Hey, you! Where did you put the property ladder?!

Over lunch with a colleague the other day, we started talking about the Real Estate market and the Mortgage Crisis, how and why this whole mess started, and how to fix it.

We agreed that one of the major problems is a trend that started with the creation of ”creative” financing – people started skipping vital rungs on the property ladder.  And, just like when you skip a step or two when you are climbing a ladder to change a lightbulb, many rung-skippers are now falling on their heads. 

Ten years ago, my dining companion bought a small apartment in Greeley, and lived it with his new wife as they both finished up college at UNC.  After they graduated, they bought a second unit in the same building, and rented out the smaller one to a couple of UNC students.  After a couple of years, they sold one of the units and bought their first ”real” house – they were expecting their first baby, and needed the space, as well as the peace and quiet away from college housing.

A couple of years after that, they sold that first little house and bought another one nearby, this one with 3 bedrooms and a bigger yard…now they’ve upsized again, into a $600,000 home near Denver.  

This is how home ownership used to work.  You took a small step, and then another, until you finally reached the home of your dreams.  In the last few years, I think this process was ignored.  So many first-time homebuyers jumped into their dream home from their dorm room or rental, before they could really afford it, because some shady lender talked them into a risky mortgage.  Now those dream homes have turned into a nightmare of foreclosures and ruined credit.

So, what now?  Stop skipping rungs!  Climb the property ladder the old-fashioned way, one step at a time.  Buy a house you can actually afford, even if it’s not in your ideal neighborhood, and even if it needs a little work.  Eventually you will have enough equity for your dream home, and the journey toward achieving it can be really rewarding.