Tuesday, March 22, 2011

Why I have never owned a home

In the wake of this post on the mortgage interest deduction -- still want your input, by the way -- a few people marveled at the fact that I was a 52-year-old successful businessman who had never owned been a homeowner. They intimated a few common-to-me assumptions, one of which was that perhaps I was not as successful as I presented myself. (And I have certainly had some lean years, income-wise, along with the good ones.) But the overriding question  was some variation of: what's wrong with you? Why do you just want to pour your money down a hole by renting? Renting is for scumbags. You're not a scumbag, are you? How can you actually be a financial counselor and not be a homeowner? Well, like this.

A) Cash Gone. You have to write a big fat check for a downpayment. “But it's an investment,” you might say to me. Historically this isn’t true. Housing returned 0.4% per year from from 1890 to 2004. And that’s just housing prices. It forgets all the other stuff I’m going to mention below. Suffice to say, when you write that check, you’re never going to see that money again. Because even when you sell the house later you’re just going to take that money and put it into another downpayment. So if you buy a $400,000 home, just say goodbye to $100,000 that you worked hard for. You can put a little sign on the front lawn: “$100,000 R.I.P.”

B) Closing costs. I forget what they were the last two times I bought a house. But it was about another 2-3% out the window. Lawyers, title insurance, moving costs, antidepressant medicine. It adds up. 2-3%.

C) Maintenance. No matter what, you’re going to fix things. Lots of things. In the lifespan of your house, everything is going to break. Thrice. Get down on your hands and knees and fix it! And then open up your checkbook again. Spend some more money. I rent. My dishwasher doesn’t work. I call the landlord and he fixes it. Or I buy a new one and deduct it from my rent. And some guy from Sears comes and installs it. I do nothing. The Sears repairman and my landlord work for me.

D) Taxes. There’s this myth that you can deduct mortgage payment interest from your taxes. Whatever. That’s a microscopic dot on your tax returns. What's worse is the taxes you pay. So your kids can get a great education. Whatever.

E) You’re trapped. Let's spell out very clearly why the myth of home ownership became religion in the United States. It's because corporations didn’t want their employees to have many job choices. So they encouraged them to own homes. So they can’t move away and get new jobs. Job salaries are a function of supply and demand. If you can’t move, then your supply of jobs is low. You can’t argue the reverse, since new adults are always competing with you.

F) Ugly. Saying “my house is an investment” forgets the fact that a house has all the qualities of the ugliest type of investment:

Illiquidity. You can’t cash out whenever you want.
High leverage. You have to borrow a lot of money in most cases.
No diversification. For most people, a house is by far the largest part of their portfolio and greatly exceeds the 10% of net worth that any other investment should be.

When I began my first corporate career in 1981 with Hearst Newspapers, there was only one way to move up in the company (and industry) then, and it was to change newspapers, which meant changing cities. Hearst didn't have a relo program for middle managers, and that could have meant that I would still be owning a home today in Plainview, Texas. Or Midland. Not exactly the most robust of housing markets. Or I could have lost a small wad a time or two or three. Doubtful I would have made much, if any, on the sale whenever it happened, to save nothing of interest lost on the money I invested elsewhere than a homestead, taxes, yadda yadda.

Since 1993, and after a calendar year in the Tampa/St. Pete area (Jan-Dec of 1992) we've been back in Houston, but my second corporate career -- lasting until 2002 -- was in automobile dealerships, as the F&I guy. Less stability but about three to five times as much money as I ever made in the newspaper biz. And sometimes I was working on the southeast side of town (Clear Lake), sometimes the southwest (Sharpstown, with occasional duty in Rosenberg), sometimes north of downtown, once close to the Astrodome -- and to where I lived, in the Med Center/West U area. So we chose to live as close in to the city as we could afford -- since we're DINKs any worries about schools and so on aren't part of the equation -- with commutes for me in any direction that were outbound in the morning and inbound in the evening. Against the grain ... suiting my general contrarian philosophy. Once I started my insurance business in 2002, my commute became irrelevant to where I lived. I had a small office in the now-defunct Texas Gas Building in Rice Village; when it made way for those Bohemian things that will never be constructed, I just moved my office into the house (condo, as it were). Speaking of houses, I just rented one a year ago in the Willowbend area, and that was really only because the dogs -- first one, now two plus a foster -- needed a yard to play in. All of this time (living in Houston) I have paid anywhere from $1000 to $1500 a month, as much as most $150K-200K mortgages in the far-flung Houston suburbs but with a far greater peace of mind. YMMV.

Without the furkids I would still be waking up to a view of the Texas Medical Center skyline, looking east, from the fourth floor bedroom window, walking to the Rice Epicurean, walking to my dentist's office ... you get the picture.

I still have no desire to own a home, despite the fact that now may be the best time in my lifetime to do so (plentiful inventory, rock-bottom prices, most favorable terms).

So all this may be the reason why I have no real strong opinion about the mortgage interest deduction. But again, if you do I want to hear it. Comment there or here, please.

Update: I should add that since I moved into this house, the landlord has had to a) patch the roof, b) have dead limbs trimmed from the two large trees -- they were neglected so long that they were in danger of falling and possibly injuring someone, and c) replace the furnace -- which was $2000 by itself. Oh, and he had to pay the property taxes. I'm sure glad I didn't have to come up with all that out of my pocket at once.


Matt Bramanti said...

There are some things to be said for homeownership. Owner-occupants tend to maintain their properties and neighborhoods better than renters and absentee landlords, as you point out.

Ellen said...

thank you so much. people have often asked me, "how could you pick up and leave like that?" and my reply is always, "my lease here was up and the job offer was there. no problem." i treat each place i live in as though i owned it. that's what adults do. my friends who have rental property only rent to college/university faculty, writers or medical residents. slobs trash rental properties, and greedy landlords tend to skip background checks and take in whomever can make the deposit and rent. bad decision.