Archive for November, 2007

Or more to the point: does it make sense for me?

In a word, No.

I’ll explain why: A 150 to 200k dollar mortgage ends up between $1000 and $1200 bucks a month. Then you add on internet, gas, power, maintenance, cable, insurance, etc, etc, etc. The price is getting up there past $1500 bucks a month…not cheap for one person (me).

Currently, I pay a ridiculously low rent of about $500…that includes power, gas, internet, etc.

You can run the numbers on that as many times and as creatively as you like: Its a better financial decision for me to stay where I am…period.

But what about the tax write-off? After its all said and done that may lower my monthly payment by 100 to 150 bucks…no where making up the difference. Additionally, the vaunted tax break on mortgage interest really is no tax break at all, but simply avoids double taxation. How? Easy…you still pay tax on the value of the asset (property taxes). If you paid tax income tax on the mortgage interest and paid property taxes, you’d be taxed twice on the same thing. There is no real tax break for homes….simply the lack of being double taxed.

Additionally, even the mortgage interest you do write off is only eligible once you pass the standard deduction. If you can’t reach that, then there is no deduction at all.

But what about the equity? You don’t really get any in the first 5 years. Most of it is interest. There isn’t much difference between rent and interest.

But what about the small amount of equity you would gain? Yes…I would get a small amount. But I currently get another kind of equity each month paying rent that is very useful: Cash. The difference between my mortgage and rent ($1500 minus $500)….about $1000 bucks a month…is mine. I build a thousand bucks of equity every month by not buying a house. (In reality I spend some, but not all, of that. If I bought a house I would have to change my spending habits…which isn’t all bad).

But houses are good investments? A) Uhh…..not in my situation. B) I’m tired of hearing that “home values always go up”. The Titanic was unsinkable. The world was flat. Yeah, yeah, yeah. The fact is that they are dropping now. Yes…this very quarter.

But they go up in the long run? Uhh….in the long run we’re all dead. In the medium run though…not always. In Japan the market has been depressed for over a decade. In economics there is the concept of “no money left on the table”. If houses ALWAYS went up; everyone would buy them…thus driving up the prices. At some point the price becomes overinflated….and it must drop. That time might be now…or it might not, but to say “home values always go up”….that just isn’t true. In finance there is also the concept that “past performance is not an indicator of future performance”. I don’t care if housing has ALWAYS gone up in the past. That doesn’t mean it always will in the future.

Here are some other myths vs realities about home ownership.

Regardless, I’ve been looking pretty hard for something. I’ve seen just about every home and townhouse in the Smyrna area at this point. Why?

Well….if I’m staying in Atlanta, which seems to be the case since I’ve gotten a job I want….then I might actually LIKE to have a house. It may not be the best financial decision, but it is not a bad decision if that is what I want, and I can afford it.

I will say to those who buy a house because it is a “good investment”…you are speculating. If you’re going to speculate, you might as well buy stocks, or start a business, or even gamble. If you buy a house, fix it up, and try to sell it…you are speculating. You are running a small business. Nothing wrong with that…but lets call a spade a spade.

Buying a home is about wanting a home, and making a commitment to a place. If you start talking about doing it for the purpose of making money…then I hope you know about homes…because its the same concept as knowing about stocks, or a particular industry. The only thing that makes real estate speculating less risky than other types of investing is that there is less volatility. Home prices go up a little, or down a little…they don’t peak and trough nearly as quickly as stock prices (as a general rule).

Home buying also does not have the upside of stocks, or owning a business. A home remains a home, and the land remains much the same. The demand is much the same (unless there is a large, immediate influx of people with money to the region)…and the supply is much the same (it takes time to increase supply and it will never fluctuate wildly, unless there is an earthquake).

Stocks/owning your own business though…those can go from zero to a million bucks a month rather quickly. The building and real estate that the business sits on…its value will remain much the same, much as your house will; however, the value of the business, because it performs some other function that can increase in value (the service it provides)….can really appreciate quickly.

The price of a home can only appreciate as quickly as more people move to the area that have money (which increases demand)…or you happen to own a house that has features that are in vogue (which increases demand). Increases of supply (building more houses) decrease the value of your home.

But home prices do appreciate, right? Yes. For two main reasons (yes, this is a simplified explanation): 1) Inflation. Home prices largely track inflation. Since that runs at 3.5% a year or so…your home price does increase. But that is an illusory gain. 2) Increase in GDP: The economy itself (mostly productivity) grows at 3% or so a year. As total wealth increases, people are more able to afford homes. (You can argue, that its JUST inflation that matters. With a fixed money supply (notes in circulation), economic growth actually produces deflation, which would cause your home value to drop..even though it was actually worth the same amount in absolute terms.)

If homes aren’t really good investments, then why is everyone so high on them? 1) You can live in them. You can’t live in a stock certificate as an investment. That is hard to beat. 2) They tend to work out as investments. The reason being that they FORCE you to save money on the tail end of the loan when you’re building equity. Most people wouldn’t save any money otherwise, so it seems to work out for them. If they’d been more financially disciplined and invested the extra cash in the stock market…they might have come out ahead. But because no one does that, its useless to talk about. Home ownership IS a good investment for most people, because it is their ONLY significant outlay of cash that has any chance of appreciating…and it usually does…a little bit.

Lastly, yes….on the tail end of your loan, when you get to that point…its a good idea. You are essentially not paying ANY rent anymore. All the mortgage value goes to equity.

So…..will I buy a house? Yes…mostly likely, because I want one. It won’t be my best financial decision though. That would be to live in my parent’s house, never buy anything, save everything, invest heavily in the market, and wait to retire in a Central American country. I’d be living on the beach in Panama like a king (maids and all) by my early 40s…..and never work another day for the rest of my life.

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Men want to be cute and fragile.  Women take the lead.

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Onion rings from Ted’s Montana Grille: Seriously…they’re great. The best I’ve had since I was a kid at some hamburger joint in Myrtle Beach I can’t remember the name of.

Pandora Radio: I don’t have a TV. I do listen some to radio (only on the internet), but mostly classical, because no stations really suit me. Well…I made my own station. You get to choose a few songs you like, and then it creates a station around your preferences. If you like a song, you can give it a thumbs up, or add artists if you find others you really like. Create as many stations as you want for different moods. Here is my first one.

Fuller’s 1845: A well balanced, smooth bottle conditioned ale. It isn’t the same as drinking it from a tap…but its pretty good. Malty, but without being too sweet, a very slight bite in the aftertaste. A great beer drinker’s beer.

Ate dinner with an old friend: Can’t beat that. Jeffrey is doing pretty well from what I can gather. I like his wife, and they both have new jobs. He got his car stolen last weekend, and insurance (since he had liability only) won’t cover it…but the car wasn’t that great anyway. It’s life. What can you do?

Went for a short jog: I suppose there is nothing that special there…but in light of the fact that I’ve been nursing a sprained ankle for the last 3 weeks, I guess its progress to be able to run a little.

….now I just need to win the lottery.

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I bet this guy gets laid all the time.

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You’re kidding me right?

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Looks alot like the old AT&T to me. I guess they did change the logo:


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I actually think this might happen one day…and we’ll all be the happier.

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At work things are good. I have a new job, which isn’t all that different from my last one. I enjoy coming to understand how work gets done though. Its a weird mix when people come together to do something and then a hierarchy emerges for who asks what to whom to get things done. I have learned a lesson I think about work. It might just apply to the technology development sector, but I suspect it applies to all large projects of a technical nature: coordination costs are HUGE.You have no idea the amount of effort that is spent trying to inform all relevant parties of stuff that other people already know…but you can’t ask those that already know because their calendars are already full the entire day. In other words, the cost of coordination have grown to the point that some people don’t do anything at all anymore…they just know general info that other people don’t have the time to know.

The value chain runs in a trickle from these people. They know what needs to be done…but because they’re in meetings all day, they can’t do anything really. They just trickle bits of relevant information to those below them, who further elaborate in trickles to those below them, until we actually get a usable output at the very bottom.

But those at the bottom aren’t even close to being equipped with the information to do it all on their own. It requires the small inputs of those above, in their small areas of expertise, to get to the bottom. The rub is that those above are only adding small values at each point in the chain. Each value add is small; which means each person at the top of the chain isn’t doing all that much, but their decisions require more and more information to make, which require more coordination costs…more meetings….more nothings.

All these people could be replaced by maybe two or three people that REALLY know how to do their work. This means people that have done perhaps all the jobs in the chain over a multiple year period. The problem is that these people don’t exist. No company can keep people working in a particular business long enough to staff the talent they need.

I always say, “Shit…I’ll take you, me and Johnny Smith…and we can do the work of all 15 of those clowns, and still go home at 3 o’clock everyday…and do it better.” And that’s true. But I could never get those three people to all work with me for any significant amount of time, because people that really know what they’re doing are in such demand that you can’t have a significant number of them working on the same project.

The staffing will always be terrible unless you find a way to pay (in some form, even if its not in $) these uber-producers. I don’t see any companies that are able to do that because its so hard to tease out who is actually driving the project. People know informally, but I’ve never seen a company that pays for it.

Imagine a low level manager where the pay is generally around $40,000…except some people, in the same job, are making $70,000…almost double. It’d never work. The other managers would get upset if they found out others were making so much. You’d need an airtight measurement system for incentives that everyone believed in. Most work is so fluid there is no way to measure that extra productivity…at least currently.

Here is a good idea for Google: they should try to figure out how to measure it.

Current metrics suck for large scale project related work. Its so hard to tease out who is driving results. Google had the same problem with the Internet: its so hard to tease out what someone means when they search for something. They figured out a better way.

They should figure out a better way to search for “who is driving results on this project”. Maybe it could be based on some weighted average formula of “number or emails sent to and from, number of meetings called/attended, number of rows of code written, number of phone calls to and from, number of mentions in other people’s emails, number of project tasks assigned, complexity of work (a tough one), # of positive mentions in the performance reviews, etc, etc”. Of course, the formula would have to be a secret or people would try to manipulate it (which happens with the current Google search). Regardless, its possible.

On all other fronts I am just chilling. I have posts coming on CYA, women and the workplace, and the placebo effect.

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