A discussion of the advantages of buying vs. renting, real estate bubbles, class, privilege, luck, race, and cash flow.
Damn, that preceding sentence is a mouthful. Let’s see how much of it I can beat into some unified theory of how & why Serena (my wife and partner of 13 years) and I are able to buy a house in Portland, Oregon for cash. First of all, many would not pay cash even if they had it, as it would be possible to take a mortgage, large or small, to buy the house with, while diversifying the funds in a variety of investments. There’s more than one way to skin a cat, suffice to say that the appeal of living with no mortgage trumps it all for us.
As an entrepreneur, buying a house six years ago in the overheated S.F. Bay Area housing market has turned out to be my best investment ever. I’ve always had just enough to invest in my business & publishing activities. It’s kept me alive and been a great tax break, but buying a house turned into an unexpected bonanza. Serena and I are relocating from Oakland to Portland for many reasons, financial concerns being just one; family concerns really are driving the decision to move. It is, however, our willingness to relocate that puts our equity into play and allows us to say BYE BYE MORTGAGE!
Time to talk about the luck part. When we bought the Oakland place, we felt fortunate indeed, as it’s a gorgeous old Victorian in a border line neighborhood. Just our speed. It felt quite precious at first, in terms of coughing up the monthly funds to make it happen. We figured it’d feel like we were paying a market rate for our living space within a few years, with normal appreciation. Within a year it became apparent that home values, at least locally, had taken off like a rocket ship. Even as the dot com economy headed south, the value of our place kept zipping up. Ultimately, we sold for more than 2 ½ times what we bought for, only six years later. I’ve been told we have had perfect market timing, but really there is only one word for it: LUCK. In the case of both buying and selling, the decision served our needs in our lives at the time, financial concerns being only part of the big picture. I might also mention, what with the trashing that the Bush/Cheney beast has given our currency, the gain starts looking a bit more dubious.
Next, let’s tackle BUBBLE word. The bubble has to end soon, right??? In so many places, real estate values have come unglued from what people can afford to pay. As I write this in the spring of ’05, my call would be that the bubble (and attendant sellers market) is on it’s last legs; a year from now will see a slow, depressed real estate market, or at least a buyers market, and values will adjust down 10 – 15%, as mortgage rates rise. Admittedly, I have zero qualifications to make such a statement, and I am probably wrong. That’s just how it feels to me. The bubble may expand ever more! I may have been a fool to sell now! Why didn’t I wait until my house was worth 22 million bucks before selling it??? But lemme warn ya kids, if the bubble keeps expanding, it’s just gonna make a bigger, more slippery mess when it pops!
So here we are. As an entrepreneur, I am poised to live mortgage free. I am moving my small business to a new city with my core clientele intact, some capital to start with, and a pretty clear plan on marketing the service (As I said elsewhere, I don’t know if I qualify as a “bohemian” with all that stuff going for me!). I stated that buying a house sure was a good investment for me. It would be my advice to buy a house if you can reasonably afford to do so. In terms of your access to credit, and your overall financial picture, it generally is a big help. Deductible interest and building of equity are the obvious advantages, but you can also paint the walls your favorite shade of green and stuff like that. Install one of those new fangled cat launchers on your roof!
I didn’t buy a house until I was almost 42 years old. For a couple decades, concerned mainly with publishing comic books, I considered home ownership something that would never be in the cards for me. Once I was able to purchase real estate, I pointed much of the cash flow of the successful small business I’d built into paying the mortgage. I had built the cash flow, and had paid rent with it year after year. So it felt good to finally get something for it. I’d like to acknowledge that it may have ultimately been easier for me to get my foot in the real estate door than some, for a variety of reasons. One has to do with privileges I was born with. Although I’ve been assiduously downwardly mobile all of my adult life, I hail from an upper middle class background. Many of the risks I took as young man were mitigated by the knowledge that if worse came to worse, I could run back to mommy and daddy and crash in their cat-pee infested basement while I collected my wits. These same parents volunteered to gift me my share of the downpayment for the house. Pretty darn generous of them, and very lucky for me. Another advantage I have is that I am a white man in America. Despite all the backlash in recent years against feminism, liberalism, political correctness and what have you, I’ll be right up front with this: It is a statistical fact, and a matter of structural truth, that I have benefited all my life from being a white man in our racist, conservative, paternalistic society. This ain’t white guilt baby, I calls ‘em as I see ‘em. Is that a political statement? YES. Am I a liberal? YES. I also think the government should spend money on housing, health care and education instead of blowing shit up. But you knew that.