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CHAPTER FIVE
Why will you build it?
41. Why own a house?
The title of this section must have limits put upon it. The whole book is a WHY book, even if you found it on the HOW shelves at your bookstore. Though love is the most important word in the language, why is in my opinion close behind. Of Mr. Kipling's six key questions, why is certainly the most important, because how provides the force, but why provides the reason, and reason is more important than force.
In our present context there is more money to be saved by asking why than by finding out how. The purpose of this section, then, will be confined to exploring the why of house ownership in the first place.
Question: Why own a house? Lots of people don't. Something around half of all the families are non-homeowners. Lots of people just plain don't want to own a house. Many others who do own houses aren't happy about it. Ignoring for the moment the emotional, geographical, and professional factors, let us examine house owning on a straight dollar basis. Here is a suggested tally sheet, which you can re-write to fit your own conditions:
WHAT IT COSTS TO RENT A HOUSE in terms of a family desiring a
domestic facility, apartment or house, whose usefulness I will
call One Eff:
Rent, at $150 per month $1,800
Decoration and revisions not
chargeable to the landlord 200
Metered services: gas, light telephone 300
Leisure-time expenses (renters dine out,
play out more than owners) 600
Annual Total $2,900
Insofar as you don't agree with my estimate of leisure-time expenses,
you will have to play fair by increasing the quality of your living
quarters, thus increasing the desirability of staying home. Strike
out my last figure of $600, raise the monthly rental to $200,
and you will find you break even at $2,900. Bear that figure in
mind while we go on to examine:
WHAT IT COSTS TO BUILD A SIMILAR HOUSE in terms of a family desiring
an equal domestic facility, still called One Eff, but willing
to buy it or build it, and assuming it will cost $15,000, with
$5,000 cash down and the rest at 5 per cent interest:
Interest paid, $10,000 at 5 per cent,
averaged over ten years, less
income tax deduction-- $ 200
Interest charged to self,
3 per cent on an amount
beginning at $5,000 and growing
to $15,000 in ten years; no
income tax deduction-- 300
Taxes-- 200
Fuel-- 200
Maintenance-- 200
Metered services-- 300
Annual total $1,400
Many people don't worry about the "interest charged to self"
figure, but to play fair with yourself, you should. This is the
income you would have had from your money if you hadn't spent
it on the house. I use 3 per cent arbitrarily as being a compromise
between the low yield of, say, a life insurance policy and the
high yield of a common stock.
All the figures are arbitrary. I use them knowing that arguments will ensue. You will say, my taxes are more (less) than that, and so on. Please; the figures are intended as a numbers game to give us something to talk about.
From the numbers game totals so far, we find that owning seems to have shown a fifteen hundred dollar annual profit over renting. No charge is made against the homeowner for his capital investment, because he still has it. On an investment of fifteen thousand, a fifteen hundred profit represents a neat 10 per cent, to which we return the 3 per cent we already charged ourselves, making 13 per cent in all. Where can you do better than that?
But you say, "That's cheating, because we had something in mind a good deal better than a fifteen thousand dollar house." True enough. Remember that our numbers game so far has dealt with an equal domestic facility, labeled in each case One Eff.
Your dream house wouldn't be a dream if it weren't a lot more comfortable than what you have been renting. Now, how far up the owning scale can you go without losing money? You want something better, but how much better?
Let's try another set of donkey figures, this time shooting for a domestic facility labeled Three Eff, or three times as useful as the one above.
Interest paid, $30,000 at 5 per cent,
averaged over ten years, less
income tax deduction-- $ 600
Interest charged to self, 3 per cent,
on an amount beginning at $15,000
and growing to $45,000 in ten years,
no income tax deduction-- 900
Taxes-- 500
Fuel-- 300
Maintenance-- 300
Metered services-- 300
Annual total $2,900
The numbers game now shows that the breakeven point in actual
out-of-pocket dollars lies somewhere around Three Eff. In other
words, the owner, for the same number of dollars per year, can
enjoy a house three times as fancy as the one his neighbor rents.
Let's try it still another way. If you are now paying a hundred and fifty a month rent for a One Eff apartment, the chances are your spending patterns are geared to this figure. Call it a One Emm amount, and One Eff equates with One Emm. How many times One Emm can you afford to lay out over the years as the total cost of your dream house?
The answer looks easy. If a forty-five thousand dollar place is the break-even point when compared with a One Emm (monthly money) of a hundred and fifty, the maximum cost of your dream house can be Three Hundred Emm.
Three hundred times your present monthly rental, says the numbers game, looks like the most you can reasonably bite off as the price of home, fireside, and the hot and cold running water.
It would be nice if it were less. Three hundred, I said, is the most, the maximum. Let me quickly, though again arbitrarily, revise the figure downward to Two Hundred Emm, and stay out of trouble. There are two fallacies in the above argument that I want to expose before someone else does.
The first fallacy comes from the fact that you are still members of the human race. When you move from a One Eff to a Three Eff establishment, you will feel richer, which is one of the reasons why you wanted to move in the first place. Feeling richer, you will find it easy to spend more money. This throws my whole equation out of whack. I know, because I am, if anything, humaner than you are. If by chance you are one of those rare birds who can move to a Three Eff home without contracting a case of looser lucre, strike out fallacy number one.
The second and more serious fallacy may also be struck out if you had the good sense to select well-heeled parents or a rich Aunt Eliza who died young. The rest of us have to worry about where to get up the capital. Our numbers game could not, according to the rules, include capital as an expense. It isn't, yet we have to find some somewhere or keep on renting.
Most of us find it in the salt mines. We dig it out hour by hour along with the daily bread. At the end of a day's labor, it is hard to recall how many hours went toward the bread, which we ate, and how many toward capital, which we've still got.
Not knowing where you are or what salt mine you happen to favor, all I can suggest is that the capital may have to be budgeted as an expense, whether it is nor not. Let's take it easy and aim at a Two Eff, Two Hundred Emm place, or, in terms of the numbers game, a thirty thousand dollar house.
Having shed a tear for Three Eff, you're still way ahead. Your own house is twice as good as the one you were renting last year.
It would seem that the landlord has been getting rich at your expense, but that is another fallacy. He may be losing money too. For one thing, he can't build an apartment or a house exactly to suit you and only you. He has to keep renting it year after year to all sorts of people. Second, he fears that your behavior as a tenant will not be the same as your behavior as an owner. In most cases he is right.
The landlord's fears have shown you a solid dollar reason for owning your own house. You take care of it. You improve it. Whether the improvements are store-bought, or made by your own hands at the expense of Saturday golf, they remain yours, and your equity goes up.
Though ownership comes out ahead in the numbers game, the answer
to why own a house still hasn't necessarily been given. I said
before that lots of people own houses who shouldn't. Here is another
checklist to work on in terms of who and where you are:
CONVENIENCE: are the ready-made limitations of an apartment worth
more to you than the privacy of your own back yard?
MOBILITY: some people who move every three years make money by
buying a house and then selling it every three years later. Do
you want to go to this trouble?
INVESTMENT: house money, as we have seen, can earn 10 per cent
or better, but it's frozen capital, subject to delay and dismay
if you have to convert quickly. Maybe you would prefer to keep
all your capital liquid, even though it earns less.
DOMESTICITY: maybe you just plain don't like to stay home. There
isn't much point to building a Three Eff or even a One Eff house
if you genuinely prefer huddling in a corner booth at Joe's Bar
and Grill.
SPACE: is the extra space of a house and grounds worth anything
to you? What are you willing to do without to get it? If nothing,
forget the whole proposition.
PRIDE: can you put a dollar figure on the pride of ownership?
What is it worth to you to feel like a king in your own castle?
Once again, if nothing, forget it. You're better off without.
The checklist shows that owning a house has its perils as well
as its profits. The reasons for owning a house at all have to
be peculiarly your own. If you have good reasons, the chances
are you will get a good house.
Please don't build a house just because everyone else does, or because it's stylish right now.
You might wind up living in one of these things that can only be described as a chunk of horizontal slum. Ask yourself what your house is supposed to do for you. You'll get a better house if you know why you want it.
42. Why build a house?
Now that those who aren't firmly convinced of the merits of house-owning have become spectators, we can discuss whether to buy or build. For a while we will keep clear of aesthetics and keep right on talking money.
There is a fairly general though quite erroneous conviction that only the well-to-do build new houses for themselves, and that they then hand them down some years later to a lower income bracket.
This error is helped along by the many products with a wide cost spread between "new" and "second-hand." Houses aren't like that. Most new houses, unlike new automobiles, will, if well-planned and well-built, increase in value during their first years of life, then level off for a considerable period, beginning to decline only if and when they are seriously obsoleted by technical advances.
I know people of energy and imagination who make practically a second living by building houses for themselves, well-planned houses on good sites. They live in each for a couple of years or so, getting the grounds planted and settled-looking, shaking the inevitable bugs out of the arrangement, getting the fireplace nicely blackened up, and then sell out at a good profit. It's a little rough on the wife, but if there's a streak of gypsy in her, she has a lot of both real and vicarious fun.
The point is, if you know what you are doing and if you behave yourself, it can be much cheaper to build a house than to buy one.
This should and does hold true for all price brackets except the very cheap, mass-produced jobs, and, at the other end, the needlessly and capriciously expensive. People in all income groups build and buy houses. A bargain is a bargain no matter where the decimal point falls. Granted equal skill, functional design will save the rich man as big a share of his money as the poor man. The poor man, however, working under a rigid dollar ceiling, may try harder and thus come up with a sounder design and a better bargain. That is, if he is poor because of youth or occupational choice and not because of reduced Why-power.
I didn't say that it would inevitably cost less to build than to buy. I said it could cost less. There are terrifying anecdotes of the dollar damage done to people who set out to build their own. I say it was their own fault, every time. They planned poorly, or not enough. They shopped for the cheapest builder and the cheapest suppliers. They thought architects dreamy, frivolous, and expensive. After construction began, they insisted on changes and changes of changes, without regard for the ease or difficulty of the work involved.
They had to have "the best of everything," with best always defined as most expensive. They looked at too many pictures in too many advertisements. They believed everything they read in the advertisements and in articles written in obvious support of those advertisements. They asked for and took advice from everyone except their own architect and builder who were trying to do a good job for them at a reasonable price.
They kept adding things, usually too late, then blamed everyone but themselves when the price went up. They eliminated nothing. Building your own house can cost more than buying one if you make it so. Nevertheless, in spite of all the perils, you have an opportunity to make it cost much less.
"New building costs more than buying." This hoary statement is still current--and it is still a fallacy. It contains its own disproof. Let's say you go out and buy a house. Somebody built it. You don't for one moment think the seller lost money when he sold it to you. All you have done is pay for his mistakes without the privilege of making your own.
Here sits a house already built. It is for sale, and its suits you; well, almost. You like the site, the neighborhood, the builder's reputation, and the plan of the house itself; well, almost. There is nothing distressed about the situation. You can be sure the seller has no intention of losing money. Why should he? He expects, and is entitled to, a profit. If you don't pay his price, someone else will. You know perfectly well you are paying the seller his profit because he has relieved you of the work and bother of building the house in the first place. All fair enough if this is what you want.
What worries me is that your opportunity to select what you want in a house has been confined to one choice. There sits the house; the money has all been spent, it's all done. Take it or leave it.
Several thousands of the already spent dollars have paid for things the original builder wanted but you don't. Yet you must buy the whole package if you want it at all. Some of the un-wanteds will sit there, doing no harm; others will have to be torn out and changed. In the latter case you will have paid for them twice, once to buy and once to remove.
For example, the previous owner built a wall between kitchen and dining room, with handy pass-through and sliding door. You regard this as a holdover from the hired cook era. Out comes the door and wall, for which you have now paid double, and in goes the open bar which is what you would have built had you been doing it in the first place.
For example, the builder thought that most potential buyers would regard the house as unfinished without an asphalt driveway. You happen to abhor asphalt driveways, believing that crushed stone is more elegant. For some years you dream of the day when you will feel rich enough to have the asphalt torn out.
Or perhaps the original owner, seeking an honest profit but wanting to make the place look finished as soon as possible, went ahead with his foundation plantings. Being small, the shrubs and trees had to be put too close to the house in order to look good. This first year the effect is fine. In four years the plants will be so big they'll have to be moved.
Much of your purchase money will already have been spent at the behest of the real-estate agent, who has told the previous owner that he cannot sell an unfinished house. The frantic activity which immediately precedes your arrival will have been done at your expense, but much of it not to your liking. As a minimum requirement, the agent will have insisted that the house be freshly painted. One of the first things that you, as the new owner, will do is to have it repainted a different color,
"Building costs more than buying." Do everything you can to encourage people you don't like to believe that. The more people who accept it as fact, the greater will be the spread between new building costs and resale value, in case you ever want to sell. The more people who believe it, the greater will be your opportunity to build exactly what you want.
In new building, the key word is opportunity. You may not save money, but you will have the opportunity to do so. Certainly you will have the chance to make decisions, not only at the take it or leave it level, but at all levels. You will decide where the house sits. Which trees remain. Whether to tile the bathrooms. Where to put the sun deck. Whether to use area heating or central heating. Gas-fired hot water or electricity. And what to eliminate in order to increase the size of the master bedroom.
These decisions all concern how to spend money, and for what. In building your own house the most valuable opportunity of all is the privilege of deciding when and where not to spend it.
Both in spending and not-spending, you have the opportunity of behaving with above average skill, imagination, discretion, and self-knowledge at all levels.
If you do not have imagination, if you do not know what you want until you see it done, if you do not have the ability to reach decisions and then either stick with them or change them for good reason and with economical speed--if you don't possess these skills, please don't build your own house. Buy one that strikes your fancy, and pay the seller his profit.
43. Why not remodel?
Discussion of remodeling must run either to a few hundred words and stop there, or go on to several million. There is no sensible place to stop in between.
Our few hundred words here will be devoted to stating the general case against remodeling. If you, for excellent reasons of your own, decide to ignore this generalization and plunge ahead with a remodeling job, the number of problem variations multiplied by the number of possible solutions becomes astronomical. In remodeling, sight-unseen advice is worthless. A million words wouldn't even get us well started.
By remodeling I do not mean normal maintenance or even normal updating to keep a house from becoming obsolete. I refer to major structural changes and major technical additions which are needed to make a building too good for chickens.
There is a persistent dream. It runs something like this. Beyond
a grove of massive oaks sits a fine, sturdy and distinguished
edifice. It needs a little paint, to be sure, but beneath the
peeling paint one can discern, can't one, the mark of quality
construction. They don't build them that way any more. The far
corner may be drooping as you say, but that's why it's still on
the market, and anyway we know that Bill Carruthers, when we catch
him sober will be able to jack it up again for a song.
The dream continues after we go inside. These small rooms are really home-like, and of course can be enlarged by knocking out a few partitions here and there. We are not troubled with the location of the kitchen, because those stone tubs don't work and wouldn't do anyhow, and the kitchen is going to be two bathrooms as soon as the basement has been extended under this part of the house so the plumbing can be put in and the basement has to be a little deepened anyway to take a new furnace as soon as the basement wall has a hole knocked in it to bring in the furnace.
Well, naturally the plaster is all off because the roof leaked but of course the roof all has to be done over anyway but what can you expect with those awful old people not knowing what the place is worth and absolutely letting it go for nothing well really almost next to nothing.
If you think the above is an overly facetious report on what goes
through the mind of a remodeling enthusiast, you haven't had to
stand still and hear this sort of thing roll on, hour after hour.
Here is the bargain hunter at work, trying to convince himself
that he has found a bargain. "Next to nothing" is the
habit-forming stimulant that makes bargain buying almost as incurable
as the addiction to dice, horses, heroin or alcohol.
Even among the less addicted, the notion that major remodeling, though troublesome, saves money, is one of the most persistent fallacies of them all.
I grant there have been special times and places where houses of excellent basic structure were purchasable for less than their real value. There can be such special cases even now, and no one would be happier than myself to find one. I still grieve for some millionaire-built barns, retired by estate caprice from cow-housing, which were snapped up by someone else before I even heard they were for sale.
These are special cases. Once the seller puts his property in the hands of an agent, the chances are about sixty-nine to one that the bargain element has been removed.
I grant you that the very difficulties of remodeling can stimulate the imagination, sometimes producing an end result of great charm. If your imagination is like that, remaining silent in the empty outdoors but triggered by an assembly of roughly rectangular walls and roofs, a tumble-down barn is what you need, cheap. If these are your symptoms, my suggestion is that you buy the barn, stare at it for a while, draw your plans, then tear the barn down and start fresh somewhere else. I have already admitted that great charm can result from a major remodeling. Unfortunately, charm created in this manner is in most cases an expensive luxury.
The licking you take in remodeling is a stealthy one. It sneaks
up on you. Thousands of dollars creep away in clearing the debris,
in making room to work, in removing something you don't want before
you can start to put back something you do want. The carpenter
is cutting, trying, fitting, removing, replacing, and of course
all the while expensively scratching his head. I never yet heard
of a remodeling job that cost less than had been expected. It
always costs more. Therefore, in general, give me an uncluttered
field to start with every time.
We know, however, that all generalizations are false, including this one. Under what circumstances might it be emotionally if not financially sound to undertake a remodeling?
In the preservation, of course, of a minor historical monument. The house becomes a dinner-table conversation piece which can repay all the effort you put into it.
In using a site which is eminently satisfactory except for the presence of a building, yet you can't bring yourself to tear the old place down and start over.
In the use of enclosed space, the shell of which is in good repair. I'm a sucker for this one myself, because it keeps the carpenters in out of the rain.
In adding to an existing structure which is fine in its way, but much too small. You can build a new house for half the family and connect the two halves by a breezeway, leaving the old one more or less untouched. Strictly speaking, this is addition, not alteration. If you don't have to back up and start over, all is well.
Even beyond these exceptions, however, the idea persists that remodeling saves money. Because it does persist, the price of old structures available for remodeling remains higher than it should be.
Usually the seller of an old place knows more about what it is worth than the buyer does. Before undertaking a major remodeling, tread softly, look carefully, and shift your why-asker into high gear.
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