International Living Postcards– Sunday Edition
Sunday, Feb. 18, 2007
Paris, France
Lief buys for value and profit potential. I buy for value, too, but my interpretation has not as much to do with market comps as with intrinsic (that is, romantic) merit. Is the place pretty?
Mostly, I buy for use.
Years ago, therefore, Lief and I agreed that he’d manage our real estate purchases related to making money. I’d manage the ones related to making a life.
Occasionally, the two agendas collide, but, generally, we’re each happy to stick to our respective beats.
Someone recently made us an offer to buy one of the properties that falls under my purview. So I’m being forced to consider its worth.
This is ostensibly my decision, but Lief has given his opinion. The offer is too low, he says. Market comps he can identify have sold for considerably more than we’re being offered for our house.
That’s a straightforward interpretation of the situation. Following that line of reasoning, we could counter-offer, negotiate back and forth a bit (the would-be seller is an amenable fellow), and probably come to some agreement. Indeed, Lief would be happy to sell for below what he has determined as market value, for, though the property has been meant to function as a rental most of the year, beyond the week or two we’re able to use it, we’ve seen no cash flow. Yes, in this regard, the returns have been disappointing; however, neither have we incurred any carrying costs, I point out.
Furthermore, depending whose ideas about current market values you use, the place is worth about twice what we paid for it four years ago.
If you’re Lief, you collect those pieces of data, and you do some math. And, if you’re Lief, you likely decide that you’re happy to sell. The market has moved well in your favor in the period you’ve held the property, the capital appreciation is there, yet the rental yields aren’t holding up. Why not get out? The only thing left to do is to negotiate with the would-be buyer to arrive at a mutually agreeable price.
For me, the required analysis is less direct. Sure, the place is worth double what we paid, and that’s great. I’m not opposed to making money.
And, right, the cash hasn’t flown from rental activity. But I didn’t buy for rental yields.
I bought because I find the location special and the property charming. The setting is dramatic and unique. The little house is comfortable with great views. The kids love it…when they’re there.
For me, that’d be the reason to sell, if that’s the decision. Why hold on to a place you own primarily for pleasure of use…if you’re never able to use it?
A friend is considering the same question. He built a house, coincidentally in this same country, because he, likewise, found the location beautiful, a place he’d dream of returning to when he was somewhere else.
Since the house was completed, though, he finds he’s able to visit but once or twice a year, for a week or two. Meantime, month by month, he’s paying maintenance costs, cleaning costs, repair costs. He’s employing housekeepers and grounds-keepers. He’s covering fumigation fees and electric bills. To the tune of several thousand dollars a month.
He’s having trouble justifying not selling. Why hold onto a liability like this, he’s asking himself?
At least in our case, I remind Lief, because of the arrangement with the management company, we’ve had no carrying costs. The "investment" has washed its own face, as they say.
No, we haven’t been able to stay in the house in more than a year. Still, Jack asks about it…remembers swimming there and hiking in the hills. Maybe this summer, we’ll make it back…
The property, by the way, is in Nicaragua, which complicates the question further for me. If we sell now, it may seem we’re reacting to the current political scene…that we’re bugging out.
We’re not, of course. We didn’t set out to sell the house. A buyer appeared on the scene and made an offer. If he’s willing to increase it, maybe we should sell…use the proceeds to buy something we and the kids might use more regularly.
These lifestyle purchases we make for the long haul. Typically, we don’t buy with an exit strategy in mind…for we don’t expect to want to exit.
The last time we sold a piece of property we’d bought for its lifestyle, rather than its profit potential, we regretted it…and still do.
Two years ago, we sold the house we’d bought five years prior in County Waterford, Ireland. We acquired this house with little thought to potential capital appreciation. We bought it because we thought it would make a nice place to live. Then, five years on, we were advised the house was worth three times what we had in it.
That news got Lief’s attention. I was persuaded to sell, meantime, because our situation was changing. We had plans to spend more time outside Ireland, in Paris and Panama. The option would have been to rent this big old house while we were away.
That idea didn’t appeal to me at all. The hassle, the logistics, and, mostly, the strangers in what had been our home, renovated and decorated with tender loving care.
Renting seemed too dangerous emotionally, so I agreed to sell. We made good money, and I thought we’d moved on.
Until a few weeks ago, while in Ireland, driving to dinner with a friend. We passed the turnoff to our former home.
"Would you like to drive by to see the place?" my friend asked.
"No, in fact, I’m sure I wouldn’t," I responded.
I didn’t want to see the house again, and I knew why. I missed it too much. I realized at that moment that I’d regret always surrendering that 200-year-old stone house with its tumble-down outbuildings and raised-bed kitchen garden out back.
What was I thinking? Selling simply to avoid renters?
Now that it comes to it, no, I don’t think we’ll sell the place in Nicaragua. The rental returns may increase…they may not. The market may appreciate further…or maybe it’ll fall off a cliff. No matter in the long run. We bought the property because we (I) believed it had intrinsic merit…because it was a place we wanted to own, market factors and annual yields aside…a place where we wanted to spend time with the kids.
Those things are all still true. We didn’t make an exit strategy because we didn’t plan to exit. No reason to change course now.
Kathleen Peddicord
Publisher, International Living
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P.S. If you have a spouse or a partner, you understand. No decision is this simple, of course, and this one is far from made for certain. I’ve reached my position…but Lief still has his. Stay tuned…
