Co-ops Are For Living In

There are lots of wrong reasons to buy a co-op at Bryant Gardens. The only right reason is to live in it. One of the worst, but popular, wrong reasons is because "real estate is a better investment than the stock market."

Prices Match Inflation. It's true that Bryant Gardens prices have increased at double-digit rates for several years, but they haven't always. Historically, real estate has lagged stocks, usually just beating inflation by one or two points. But there were times, not so long ago, when prices dropped more than 30%, and didn't recover for nearly ten years.

Going Upside Down. Then, as long-term Bryant Gardens residents remember, people wound up owing a bigger mortgage than the co-op could be sold for -- "upside down" in real estate parlance. Some were forced to walk away from co-ops they couldn't sell, losing their investment and ruining their credit to boot.

Lure of Outsized Profits. The phenomenon of buying into a rising market on over-extended credit isn't peculiar to real estate, to Bryant Gardens, or to our times. John Train's lively and informative Famous Financial Fiascos, has examples in commodities, land, and stock stretching from 17th century Holland to 20th century America. The lure of quick, outsized profits has brought down ventures, companies and countries -- and untold millions of small "investors."

Beware Plunging Prices. Whenever a shareholder talks about his Bryant Gardens co-op as an investment instead of as his home, I get nervous. And I really hope that co-op prices don't plunge, that interest rates don't soar, that fuel prices don't keep increasing, that he's not already working two jobs, that he can delay starting a family, and that he borrowed from forgiving relatives, not a bank.

Banking on a rising market is a recipe for disaster, not profit.