Sunday, March 27, 2011

A rebuttal to James Altucher

James Altucher, director of Formula Financial and author of The Altucher Confidential, thinks it's a bad idea to own a house. Each of Altucher's points can, (and should) be rebutted.

A) Cash Gone - True you have to pay interest and other fees on a mortgage, and that cash is gone. But it's even worse for renting. Before I bought my home, I rented various apartments for 14 years. Over those 14 years, I paid a total of $100,000 in rent. If those had been mortgage payments, instead of rent checks, I might have built a few thousand dollars in equity. But they were rent checks, and all of that money's gone.

B) Closing costs - This is the one area where the Altucher has a good point. Closing costs can be onerous - which is why many people advise that if you'll be in a house for less than 5 years, you should rent. (The closing costs are more than the equity you would build over 5 years.)

C) Maintenance - OK, it sounds nice to live in an apartment or condo, where theoretically everything's taken care of. But you can't always trust a landlord to fix things right and in a timely fashion. The bathroom vent fan stops working - you call the office - they come by and remove the vent, leaving a gaping hole in your bathroom. Weeks, then months go by, and despite your phone calls, the hole is still there. This happened to me in one of the apartments I rented. It's the old mantra "if you want something done right, do it yourself."

D) Taxes - You CAN, in fact, deduct mortgage interest from your federal income taxes. It's not a myth. I do it every year. Furthermore, landlords pay local property taxes, and they pass those taxes on to tenants as part of their rent.

E) You're Trapped - You can't just up and decide to leave one day, because you have to sell the house. Renting isn't the panacea Altucher would have you believe - if you break your lease to leave early, it can be costly. But the real question is: is it really that bad to be locked into a house? If the neighborhood is stable and safe, and you have friends there, why are you so eager to leave? Do you really want to uproot your children and put them in a new school every few years?
(And I wonder if Altucher actually studied history before he gave his rant about how big corporations fomented the "myth of homeownership" as a way to keep workers from moving. The 19th century industrial town was built around renting. Factory owners built houses, and rented those houses out to workers as a way to take back their wages.)

F) Ugly - As in, ugly investment. Maybe houses are really ugly investments. But a house is much more than just an investment. It's a home. It is a reflection your personality and lifestyle choices. It's yours to personalize. Whether that means painting it your favorite color, or covering it in beer cans - you can't do that to a rental.

The decision to buy versus rent is a matter of personal choice. I think Altucher got caught up in the financial aspects of it (he is a financial expert after all) - but there's a lot more to the decision. It's up to each of us to educate ourselves, and make our own decisions.

Saturday, March 26, 2011

Why Am I the Only Person Who’s Bothered by This?

Private Universities have a State Granted Exemption to Houston’s Drainage Fee.

Houston Mayor Annise Parker is now saying that churches and schools should be exempt from the City’s new drainage fees. What nobody’s talking about, is that private universities are already exempt from the drainage fee under state law. We will all have to pay $5 a month (more if we own businesses), but Rice University, the Baylor College of Medicine, the University of St. Thomas, and Houston Baptist University won’t have to pay a cent!

These are wealthy universities. Rice has an endowment of over $4 billion; the Baylor College of Medicine has almost $1.5 billion in endowment. HBU has $85 million. The University of St. Thomas has over $50 million in endowment, and it gets the backing of the Catholic Church. None of us has that kind of money, but we’ll have to pay the drainage fee and they won’t.

Endowments aren’t the whole story. Rice’s campus is 300 acres. HBU has 100 acres. The University of St. Thomas covers 19 city blocks. The Baylor College of Medicine covers a sizable portion of the Texas Medical Center. These are big pieces of land. They get rain. They use the City’s storm sewers and other infrastructure – but they won’t have to pay for it.

Remember, these are private universities. They don’t receive direct tax subsidies. They’re not like public universities or schools, where paying the drainage fee would amount to double taxation (Negligible amounts of double taxation, perhaps, but double taxation nonetheless.)

This strikes me as terribly unfair. We really should eliminate the private university exemption. If that doesn’t happen, then maybe City Hall could convince the leaders of these institutions to voluntarily pay the fees. I’m shocked that nobody else seems to be as bothered by it as I am.

Sunday, March 13, 2011

Confusion on Both Sides

Why there are such bad fights over Low Income Housing in Houston

Last year, when a developer from North Carolina tried to build Tax Credit housing in Katy, I wrote about the need to use tax credits to fix existing housing rather than build new. It’s something I stand by, and we’re starting to see some movement in using tax credits to fix bad apartments here in Braeburn. But they’re at it again out in Katy. This time the company is from Indiana, but their proposal is basically the same as the one last year.

It can be really confusing for neighbors to understand what developers are doing. There are many different programs and types of housing for the poor. Usually termed "affordable housing," this can include:

- Public housing, which is owned and run by local governments with federal and sometimes state subsidies.

- Slums, which are privately owned and don’t benefit from tax subsidies or oversight, other than local building codes. These actually represent most of the affordable housing here in Houston.

- Tax Credit housing, (also known as “Low Income Housing.”) built by private developers using tax credits authorized by the Low Income Housing Tax Credit Program (LIHTC) from 1986. (This is also sometimes known as “Section 42 Housing.”) Basically, developers get breaks on their taxes if they set aside a certain number of apartments at below market rates, expressly for people making less than the area median income.

(You’ll notice I didn’t include “Section 8 housing”. Section 8 is a federal voucher program that fills the gap between local market rents, and what poor people can afford. It’s not actually a type of housing.)

Developers are confused too. When we neighbors fight their proposals, they get frustrated and call us names. But Houstonians aren’t racists. We don’t hate poor people. Our “NIMBYism” comes from the fact that we’ve borne the brunt of bad development for the past 40 years.

The problem started in the 1970s. Lots of people got very rich in that decade, developing apartments in Houston’s suburbs. Neighborhoods were fundamentally changed - at first for the better. Young professionals moved into the apartments, enjoying tennis courts, swimming pools, gyms, even night clubs and movie theaters. Crime rates remained steady. Real estate prices in neighborhoods near apartments actually went up in the 1970s.

Then came the oil-bust of the 1980s. Houston’s economy was hit especially hard. The apartment bubble of the 1970s, burst. One-by-one, apartment complexes fell into foreclosure and started to deteriorate. The deterioration continued through the 1980s and 1990s. Crime rates spiraled higher at apartments. Living conditions for tenants got worse. Property values stagnated around apartments.

Tropical Storm Allison flooded some apartments in 2001. More apartments were damaged during Hurricane Ike in 2008. The credit crisis made it impossible for landlords to fix their properties, so properties went from economically depressed, to completely derelict.

Now, whenever someone proposes affordable housing, we Houstonians immediately think “derelict property.” Of course it's not right to think this way. Low income housing can contribute to our neighborhoods if it is well-designed and well managed; and if it takes the place of slums or derelict property. But it's a hard-sell because of history. I just hope we can move past the confusion, and developers and neighbors can start working together to get the right investment, in the right locations.