Real estate madness:

Via the excellent economics blog, Calculated Risk, we learned of a story* (in the comments for CR's thoughtful GDP Growth: With and Without Mortgage Extraction). Here is a summary: (excerpts, emp add)

Buy, Borrow, Buy
Couple uses leverage to build an empire of eight vacation properties

Sacco estimates that along with McCook's mother, who has been a silent partner, they've made $1.3 million since they began their buying spree, but all of this is still in equity on their properties. Their monthly reality is more sobering. They have $2.3 million in mortgage debt and negative cash flow that ranges from $5,000 to $15,000 monthly depending on the season.

So how do they pay the bills?

"We sort of count our equity loans as our income," she says, with the slightest wince. "If we had real jobs, we'd be fine, but we just need to get some money in. Some people call it a pyramid, but I don't like to think about it that way."

Surreal financing? Bubble economics? Perhaps. But it's also the way people are increasingly approaching real estate: as a bet that in the long run can't be beat.

Yeah!

In any event, be sure to read CR's GDP Growth: With and Without Mortgage Extraction - and study the chart. Are the good times ending soon?

[* - story link is to 'current' for the author and will change over time]


posted by Quiddity at 12/10/2005 03:28:00 PM