Financial Literacy 2007 - Mortgages
David Bach
Interview: David Bach

q_v2.gifDo you like loans with 15- or 20-year terms, instead of 30 years?

a_v2.gifIf you can really pay a 15-year loan, it's just a fabulous financial planning tool. What makes the 30-year nice is you have the flexibility to pay it over the longer term or to pay it off early.

q_v2.gifIs it a good time to become a landlord? What about all those rentals coming on the market from investors who weren't able to flip with a quick resale?

a_v2.gif It depends on the market. Know the market. In some areas rents are going up. In New York, they're going up 20 percent to 30 percent. Real estate is so simple, just open the newspaper. If you have a three-bedroom, two-bath, see what three-bedrooms and two-baths are renting for. You can tell with very little research how your market is doing currently.

q_v2.gifWhat about investing in vacation homes?

a_v2.gifThe fantasy of vacation homes is that you'll buy them and then rent them for enough in high season to cover your mortgage. But you should assume that only 50 percent of your mortgage costs are covered. The second-home market has been a fabulous market. Baby boomers continue to want second homes. It has slowed down a bit, but looking out 10 or 20 years, if it's got a view and it's on the water, it's going to go up in value. Boomers want water, golf courses and a location that's only one or two hours away from their existing home.

q_v2.gifHas anything surprised you?

a_v2.gifI'm surprised by how fast the media turned negative on real estate last March. It's almost like a hyped, negative market. After seven consecutive years of double-digit increases, you had to expect the market to slow down. But, gosh, we didn't see 20 percent or 30 percent drops. I do see that the people who were bragging at cocktail parties about the condos they were going to flip, they're not bragging anymore. And that's a good thing. It tells you the silliness about the speculative market is cooling.

Real estate is a simple business. It always comes down to cash flow.

q_v2.gif What is the biggest risk now?

a_v2.gifThe single biggest risk for a renter is standing on the sidelines and not buying. The longer you wait, the harder it gets. If you're looking in a place like New York City, San Francisco, Washington, D.C., or San Diego, places where people always want to live, prices will go up. You only have to miss one good year and you won't be able to afford to get back in. If prices move from $500,000 to $600,000 in a year, appreciate 20 percent, and you've saved 10 grand over the year, you won't keep up.

q_v2.gifIs that kind of appreciation coming back?

a_v2.gif think it will be a year to a year-and-a-half before it's a seller's market. It depends on your area. If rates stay low for the rest of this year, we will see a lot of buyers coming out and buying real estate.

For information on Bach's real estate wealth seminars being offered with Donald Trump and Anthony Robbins through the Learning Annex, go to

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