Monday, March 23, 2009

Real Estate

It is conventional wisdom that once you have the resources or credit to do so, you need to buy a home. This is supposedly better than renting because for about the same money you are "throwing away" every month in rent, you could be "building equity" in a stable place you can call your own.

The recent housing collapse exposes that fallacy. The people who can walk away unscathed are the renters, while the owners are in dire straights indeed.

In reality, you can't own real estate. Real estate owns you. Once you have engaged it, it starts to dictate your life to suit its own needs, while yours are marginalized.

Unless you have enough money to pay cash, real estate is essentially a 20-30 year rental agreement, vs. the typical 1-year agreement of renting from someone else. It takes a lot of self-confidence to enter into a 30-year contract for anything. It implies that you know where you are going to be in 30 years and have your life all worked out. You MAY be able to get out of the contract at an earlier date by selling the real estate, but this is by no means guaranteed. At the end of the 20-30 years you may own your home outright and no longer be required to pay rent, but at that point you're approaching the end of your life, and the value of the home—indeed the value of money itself—may not be the same to you.

You can make a lot of money in real estate, but you can also lose your shirt. Life is too short for that kind of speculation with the bulk of your resources. It's like going into a casino and wagering everything you have (and everything you will have for the next 30 years) on a single roll of the dice. No matter how good the odds look, you don't need that kind of risk.

People will always need places to live, the conventional wisdom goes, so the value of real estate is always going to rebound in the long run. Think again! People need places to sleep, shower, changes clothes and eat, but that don't need the vast spaces they have come to see as their birthright. Especially in the post-internet era when so much of people's lives is virtual, they need very little space to live comfortably or impress others—e.g. 100 square feet and an interesting website, not 2000 square feet plus 5000 square feet of empty lawn.

What happens when people have more living space than they need? They start collecting Things They Don't Need! Whatever space is available, it will soon be filled with junk—dubious art objects, needy pets, appliances that are never used, clothing that is never worn and food that will probably never be eaten. Instead of just being a place to stay, the home become a shrine to its owner, a tastefully decorated personal museum that hardly anyone ever sees and that will eventually be liquidated in a garage sale.

Then the space itself needs maintenance, so you need cleaning supplies and tools. You need a lawnmower for the lawn, vacuum cleaner for the carpet, ladders to paint the house and a security system to protect it all from theft. As soon as it is "owned", a home can quickly mushroom into a vast, unwieldy empire that absorbs all of ones extra time, energy and money.

If you merely rent, you may also collect TYDN, but the tendency is much less, knowing that you may move in a year. Renters are less invested in their home, which may be bad for maintenance of the property but good for every other aspect of their life.

Your highest calling is not necessarily to be a financial investor or a museum curator. Shouldn't you be, above all, a creative entity? Creativity implies and requires the ability to move, to shift gears and change location, to follow the muse and opportunities wherever they lead. Real estate ownership inevitably constrains that.

The choice often comes down to: Do you want to accomplish great things, see the world, solve important problems, explore new creative avenues—or do you want to spend your life paying for and maintaining a piece of real estate?

You can't take it with you. It's cold comfort to eventually live in your home rent-free only to discover that a huge portion of your creative potential has already vanished.