelled wonderful. There was a steep hill between the camp fire and where we were to eat. When the meal was ready two young scouts were assigned to carry the large pot of beans up the hill to the eating area. Well you can guess what happened. On the way somebody stumbled and about one third of the beans spilled into the sand. I was devastated! The prospect of another day on short rations seemed almost unbearable. As I ate my meal I could not help but think of all those beans in the dirt. When I finished I wandered over to the disaster site and surveyed the scene. As I looked I noticed that many of the beans had fallen in a pile and were not touching the dirt. A light went on in my mind and I got down on my knees and with my spoon began to carefully scoop the beans that were still edible off the top of the pile. I quickly got over my aversion to eating off the ground and discovered that there were in fact lots of very good beans to be had. My friend Willie Baker passed by and saw what I was doing and quickly joined me. Soon there were a couple of other boys joining in the feast. That was an early life lesson for me in looking at things differently. That night I went to bed full and satisfied.

There are always opportunities in a "down market." We have been able to negotiate some very good deals for our clients and see families move into homes that were unaffordable just a couple of years back. I believe that as our market rebounds, and it will, people who are able to see things a little differently now, will benefit in the future. There are a lot of good beans out there.

Thanks for helping me better serve our Real Estate Community.