Oh, how my ability to see in the rear view mirror is so keen.
In 1995 I was proudly driving a shiny black Mercedes 500SL. Over the next few years I had a succession of luxury cars, including a 750Li BMW and high end SUV’s. I was proud to park my vehicles in the driveway of our waterfront home, complete with 4000 square feet of living space, a built in wine cooler, and gorgeous river views. The pride I felt was immeasurable. I was working hard, making good money. I was going to live forever and so were these good times
I was a fool, but not alone.
Speed up to 2011. My transportation is a paid for 1999 model SUV. My Rolex is replaced with, well, I don’t wear a watch. I live in a home one third the size of that riverfront monument to my ego. I am reveling in frugality. Now I take great pride in the fact that I am frugal. I wear my frugality as a badge just as I wore my precarious and overinflated wealth as some sort of dunces hat. (It only looks like a dunces hat from here in the year 2011, in 2006 I didn’t notice.)
Welcome to the age of Flagrant Frugalism. Saving is the new spending. Small is the new big. Practicality now trumps luxury. Thank goodness the human being can adapt and rationalize almost anything – and least thank goodness I can.
The average U. S. house size in 1973 was1660 square feet. By the year 2009, this had gone up almost 50% to 2438 square feet. (Chart here) This trend in the U.S., began in 1950s, with the size of a home about doubling over a period of 50 years. This trend has been compared to the rise of the SUV, also often a symbol of conspicuous consumption. People have purchased huge houses even at the expense of the size of their yard, the inability to save funds for retirement, or a greatly increased commute time, up to a couple of hours. Such large homes can also facilitate other forms of consumption, in providing extra storage space for vehicles, clothes, and other objects. But now we will see a reverse trend.
My Dad went through the great depression. He was always frugal. He knew poverty and appreciated what he had and he meant to keep it. I did not learn the lessons my father taught me, at least not soon enough. I remember when I first bought a Rolex watch. I went to Dad and showed him my watch with pride.
“Solid Gold. Diamond Bezel. Got it for a deal at $6,000 at auction.” I boasted.
Dad lifted up his sleeve to expose his watch.
“See this? Timex. Seventeen years old. Never off by a second. Twelve bucks.”
I thought, “Ahh Dad, I wish I could teach you the finer things in life.”
I’m sure he thought,” Where the heck did I go wrong with this kid? What the heck is he thinking? I didn’t pay that much for my first house,” But he just smiled, with pride, pride that his son had that kind of money and proud that he didn’t need it.
Frugality in Real Estate
I am seeing a trend locally in the demand for small houses, houses that cost less to cool; have energy efficient features, houses that appeal to our rediscovered frugal side.
The trend will be to the small, understated luxury, No extra rooms, but those that are built are built with use and design in the forefront. Large closets yes, third bedroom suites no. I expect not to lose high ceilings and large windows but I expect higher quality storm and sound proof windows; practical use of the space with things like built in safes, smart storage design, efficient kitchen and bath design, and little or no wasted floor space, multi use rooms with built ins: Energy efficient and "Green". Proper ventilation for the baths and kitchens, "smart" electrical design with remote controls, sleep modes and temperature stable homes, Smaller homes cost more to build per square foot, but cost less to own and operate.
Want to buy a smart house? Consider those factors. Also consider that today Florida home shoppers can find homes as well below replacement costs.
Today, to build a modest 1500 square foot home in South Florida will cost about $75 -100 per square foot. This is without the cost of the land. The price can quickly double with finishes such as marble, granite, trim packages, and added features and upgraded plumbing and electrical.
Here is SW Florida there are homes on the market – good homes – built since 2006 – at as low as $50 per square foot! Talk about smart buys! Anytime you can buy below replacement costs, you are making a smart move. This is even more important today because of the high national debt we have and the impending inflation that is on the Horizon.
With the economy seemingly at a slow growth point, how can we talk about inflation? Right now, we are coming out of a period of deflation. The Global Depression we are experiencing has squeezed both aggregate demand levels and aggregate asset prices as never before. Since the credit crunch of September 2008, the U.S. and world economies have been slowly circling the deflationary drain.
The response by the government has been to amass huge deficits. Where will this lead us?
Some believe Hyper inflation is coming.
Personally I am preparing for inflation.
When inflation hits you want to be owning things, not money. Your money will be worth less.
If you are not preparing for inflation, you need to be. For most of us, housing will be a hedge. For those with housing, its gold and silver. For others, it’s more housing (like rental properties).
Click here for a historical inflation chart. When you open the chart, look carefully at the six year trend.
There are opportunities today in real estate that have not been around for twenty years. It is now possible to buy a single family home, rent it out, and have positive cash flow and returns well above the current cost of money and certainly about the returns offered in cash accounts.
When we take the future threat of inflation in to account, real estate begins to look very attractive again. Lehigh Acres and Cape Coral in particular offer opportunities to acquire hard assets, below replacement costs, and that will offer cash returns to boot.
It’s time to start feathering the nest, err…. nest egg, that is.
Pass it on.
Gfous@marketamericarealty.com 800-439-1580 ext 52
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