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The Business of Real Estate

Sensational Post?


This post appeared yesterday on Yahoo! Finance:

Why I Am Never Going to Own a Home Again

The writer and interviewee is James Altucher, managing director of Formula Capital.  I have done some brief research on Mr. Altrucher and his company, which manages mutual funds and hedge funds.  If he’s as bright as he seems to be, I do not believe  that he believes what he says in this rant.  How do you spell S-E-N-S-A-T-I-O-N-A-L ?  Might he and his company gain by depressing home sales, or home construction?

In fairness, I certainly gain from a healthier real estate sector, so I am not claiming complete objectivity here.  For a financial guy, though, Mr. Altucher seems to have some very odd opinions.  Here are his key reasons for NOT buying a home:

  • You have to make a down payment.  Oh, my!  I wonder if he gives away shares in his funds?  As far as I’m concerned, thank goodness down payments are in vogue again.  It was buyers with no skin in the game that exacerbated the mortgage crisis and contributed significantly to the long-term decline of the housing market that we have experienced.
  • Buying and selling homes require paying closing costs.  Again, does his company work for free?  Are there brokerage and management fees involved in his business? There are a lot of hands in a real estate transaction — mortgage lender, title company, surveyor, appraiser, and, yes, real estate agents.  If he suggests that none of those folks add value, fine.  Otherwise, there MUST be some transaction costs.
  • You have to maintain your house.  What’s to say about this but DUH!?
  • Deductibility of mortgage interest and property tax expenses is a “myth”.  Simple fact:  Under today’s tax code, these expenses are deductible for most homeowners.  Like all tax deductions, you spend more than you get back, but in what world is ANY of a monthly residential rent payment deductible?
  • “You’re trapped.”  Maybe.  It is a fact that owning a home reduces your ability to just pick up and move on a whim — for a job or a marriage or just to take a year off and sail the world.  That’s a choice — apparently one that Mr. Altucher is uncomfortable with.  That doesn’t make it the wrong choice for someone else.
  • It’s an “ugly” investment:

(a) Illiquid — True a house is not a piggy bank.  Keep your savings accessible.  Don’t put everything you have into a home.  You will not be able to sell it immediately if something else demands your cash. 

(b) High Leverage — Usually true, but that’s usually the good news.  It’s what allows “regular folks” to get control over a $100,000 asset for, say, a $10,000 investment.  If that asset gains 5% in value, it represents 50% growth on the amount invested.

(c) No diversification — No argument.  For most of us our home represents a very large portion of our total net worth.  On the other hand, I don’t know anybody who has seen a 50% gain on even the most diversified stock portfolio over the past few years.

Is a house an investment?  Possibly, but I do not encourage my clients to view it that way.  It is a fact that over the past fifty years, if you owned real estate you would have gained value over any ten-year period.  If you have a way to live someplace for free, go for it.  But if you’re going to pay rent, and if you could own a home for the same costs, why would you NOT put your money where you have a good chance of having something to show for it at the end?  Here’s a chart from another recent post on this subject (Benefits of Home Ownership):

Home ownership is a personal choice, and it’s an important one.  If you need the ability to move on short notice, buying a home probably isn’t for you.  If you are so cash-constrained that the slightest financial surprise could push you over the edge, then tying up your cash in a house is probably a bad choice.  I consistently advise my clients to (a) buy within your means, (b) plan to stay for at least 3 to 5 years, and (c) manage your life in a way that allows you to pick the time to sell, and not be forced into selling when market conditions or your personal circumstances are wrong.

The benefits of homeownership are so obvious, that I simply can’t accept that James Altucher believes what he blogged on the subject.  His advice may be exactly right for him, but for about 2/3 of Americans, owning a home has been the foundation for financial strength they would not have realized by saving a little of every paycheck for forty years:

(a) A generally stable store of long-term value.

(b) The opportunity for significant appreciation — over time.

(c) Reduction of income tax liability along the way.

(d) Maybe the only chance to live rent-free after retirement (or before).

Now that’s what I call a sensational opportunity.

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About Bill Morris, Realtor

More than thirty years of business experience (high tech, client service, business organization and start-up, including many years in real estate) tell me that service is the key to success and I look forward to serving you. I represent both buyers and sellers throughout the Austin metropolitan area, which means first-hand market knowledge is brought to bear on serving your needs: -- Seller Representation is a comprehensive process that begins with thorough market analysis and consultation, continues with properly staging the home to achieve the highest price possible in a reasonable time on market, a complete program of marketing and promotion, ongoing updates and communication, closing coordination, and follow-up throughout (and after) the sale. -- Buyer Representation is also full service: shopping, previewing, price and market consultation, contracting, negotiating, coordination of inspections, appraisals, repairs, and closing details, and follow-up beyond the closing of your purchase to ensure your lasting satisfaction. Because the real estate industry is becoming more sophisticated and challenging every day, you need a professional that understands the industry and is positioned to stay ahead of the game. I go the extra mile to help you achieve your goals. That's why I constantly research the market and property values so your home is priced effectively from day one. I also make sure the public knows your home is for sale by using innovative advertising and marketing techniques to attract potential buyers.

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