I posted this to the Twitter news wire yesterday, but since the original story merited a full blog post back in May (Walking Away at Olive8), I thought that Andy’s thoughtful follow-up would be worth posting as well.
As it turns out, local internet entrepreneur Andy Liu didn’t end up walking away from Olive8 after all.
One of my more popular blog posts was on my decision to walk away from Olive 8. I was ready to walk away, but did engage in a few interesting conversations with the folks there. Needless to say, we were able to come to an agreement to purchase property there. It’s far from clear that I bought at the bottom, nor was I trying to time the bottom. In fact, I’m probably early as only about 25% of the units are actually closed, there’s a lot of units still available. However, I approached the decision in a few different ways.
First, the decision was a purchase decision first and an investment decision second. Like I mentioned in past blog posts, when you buy a car, it’s a purchase decision, rarely is it an investment decision where you are trying to calculate your return on investment and equity gains after acquiring the car. Because my wife and I really enjoyed the location of the property and the conveniences of the property – it fit us well for a purchase decision.
If I’m reading between the lines correctly here, it sounds like the sales people at Olive8 negotiated a lower price with Andy to keep him from walking away. I also find it interesting that he mentions that “only about 25% of the units are actually closed.” According to a February 2008 Seattle Times article, over 75% of the units were pre-sold at that time. Considering that closings have been taking place since April last year, it definitely looks like they are still having some problems getting that building filled.
Andy’s post also includes some great advice for anyone considering buying a home, whether it’s an expensive upscale condo or a modest craftsman in Everett:
Once we decided it was a purchase decision first, we did want to make sure that we were not overpaying – in the car example, even if you decided that you wanted that Toyota doesn’t mean you should pay sticker. In real estate, you can always buy below market, but you can rarely sell above market. So, the lesson is to make sure you get in at the right price. For us, that meant that we don’t purchase more property than we can afford.
If there was a lesson learned from the recent real estate debacle, it’s that real estate does not always go up and becoming overleveraged leaves you exposed to potentially horrible options. In fact, our decision was to downsize to a place that we wanted, reduce our exposure to leverage and stay well within our budget. There’s always the temptation to buy up and lever up and bet on the real estate market with your personal property, I enjoy risk and often take risk, but for less liquid assets like real estate and levering just seems like a bad risk-reward proposition.
Remember, I’m just arguing for your personal property. For an investment property or buying undervalued properties, it might be different. Why overspend on your personal property when you can evaluate much better opportunities with professional investors that could bring better returns? My thesis is to keep your personal property to something that you like and equity returns are like icing on the cake and keep your investing decisions with strict criteria to secure the best returns. There are a lot of great asset classes out there, find the ones that best suit you.
Exactly. This is basically the same message I’ve been pushing here on Seattle Bubble for years, and it’s just as true today as it was in 2006.
Andy also gives some thoughts about the broader economy and buying assets as an investment. It would appear that he is definitely in the inflation camp on that discussion.
It’s great to read an update on Andy’s experience in negotiating with a developer and the thought process that went into his decision to ultimately buy. I wish the best of luck to Andy, and hope that he enjoys his new home.
Hat tip: Urbnlivn