Financial Literacy 2007 - Mortgages
David Bach
mortgage
Interview: David Bach

Personal finance author David Bach, a former senior vice president at the Wall Street investment firm Morgan Stanley, turned his sights on residential real estate as a wealth-builder in his latest best-selling book, "The Automatic Millionaire Homeowner: A Powerful Plan to Finish Rich in Real Estate."

At a glance
Name: David Bach
Hometown: New York
Education: University of Southern California, B.A., communications
Career highlights:
  • Senior vice president, Morgan Stanley.
  • Partner of The Bach Group, which during his tenure (1993-2001) managed more than half a billion dollars for individual investors.
  • His breakout book, "The Automatic Millionaire," spent 14 weeks on The New York Times Best Seller List.
  • His most recent book, "The Automatic Millionaire Homeowner," has sold more than 1 million copies since its release in March 2006.

q_v2.gifHow do you feel about investing in real estate given the current state of housing markets?

a_v2.gifReal estate is not national; it's local. At the end of the day the only market that matters is the one you're investing in, the one you're buying in. If you're thinking of buying a home, you have to ask: Where? Why? How long do you plan to live there? People are always doing better buying for the long term.

q_v2.gifHow long is "long term"?
 

a_v2.gif To me that's more than three years. If you think you're going to be alive longer than a decade, you're going to be better off buying. What separates rich and poor is real estate. I honestly think the market looks better now than it did two years ago. Now prices are flat, and in certain cities declining. Just as I said in my book, we have a buyer's market again. It really depends on the market. If you're thinking about buying a condo now in Florida, there are some great opportunities to buy from people who had bought with the intention to flip.

q_v2.gifIs it better to buy sooner, with little down payment, or to wait until you've saved for a bigger down payment?

a_v2.gifHalf of the buyers a year ago bought with nothing down. I'd rather see someone put 10 percent or 20 percent down. We at least know they have a proven ability to save money. But, if the choice is either to buy with nothing down or to save for two years so you can buy with a down payment, I would rather see them buy now, provided they have at least three to six months of mortgage payments in savings. Keep that money in an emergency account rather than put it down on a home.

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q_v2.gifHow do you like some of the newer mortgage innovations used in recent years, such as loans that allow interest-only payments or negative amortization?

a_v2.gifInterest-only mortgages have been around a long time, but they were originally created for sophisticated investors, people who have assets somewhere else. In the last few years they have been given to people who are not sophisticated. People were buying more than they can afford, and in many cases without understanding what the loan is. With negative amortization, you can owe another $50,000 beyond what you borrowed. Your mortgage payment can go up 40 percent or 50 percent. Those are the people losing their homes to foreclosure. Unfortunately, we've become a society that focuses on monthly payments. It's common with car sales and it has spread to homes. If prices are going up you can get away with it, it doesn't hurt you. But when the market is going down and the payment is going up ...

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