Thursday, February 19, 2009

Real Estate Investors & A New Plan

I saw a post on CNBC today and had to laugh.  It was an article written by their real estate reporter declaring that not all real estate investors are irresponsible.  Here is a brief excerpt from the end of the post that gives her point:

Mr. Obama, it is not wrong, irresponsible or even negligent to purchase an investment property. Not every American can afford a home; we’ve learned that the hard way. There is no shame in renting. But a rental home is not always an apartment in a building owned by a large developer. It is often a single family home or a condo, owned by another American who purchased an investment property, legally, responsibly and ethically. Why exactly are we penalizing these homeowners? You might consider the fact that when these properties go into foreclosures, the responsible renters are out on the street as well.

Now I agree that there are many investors who acted responsibly.  But why should I help those guys out any more than I should help out the people who lost money investing in the stock market (of which I am one)?  How is not helping real estate investors "penalizing" them?  Seems like everyone feels entitled to a handout these days huh?  This is the exact type of language someone would use if they feel entitled to something.  If they do not get it, it is not fair because everyone else got it too.  Give me a break.  Seriously, I do not care one iota if every investor loses their home.  Would it be an economic calamity?  Sure, but that is why it is called "investing".  Investing has risks associated with it.

This is also why I do not want to help most people out now, even the "responsible" ones.  They too took a gamble.  Now you could argue, that many people did not buy a house for an "investment" reason.   They just happen to be the happy beneficiaries of a rising asset.  In that case I propose the following plan since government seems to want to protect homeowners, but not investors, and make the rest of us pay for it.

When you buy a residence, you must declare if it is for you to live in or for you to have an investment.  If you declare it is for you to live in, great.  You will get all the benefits that exists today.  You get to deduct the interest on your mortgage.  And if what happens today, the price of your home drops, the government will protect you so you can stay living in your home.  HOWEVER.   Let us say you are going to sell your home.  You should not reap any of the profits of you selling your home.  The government should get part of your windfall.  You after all were not in it for the money and the government was protecting your losses.  They, and by that I mean all of us, should reap the benefit of protecting your home.

The inverse would be true for any house you declare an "investment".  That is, you should not get any protection or benefit from the government of any kind.  You should not be able to deduct the mortgage and you should not get any assistance if your house becomes worth less than what you paid.  However, if you sell it, you get all the profit.

This is a simple idea really.  Why should we have privatized gains and socialized losses, the exact scenario we are in now?  We need to get back to a system of private gains and private losses & social gains and social losses.


  1. I am tired of various reporters and investment property owners using their renters as an excuse for government help. Let's be realistic. If these renters are responsible, they will be able to find another place to rent. Yes, they will have to move, but to say that these renters will be on the street is a gross exaggeration.

  2. Please, can you tell me few more thinks about this, I am really fan of your blog.