Home-Buying Rule #1

Excerpt from Sal DeStefano's home buying book:

How to Buy a Home and Keep Your Sanity:
12 Simple Rules in Any Market 

 
Rule #1:  Heed counsel from those who live what they teach.

        Why should you take advice from me? You shouldn’t, not unless I can prove to you I have the training and real world experience to back it up. Many experts with walls of diplomas talk the talk. Far fewer walk the walk. I won’t bore you with a list of college degrees and career achievements. Instead, I’ll tell you a story—a story about how my early years drove me to a lifetime of buying and selling homes that persists to this day.

Two real estate agents, a man and a woman, pulled up to the curb and sauntered into the house on Long Island I had inherited from my mom one month after my 20th birthday. The man, tall with thinning gray hair, I guessed to be about 60. When he spoke, his voice was so soft I had to lean forward to hear him. He handed me a business card and introduced his companion, a woman in her 30’s sporting a brunette pixie cut. The woman never said a word, and it was not until years later I realized she was there solely as a witness if I were to later change my mind, or worse, sue her boss for fraud.

A few days earlier, from my dorm room at the State University of New York at Binghamton, I had placed a six-line ad in Newsday, a popular Long Island newspaper, to advertise the open house I had planned for the following Saturday. The night before, I had driven four hours from Binghamton, set up my sleeping bag in the barren living room, and fallen asleep hoping to unload the house by three o’clock the next afternoon. If I found a buyer early enough, I could drive back to Binghamton and meet up with friends in time to attend a college dance.

The house was a typical cape cod on a typical street in a typical Long Island suburb, but one thing about the cape was unique. To understand what made the house special, I must tell you a little about my mom.

First, she loved the sea. Every summer from the time my sister and I were toddlers, until my dad was diagnosed with the leukemia that killed him while I was in middle school, we piled into the family station wagon and drove to Miami Beach. That was back when the Rat Pack still hung out at the Eden Roc, and you got the best breakfast in town at Wofie’s Restaurant on Collins Avenue. In my mom’s world, there was no better way to enjoy life than sitting on sun-baked Florida sand and gazing at the shimmering sea.

After my dad died, my sister and I still vacationed with our mom, not only in Miami Beach, but other holiday spots. But no matter where we went, one thing never changed. We always had an amazing view of the water. One time the view was from a motel room on Cape Cod overlooking Hyannis Harbor. Another summer we rented a cottage on Shelter Island across from Gardiners Bay. And one year we spent two weeks in Hermosa Beach across the street from the Pacific Ocean.

When I was in high school, my mom remarried. She had one big request of her new husband—sell our home in Hicksville, a town in central Long Island, and move somewhere near the water. He said yes, and off we went. The house and town my mom chose were telling, and set the standard by which to this day I measure my real estate choices.

She picked another suburban town, Bellmore, located on Long Island’s South Shore. Many lots in Bellmore abut water channels folks on the Island refer to as “canals.”  Lots along canals give their owners a second driveway, not for a car, but for a boat tied to a backyard dock. The canals of Bellmore flow to East Bay, and from there boaters have easy access through Jones Inlet to the Atlantic Ocean.

My mom found a four bedroom split-level house on Legion Street, a meandering road lined on both sides with similar split-level homes built by the same developer. Nothing made the house or lot special—except one feature. In the backyard you could moor a boat up to 40 feet long against a wooden pier jutting into a canal so wide you had to strain your eyes to see your neighbor across the water.

That was back in the 1970s, before I moved from Long Island to Brooklyn, and from Brooklyn to the rolling hills of northwest New Jersey, where I established my business and started a family. Twenty-five years after my mom bought that house in Bellmore, I found myself back on Long Island visiting friends with my wife and two teenage daughters. Before reaching our destination, I wanted to show my daughters the waterfront home on Legion Street where I had lived when I was their age.

Downtown Bellmore had grown. All the familiar landmarks were gone. After a few wrong turns, I found my old neighborhood. When I drove down Legion Street, I noticed something interesting. The split-level homes on the landlocked side were the same as I remembered from three decades earlier. Some owners had added a room above the garage, others had replaced concrete driveways with pavers, but most houses on the landlocked side had not changed at all.

On the waterfront side, a different story. Nearly every home had undergone major renovation. Some splits had been converted to colonials, others rebuilt into sleek wonders of modern architecture. The closer to the bay along Legion Street I drove, the more magnificent the transformations.

I knew my old street address, but because most houses on the waterfront side looked nothing like I remembered, I wasn’t sure if I had passed my former home. I pulled over to get a better look at the house numbers. On the canal side, across the street from where I had parked, I beheld a mammoth residence that bore as much resemblance to a split level as I do to Brad Pitt. Tall columns framed a three story Spanish colonial sheathed in terra cotta. The grandiose structure loomed behind tall, black wrought iron gates, and though a tad out of place in a middle-class development, the home was truly magnificent. My gaze chanced upon a gold plaque mounted to a brick post protruding from a well-groomed lawn. I read the number and shouted, “Holy crap!”  I must have shocked my daughters because they stopped texting, and looked up. My wife thought I was having a heart attack.

            The exotic mini-mansion I now ogled occupied the same parcel as the split-level I had lived in as a young adult. The cost to build that monument to opulence must have topped a million dollars. Why would anyone buy a perfectly serviceable home in a middle class suburban community, tear it down, then drop a million bucks to build the Taj Mahal? Even newbie home shoppers know the folly of owning the largest home in a neighborhood of smaller homes.

The person who now owned this house—and most others who owned houses on the canal side of Legion Street—had spent small fortunes rebuilding or renovating their sturdy splits. As I discuss in a later chapter, buying smart is about location. That magnificent edifice across the street confirmed what I had assumed all along. My mom possessed a keen sense of real estate value.

            The split-level on Legion Street was not my mother’s only acquisition of waterfront property. When my mom remarried, she and my stepfather had agreed my mom would keep the proceeds from the sale of our Hicksville home. You can guess how she invested those proceeds. In a different Bellmore neighborhood, on a street with smaller, more tightly packed houses, she bought a three bedroom cape cod along a canal.

            In the good old days, before mortgage lenders routinely approved equity-free purchase loans, the norm was 20 percent down. Calculating the income she needed to cover the mortgage, property taxes, insurance, and upkeep costs, my mom bought the nicest house in the best location she could afford. Within one week of closing, she rented the house to an elementary school principal and his family.

            That was the same cape cod where three years later I found myself standing before two realtors happier than pigs in poop because they were about to hit the jackpot. By negotiating with a college kid more interested in catching a school dance than getting the best price for a good home on a waterfront lot, how could they lose?

            My mom had a knack for buying houses in good locations, but was not as shrewd picking second husbands. A year after remarrying, she realized she had made a mistake, and filed for divorce. About this time, the lease on the cape she rented to the school principal was set to expire. The timing would have been perfect for my mom, sister, and me to move in. Instead, recognizing the value of reliable tenants, my mom granted the principal’s request for a second one-year term. Her divorce settlement gave her a lump sum payment in lieu of alimony, so she renewed the principal’s lease and used the settlement money to buy another house.

            Compared to the split level on Legion Street and the small cape generating income, the next house my mom bought offered the best bang for the buck. She picked a modest ranch in Massapequa Park, another Long Island suburb, also along a canal. Of all the houses on the waterfront side of the street, ours was the smallest in stature and price, but one feature made our tiny ranch special. Only three lots from the bay, our home had a direct view of open water.

            You may remember Frank Field, the respected meteorologist who for many years served as a primary source of weather news for millions of New Yorkers. Mr. Field’s home, diagonally across from our backyard canal, fronted South Oyster Bay. Two months after we moved into our Massapequa ranch, Mr. Field enclosed his backyard with a fence that partially obstructed the bay view from our back porch. My mom, not a timid soul, shot off a letter to Mr. Field expressing her displeasure. Several days later came a knock on the door from Mr. Field himself. Charming and gracious, as my mom described him, Mr. Field apologized, and explained the fence was required by the town before he could install a pool. Satisfied with his visit and explanation, my mom was confident she had bought in an excellent community with wonderful neighbors, and at a damn good price.

            Years later I drove past my old Massapequa Park house, and was not surprised to see someone had transformed the tiny ranch into a million dollar colonial. An owner after us understood that buying a small house for a low price on a desirable lot in an area of larger homes with lofty prices is never a bad investment.

            I am certain my mom had planned to keep her adorable waterfront ranch for many years, perhaps one day enlarging the house herself. She would know the high cost of improving valuable land was money well spent. But by the end of our first summer in Massapequa, my mom discovered the stomach pain she had been ignoring for two months was not an ulcer. The breast cancer she thought surgery had licked four years earlier had metastasized to her pancreas. She bought that house in May, her diagnosis was confirmed in August, and I attended her funeral in October.

            So what happened to those two prime waterfront properties in Bellmore and Massapequa Park?

            My mom’s knack for selecting properties with appreciation potential did not carry over to other matters of personal finance. Even after my dad had succumbed to leukemia, and my mom had battled breast cancer, she did not own a dime of life insurance. Nada. If you have kids you care about, a spouse you love, or both, buy life insurance to keep them from financial ruin. Term, annuity, whole life, I don’t care. I am no financial advisor, and don’t pretend to be. If you own a home, and your family is not protected by life insurance, before you read another word, talk to a qualified financial planner about what type of policy is best suited for your current and long-term needs. I sure wish my mom had.

            I could have rented the Bellmore and Massapequa houses with ease, and generated enough income to cover expenses. With Bellmore’s excellent school system, proximity to transportation, and abundant shopping, I’d have no trouble finding a tenant to replace the school principal. The Massapequa Park waterfront would have rented even faster.

            But at 20 years old, my sole interests were hanging out with friends, getting through college, and meeting young ladies. I did not want a landlord’s headaches. The thought of interviewing tenants, negotiating leases, collecting rents, paying expenses, dealing with repairs, and keeping financial records was as appealing to me as swallowing steak knives. I yearned to move on and live my life as if my mom’s death hadn’t ripped my family apart. The morning after my sister and I buried our mother, I returned to Binghamton wondering how quickly I could unload the homes I had inherited.

            With no income to pay the mortgage and taxes, and two default notices in hand, I had to sell the Massapequa ranch first. With the help of an aunt, I did, but at a loss. I held the Bellmore cape a few months longer, until the principal took a job in another state. I chose to sell the Bellmore house myself, but had to move fast. The principal’s income, but not the mortgage bills, had evaporated.

            A few days before my open house, I phoned in my ad to Newsday. The copy was simple, and included the date, time, address, phone number, and asking price. I requested the word “waterfront” appear in bold type. Having no desire to make the four hour drive from upstate New York more than once, I added a sweetener:  A deep discount to any buyer who signed a written binder before 3:00 pm.

            After a restless Friday night tossing in a sleeping bag on the living room floor, I awoke to gray drizzle outside. Few home shoppers showed up that day, but real estate agents flocked to the house in droves. I do not recall how many agents attended my open house, but the two I’ll never forget were the tall, older gentleman with gray hair, whose soft voice lulled me into believing his interests were mine, and his protégé, the prim lady with short, dark hair.

            God gives us the ability to make choices. Because I am responsible for my choices, I am responsible for their consequences. For me, that waterfront cape was not an opportunity to accumulate wealth through real estate, but a distraction and deterrent to my happiness. No one but I chose to negotiate from a position of weakness.

            The two agents had found buyers for my home—themselves. After dutifully disclosing their intent, they apologized, and said they could not afford my price. They could pay me less, a lot less, but only if I accepted an offer that was, by sheer coincidence, a mere $500 more than the amount I needed to repay the mortgage and cover the transfer taxes. I accepted on the spot.

            And no, I never did make the dance.

            Would I do things differently today? You bet. But that’s easy to say after I’ve graduated college, earned an M.B.A., served as an officer for a large commercial bank, finished law school, passed the Bars of two states, practiced real estate law, owned a title insurance agency, married a woman I love, raised three occasionally sane children, and bought and sold more homes than I care to count. Today, after two and a half decades working in real estate-related industries, I have acquired a deep appreciation for the value of homes prudently chosen.

            Only when I became a homeowner again 10 years later, and started a family of my own, did I realize how well my mom had chosen those Long Island properties. I am not sure she understood their potential as sound financial investments. She picked them because her passion was living on the water, not because an empirical market analysis indicated home buyers would pay a premium for waterfront properties in desirable suburban neighborhoods. Her wisdom was intuitive. If the unique flavor of waterfront living appealed to her, so it must to others.

            Waterfront property is not everyone’s nirvana. Each of us is different. Some prefer the city, some the mountains, some the desert. Whether your personal paradise is a low-rise condo surrounded by the culinary delights of Pittsburgh’s Squirrel Hill, a split-level home in the Denver suburb of Highlands Ranch, or a duplex on the edge of the Sonoran Desert in Yuma, Arizona, before you submit an offer to buy, ask yourself two questions:

            --  What qualities about this property make it irresistible to me?

            --  Will those same qualities make it irresistible to others?

            If your answer to the first question leaves doubt as to the second, stop and take pause, especially if your investment priorities include preserving your home’s equity against the whims of fluctuating housing markets.

            Observing my mom’s foray into real estate, then unraveling her budding empire, affected my psyche and set the agenda for my life’s ambition. I graduated college with a major in Psychology, but in 1976 entry jobs in this noble profession were scarce. The reality of the job market, and my drive to survive, led me to graduate business school. Since then, every career decision I have made from the time I sold those Long Island homes to writing this book has been designed to help me seek out, acquire, and sell real estate for myself and others.

            I proposed to my wife on Jones Beach, not far from where I learned my early real estate lessons. I asked for her hand aloud, but swore silently my premature death would not rob my family of a home. My mission, my vendetta, was to guarantee no one could take advantage of my family after I was gone. I vowed to do everything in my power to assure my wife and children had a decent home—maybe two or three. Having inherited two homes at an early age, and no means to keep them, you can understand the reason for my oath. Thankful to God for the strength to persevere against long odds, the temperament to sacrifice without resentment, and the wisdom to learn from my mistakes, I have accomplished that mission.

            More than 25 years later, after negotiating dozens of real estate contracts, orchestrating hundreds of closings, and coordinating the reconstruction of two homes, I stand ready to share the principles, practices, and personal secrets of buying a home that have worked so well for me.

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