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.

No comments:

Post a Comment