Thursday, June 11, 2009

Owning The Hood

"Ownership" is a thing whose value is sometimes overrated.
Take rental property as an example.
Let's say that you own a neighborhood outright and have a sense of empathy towards your tenants.
Let's say that you decide to charge one or two hundred dollars a month in rent (or no rent in cases of extreme hardship) to people who are having a hard time getting ahead in life.

Regardless of the town, county or state - there are costs associated with owning property.
Taxes (even on the most humble homes - and even when the properties are listed in other peoples names to take advantage of the state's lenient Homestead Tax Discounts.), insurance and repair/maintenance costs would dictate that the usual rent would be closer to five hundred dollars a month [$3,000 ownership costs ($1,500 taxes, $800 insurance and $700 yearly repair/maintenance costs) divided by twelve ($250) and then doubled ($500)].
So, if you charge $200 a month - you are paying $600 a year for someone to live in your homes.
At $100 a month - you are paying $1,800 a year for someone to live in your homes.

Now let's say that a hurricane comes along and does about $4,000 in damage to most of your houses.
The tenants receive financial aid from FEMA, The Red Cross and local charities.
The owner is stuck to make repairs from his own pocket, because there is a $5,000 deductible on each insurance policy.
(Or because the insurance companies are so financially obligated to so many people - they decide to disallow many of the items for which your policy states you are covered.)
Since too much property is owned - FEMA the SBA and other agencies decide that the owner has the resources to make any repairs on his own and decline to offer any assistance.
But the properties must be repaired to be able to charge any tenant any amount of rent.

So who is better off?
The renter - who has no responsibility but who qualifies for financial aid.
Or the owner - who has all of the responsibility but is stuck paying money after the storm?

If someone advises you to "Own" your house - think about it - you may be better off renting.


DPizz said...

Get your shit of Section 8 / HUD Dude!

FreeMan said...

Ownership is always better because the potential to have passive income off of it is a plus. The tax write off from interest on the loans are a benefit if you are trying to build. The ability to pass property on to another generation is a plus. Lastly the feeling to say this is the house I was raised in.

As a man who only grew up in apartments I don't have a family home to return to. My old apartment is rented and where my mother stays now has never been my house. So you kind of feel in no mans land all the time. So besides the money and profit the ability to call a house your home has a value never really talked about unless you never really had a home to begin with.

RunningMom said...

I loved my apartment. I loved the people (well most of them) and I loved that we had a lot of single parents that watched out for each others kids and that there were a lot of kids for my son to play with. But what Freeman said about not having a family home is part of the reason I bought my house seven years ago. It's more than a house, it's a memory, it's a feeling of security, it's having a backyard and a basement with a hidden playroom under the stairs. It's also a work in progress!

As for the guy that owns the neighborhood - he should stop enabling his tenants to live this way. They should have to be challenged, they should have to work hard, they should have to have problems to solve and figure out a way to pay their (fairly priced) rent. Unless that guy is independently wealthy and just wants to attract the next person and the next person and the next person to pay their way for them..... but then he can't complain ;)

uglyblackjohn said...

@ DPizz - Nah, man...
I'm trying to get my people ON Section 8 and out of my houses.

@ FreeMan - I was just thinking (today) about who I would leave my stuff to if I died.
I look at my house and remember the day my grandparents finished building it and first moved in.
I remember the great grandparents who saved for years to by the Victorian, Georgian and Federalist funishings.
I look at photographs and painting of ancestors going back to the 1700's.
Not being from here, my neighborhood knows more about my family than do I.
When I go to the area of the rentals, I hear the tales of the people my grandparents hustled and those of the people they'd helped.
To tell the truth - I often feel like that guy who'd dreamed of eating pancakes with his real family in that movie about the troubled Navy guy.
Having thousands of cousins - I feel more at home here than I do where I'm original from.

So yeah, generational wealth has it's benefits.

@ RunningMom - I used to deal with single mothers.
But that got to be too much.
Now all of my tenants are those who have fallen through the cracks.
All of my current tenants are elderly or mentally ill.
(But I'll let people in financial trouble stay for free in vacant units for short periods of time.)
I'm in the process of of getting them on housing and enrolled in government programs for which they qualify.
Chances are that I will tear down the old houses and turn the adjoining lots into a community garden and let the main house stand as my office.