Archive: March, 2012
I recently read this article on TechCrunch by James Altucher entitled “Why Entrepreneurs Should NOT Buy Homes“. In discussing the topic with some friends, I was turned on to this article in the Wall Street Journal by economist Robert Bridges showing statistically why home ownership is almost always a poor investment. The idea rings true to me. Altucher focuses on Entrepreneurs, but I believe his argument could be extended to almost anyone and it has to do with specialization of skill.
You could summarize Altucher’s article in two core points:
- Entrepreneurs should not own homes because the investment is illiquid meaning you can’t use the money for other things when you need it. In the same sense, when you might need to pick up and move to a new city for a job or your level of income changes it can be difficult and expensive to sell your house.
- Owning a home takes time, new skills, and adds a lot of stress that distracts your from things that are most important: being really good at what you do and enjoying your life.
Altucher’s argument is similar to the idea of specialization of skill and division of labor. Economic prosperity and development really took off when people stopped doing everything for themselves and started to focus more on what they’re good at. If you’re good at making furniture it’s more efficient for you to spend your time doing that and investing money in better tools rather than spending half your day farming and investing money in farming equipment. Leave the food to someone who does that for a living and sell him some furniture in exchange. Likewise, leave the property management and investment to someone who does that for a living and focus your time and money on being better at whatever it is you do – be it startups or photography or teaching economics.
If, on the other hand, you really ENJOY fixing up houses and aren’t worried about moving soon, it could make sense to buy a house for personal reasons, but less as an economic investment. Also, this argument ignores the psychological aspects of lack of disciplin for investing controlled by forced mortgage payments, but a similar effect can maxing out your 401k and other investment strategies.