Renting is for mental patients.

America's cheapest house

3 bedrooms, 1 bath

19429 Albany Street, Detroit (like it was going to be in another city)

$20.

That is not a typo.

But it’s been on the market for 3 months, so you should come in around $16.

This country still doesn’t get it. Home prices have decreased to the point where it’s no longer a case of building equity, but of deciding how much profit you feel like eventually making.

A child can understand this, but sometimes the sophistry of years makes people stupid. Here it is in handy equation form:

“Low prices” = better for the buyer (That’s you.) Furthermore, a lower price means less risk. And a greater potential rate of return. The only thing that could make the housing market better (for buyers) would be if we could somehow figure out a way for China to build cheap houses and dump them on the American market.

That last pair of parentheses contains more than just a couple of words. It contains profound insight.

You often hear that the “______ market” (housing, jewelry, car, fine art, tourism) is “bad”. Or “good”.

There’s no such thing as a “bad market”, nor a “good market”. There are only large markets and small markets. Either there’s a large demand for and/or supply of a good or service, or there isn’t. “Good” and “bad” are loaded adjectives that don’t tell you a thing about the magnitude of a market. Somewhat obviously, to the extent to which a market is “good” for buyers, it’s “bad” for sellers, and vice versa. A “bad” housing market – according to the intellectually lazy journalists whom the gullible general populace looks to for guidance – simply means one in which prices are low.

If it’s welcome news when Best Buy or the Apple Store lowers its prices, why on Earth would it be unwelcome news when the population looking to get out of their houses does the same thing?

“Well, because houses are more important than mere consumer goods. A house is the American Dream. It’s one of the three basic necessities. It’s your refuge, your castle, your…”

Look, if you want clichés and platitudes, there are hundreds of other financial blogs that you can read, probably without even moving your lips. A house is a good, just like anything else. Would you hesitate to buy a perfectly adequate used car that’s selling for 40% below market? You know, for fear of being seen as taking advantage of the poor previous owner who meant well but just got behind on her payments?

The homeseller whose position you need to exploit will find somewhere else to live. Of course she will, there’s a housing glut. Which is why prices fell so low in the first place.

Control Your Cash’s home town is Las Vegas, a place where economic sense goes to die. (We’ll explain how this fits your city’s situation in short order.) A couple of years ago, when local unemployment was microscopically low and a nation of thrill-seekers flush with speculative cash needed their indulgences stroked, Las Vegas reached its perigee as an exciting, dynamic place to live.

Which means people wanted to move to Las Vegas, faster than the contractors could build homes. Which, not surprisingly, drove prices up. The result was about two years’ worth of endlessly recurring news stories bemoaning that local home prices were so high that working families couldn’t afford them, people were having to rent, boom times have their victims, et al.

Without attaching moral weight to the price of a house, the fact is that the market will always continue its progress and fluctuation unabated. Things cost, largely, what they cost.

The world economy weakened, and consumers focused more on necessities than luxuries. It’s tough to justify show tickets and blackjack budgets being as important as food and clothing, so tourist junkets to Vegas began to dry up, relatively speaking. As did home prices.

Two years later, the common lament in the local news was that all the equity that people had built up their houses had now evaporated, and then some. Mortgage holders refinanced, which led to overexposure, which led to eviction, sometimes. (Only “sometimes” because intrusive government on multiple levels did what governments do best, spreading the pain around to the responsible innocents who budgeted wisely and didn’t overextend themselves. These lucky folks who Controlled Their Cash got to watch their taxes pay to keep others in their inappropriately grandiose houses.)

Yes, the unfortunates lost their equity. Many conveniently forgot that the original equity increase was built on the flimsy soil of speculation.

You can joke about Las Vegas all you want – which would be extraordinarily hypocritical if you’re one of Vegas’ 38 million annual visitors – but that only tells half the story. What really distinguishes Las Vegas is that it’s the place where differences in financial common sense are exploited the most. The typical Las Vegas moron bought at the top of the market, moved from his extended-stay apartment, and got to enjoy a brief period in an overly luxurious house thanks to a less-than-diligent lender. Instead of thanking those lenders for giving them a temporary sniff of the good life, the morons rewarded them by pouring concrete down toilets and stealing fixtures.

Which makes for a good news story. But no 11:00 newscast will lead with a feature on the quiet real estate investor who took a discounted house off a lender’s hands, then held it, waiting for the certainty that prices will eventually rebound.

The housing market is having a sale. Do you understand how rare this is? Fabergé lowers the prices on a dozen eggs more often than the housing market en masse breaks out the purple marker.

It’s almost counterintuitive. After all, the population is still growing. The overwhelming majority of people still have gainful employment. And the buildable area is the same – the nation isn’t expanding its boundaries past the traditional 3,794,066 square miles. In such a situation housing prices should continue to rise, although probably more modestly than usual. Instead, the arrow is pointing in the other direction.

It’s not like housing is a fad, the Pokemon or Rubik’s Cube of the late aughts. People seem to enjoy shelter, and have for dozens of years.

There has never been a better time to buy a house.

If you’re still skeptical, two questions:

a) Would you agree that people can profit from real estate investing?

It’s an omnibus, incredibly general question. So much so that it might stand a little rephrasing: is it possible to create wealth by investing in real estate?

b) If you answered “yes” (which you should have, it’s the only possible answer),

Under what set of conditions would an enterprising real estate investor best be poised to strike?

Well, she’d need:

-depressed prices

We covered that.

sellers whose motivation goes beyond price

Many of the sellers who are asking these low prices had backed themselves into a corner. They financed, say, a $200,000 house, watched its market price grow to $300,000, refinanced, got a $75,000 line of equity*, used it to buy motorcycles and ATVs, got pinstriping for the ATVs and rust protection for the bikes, couldn’t make the payments, got the line of credit revoked as the value of their home found its own level, and now are dying to get out for fear of never being able to pay off the line of credit.

So I should prey on the downtrodden?

If that’s what you’re worried about, then don’t. Instead, just let the next buyer do what we’re recommending you do. He will.

Or you can just add $20,000 or $100,000 to your offer, it that’ll make you feel better. Call it a karmic payment, if you like. And then leave a comment on this story, so we can record your IP address and report you to the Idiot Police.

The buyer wants to sell. Every day he holds onto the house brings him greater pain and uncertainty. You’re doing him a favor by taking it off his hands and giving him the one liquid, fungible thing he needs. You can’t pay off debts with assembled stucco and drywall.

-irrationality sweeping the marketplace

Perverse incentives are everywhere. (Witness the rustic period piece at the top of this post, perfect for the enterprising young home buyer ready to test her home improvement skills.)

This isn’t a shrouded opportunity. This is a sign from the heavens. You want to make the world a better place, and build wealth in the process? Take a house off the hands of someone who needs the money. Make him happy in the short run, and yourself ecstatic in the long. When the real estate market is behaving like a pawn shop, you owe it to yourself and the economy as a whole to be the liquidity that the market is crying out for.

———————–

*There are no stupid questions. If you’re unfamiliar with the concept, a line of equity is basically a credit card without the plastic. You know that Discover Card in your pocket with the $8000 limit? This is similar.

If you’ve shown a capacity to pay, your bank can offer you a line of equity. “Capacity to pay” can mean a salary – after all, they’re your bank and they know where your money is – or it can mean an asset, like whatever equity you’ve built up in your house, however tentative that equity might be.

And because it’s borrowed money, you don’t use it to buy toys with. You use it to buy assets with. Assets whose rate of return exceeds whatever interest you’d pay your bank on the line of credit. God, this is easy. Why isn’t everyone rich again?

20 something finances carnival

It’s with great pleasure that Control Your Cash welcomes you to this week’s blog carnival. But instead of crooked midway games, sugary funnel cakes, and the unmistakable aroma of goat manure, we’ve got sound financial planning stratagems. Which beats puking on the Tilt-a-Whirl any day of the week.

Thinking about destroying your life for the next 7 years? There’s a better way – replete with an exclamation point. The Smarter Wallet presents Avoid Bankruptcy! Information To Help You Stay Afloat.

If you’ve got disposable income, you’ve got investable income. And the potential to build good habits for a lifetime. Even if you’re young, inexperienced, and eating cold spaghetti out of a can. The Investor presents Seven ways to invest in the stock market when you’ve got no money at Monevator.com.

It’s your first time, and you want it to be special. Something you’ll never forget. Few rookie homebuyers buy too little home, but plenty buy too much. David Weliver presents What Percentage of Income Can You Afford for Mortgage Payments? at Money Under 30.

April believes in doing things as early as possible. In fact, her name used to be May. She presents Lighting a Fire: How to Overcome Procrastination at Get Rich Slowly.

Use your electric company to your advantage. (After all, it is called a “utility.”) Hank posts Save Hundreds of Dollars With a Free Online Home Energy Audit at Own The Dollar.

What does $25 get you these days? In the Buckeye State, on the road to financial security. Madison presents $25 More for Ohio 529 Accounts at My Dollar Plan.

If you thought all the 4-letter URLs are gone, think again. Matthew Paulson presents Buxr-The website for shopping deals on and offline at Fine-Tuned Finances.

If you’re dumb enough to have a credit-card balance, at least minimize the self-inflicted punishment. Mike @ GLBL presents Balance Transfer APR 0 Credit Cards – How To Get Out Of Credit Card Debts at TheCreditToolBox.com.

You can try bribing the folks at Experian, but it’s probably illegal and won’t work anyway. PT presents 5 Ways to Improve Your Credit Score at Prime Time Money.

Some money-saving axioms are universal. They even work when your currency is beaver pelts and seal meat. Tom Drake presents Pay Yourself First at The Canadian Finance Blog.

They’re not car loans, they’re “auto loan financing options”. Read what’s sure to be an exciting post at Compare Auto Loan Financing Options Before Buying A Car at Banker Saver.

Some people think the stock market is completely unregulated and has you at its mercy. Not quite. Learn How The SIPC Protects Investors From Broker Bankruptcy at Investing Toolkit.

Diversify, diversify, diversify – the most important criterion in real estate exchange-traded funds. Manshu presents Real Estate ETF List at OneMint.

Some posts are self-explanatory and don’t require an introduction. To wit,

3 Different Stocks for 3 Different Strategies at stock investing tips.

Still using a regular old stockbroker? How very 19th century of you. Read TradeKing vs OptionsXpress – Online Stock Broker Comparison at Investing School, and then sell your positions in Trans-Atlantic Zeppelin, Inc. and Amalgamated Spats.

You can’t get enough of those ETFs. Aussie Investor presents Exchange Traded Funds – ETF Investing In Australia at Australian Investing. Read about a simple and cheap way to diversify.

Now here’s something refreshingly frank and honest. Dave Damron presents Top 9 Ways I F***** Myself Over in College at LifeExcursion. Learning from someone else’s mistakes is way more fun than making your own.

From our “Does this dress make me look fat?” file, there’s Do I Need Debt Advice? at One Advice. Because it’s not the debt you carry, it’s your capacity for carrying it.

Index funds are simple, diverse, and therefore for everyone, right? Not necessarily. Read Index Funds – When NOT to Use Them at Retirement Savior and find our why other types of mutual funds might suit you better.

Childless women, your time will come. Until then, Jonathan Martin presents Negotiating for Moms at The Negotiation Board.

Sure, refraining from driving on the sidewalk is one way, but what’s the fun in that? Travis presents Four Ways to Lower Auto Insurance at Christian Money Mountain.

You don’t get paid what you’re worth. Sorry, but it’s true. You get paid what you can get out of an employer. Nissim Ziv presents How to Negotiate a Salary: Negotiation Tips, Questions & Expectations at Job Interview Guide.

What do you put where? Find out at Personal Finance Capital Allocation at 20s Money.

Savings accounts? Those are for children. Tom Tessin shows you how to earn more with The Benefits of a Money Market Account at FCC Student Blog.

They’re not exciting, but that’s kind of the point. Indulge your cautious side with Tax-Free Municipal Bonds at ABCs of Investing.

Retirement used to be a brief period between work and death. It doesn’t have to be that way. Super Saver presents Early Retirement Forum at My Wealth Builder.

Thank you, J. Savings, for saying what needed to be said. One of the biggest problems on Earth is a lack of candor – especially with regard to money. Check out Talking Finances With Friends & Family at Budgets are Sexy, and together let’s remove personal finance from the realm of the taboo.

Another wonderfully explicitly titled post is 3 Ways To Save Money Without Sacrificing Insurance Coverage at Billeater.

Finally, Jim shows you how to say the words the Federal Housing Administration is dying to hear with FHA Mortgage Loan Requirements Guide at Blueprint for Financial Prosperity.

That concludes this edition, as the carnival pulls up its stakes and leaves town for another exciting destination next week. Submit your article to the next edition of twenty something finances using the carnival submission form. You’ll find old posts and future hosts at the blog carnival index page.