Selling your home in a down market is tough. It took us 7 months from the time we listed our house until the time we finalize the sale, and we lost just over $50,000 on the transaction. I have conflicting thoughts about losing this much money. Obviously, no one sets out to lose money when they buy a home, and no one feels good about it. But at the same time, I realize it’s probably not as bad as it seems.
Thoughts on losing money on our house
We knew we would lose money on the transaction, so we were prepared for it. Being mentally and emotionally prepared to lose money is important. In the grand scheme of things, we just considered losing money on our home a sunk cost and decided to move on. Here are some factors which made the loss easier to swallow:
We had enough equity to cover our losses. Losing money isn’t fun. Writing someone a check when you’ve already lost a lot of money is even worse. Thankfully, we had enough equity to cover our losses, so we didn’t have to write a check at closing. We put down 20% of the purchase price when we bought the home, and we paid extra on our mortgage payments. This combination ensured we would receive a small check when we sold our home instead of being upside down on our mortgage.
If we didn’t buy, we would have paid rent. Some people say renting is throwing away money, but I disagree. Many people who rented during the real estate bubble avoided taking substantial losses when they had to move. And in our case, we may have actually come out slightly ahead, depending on how you slice the numbers. We lived in our home for just over 5 years. If we would have “thrown away money” on rent for 5 years, we probably would have lost the same amount of money, give or take a little. ($1,000/mo rent * 5 years = $60,000). Again, this doesn’t take into account other factors such as the time value of money as the down payment could have been invested, home repairs, or other expenses. Either way, we would have spent a lot of money on housing.
We could have lost more money. The real estate market in our area of the US was hit pretty hard. We just left the Dayton, OH area, which lost tens of thousands of jobs, and for a period of time, it was in the top 10 for foreclosures. As you can imagine, that created an excess of inventory and decimated housing prices. Thankfully, our neighborhood was relatively insulated from the price drops compared to some of the other neighborhoods.
Some people can’t afford to sell, even if they want to. The real estate markets in some locations are so bad that the majority of people are upside down on their homes and selling would mean having to fork over tens of thousands of dollars they don’t have. Many people are so far under in their mortgages that they decided the best course of action was to walk away from their mortgage.
We can make it up on the back end. We want to buy another home, and the saving grace for us is that real estate prices are lower in most places, hopefully making this a good buying opportunity for us. Our hope is that we can get more house for our money when we buy our next home. Our goal is to stay in our next home for the next 5-10 years, so hopefully things will turn out better the next time around.
All of these things may sound like rationalizations, and to some degree they are. But it also serves as a reminder to myself and others that real estate isn’t a guaranteed investment.
Have you bought or sold a house recently? How did it work out for you?
For more than a decade now, PayPal has reigned king of online payments. Just last quarter alone, their revenue was nearly a billion dollars ($971 million according to VentureBeat). It was a good move for eBay to gobble them up years ago, because today, an estimated 40% of the company’s revenue comes from the PayPal unit. In a press release last month, eBay stated that by 2013 they expect PayPal’s annual revenue to be in the ballpark of $6 to 7 billion. Will that still happen now that Visa has entered the playing field?
Visa’s new PayPal-like service
On March 16th, Visa issued this press release about their new service, which will allow Visa debit and credit cardholders to send money to each other. Visa has offered personal payments outside the United States but this is the first time such service will be available domestically.
“Bank customers of participating financial institutions will have the option to select a Visa account as the destination for funds when making a personal payment. By simply entering the recipient's 16-digit Visa account, email address or mobile phone number, consumers can send funds directly from their bank account to a recipient's Visa account.”
The press release didn’t specify an exact date this feature would be rolled out, other than saying it will be “soon.” Two other companies – CashEdge and Fiserv – have partnered with Visa to offer this service.
Is Visa the first formidable opponent for PayPal?
Obviously, this will not be the first or last competitor. A number of similar services have sprung up over the years, without taking root like PayPal has. Google Checkout was supposed to be "the PayPal killer" when it launched in 2006, but that expectation never materialized. So if the Goliath Google can’t beat PayPal, why would Visa have a fighting chance? Here are 3 things to consider:
Customer Base: At the end of last year PayPal reportedly had 94.4 million registered users – no small feat to accomplish and their first-mover advantage surely contributed to that success. Visa, on the other hand, may be new to personal payments here in the U.S. but they already have a massive customer base they can tap: 269 million credit cards and 397 million debit cards, as of September 30, 2010 (Source: Visa).
Processing Costs: Due to their sheer size, one can assume that the credit card processing fees incurred by PayPal must be bargain basement, comparable to a Wal-Mart or McDonald's. Regardless, it’s still a big expense. That’s why when a credit card is selected as the funding source, they direct you to a page to try and persuade you to use a checking account instead (where you will find an eye-catching orange button for it, which some allege is visually confusing). By cutting out the middle man, Visa might have a real advantage here when it comes to costs.
Card Benefits: If you’re like me, you prefer card payments. I love to exploit my cash back credit card rewards whenever I get the chance. Of course you can earn cash back on your credit card when sending PayPal payments, but the 2.9% fee incurred on the other end can be a deterrent (if the recipient doesn’t want to pay the fees, or you don’t want them to). Visa hasn’t stated whether or not these payments will qualify for rewards, but if they do and the fees are lower, that would be attractive to both parties.
Another benefit [some] credit cards offer is top notch customer service and dispute resolution. I admit, it does sound like PayPal’s dispute resolution has improved drastically over the years, but I think many would agree it still won’t hold a candle to the service you get with something like a Chase Sapphire or other Visa Signature card (disclosure: my website markets the Chase Sapphire card). The benefit of dealing directly with your credit card company’s customer service might be considered a selling point.
Conclusion?
It’s too early to tell if Visa’s personal payment feature will be a hit or miss. Both companies have their strengths and weaknesses. PayPal definitely knows their stuff when it comes to online payments, however my PayPal credit card review demonstrates their ineptness in the card arena. It will be interesting to see whether Visa’s idea fizzles or sizzles.
Disclosure: My company's website, CreditCardForum.com, advertises credit cards. Therefore I have direct and/or indirect financial ties to some credit cards. Additionally, a close family member of mine owns a small amount of Visa stock, which I had advised them to buy several months ago.
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