The P.A.

A weekly address from Patrick Adams,
President of St. Louis Community Credit Union

Good Ideas Gone Bad

On January 14th, 2013, posted in: Uncategorized by

Some things appear to be good ideas, but they’re just not. After a thorough investigation rife with due diligence, you are usually able to weed the bad ideas out. Unfortunately, from time to time, some ideas whose facades of goodness never crack under intense investigative pressure end up being the party guest who won’t leave (i.e. a bad idea).

Take Zipcar as an example. A great idea for a business that never made a buck and, as a result, this past week was bought up by Avis. Zipcar made perfectly good sense. The business model was simple: car rentals in which you pay for the amount of time you use the car. Zipcar was perfect for young people in big cities that have great public transportation to move about on a day-to-day basis, but they have no means by which to escape the metropolitan area for an afternoon on the coast. That was just one need, but the other need for greater mobility is a list as long as your arm – think Costco binge.

If the time used was an hour, you paid for an hour. If it was four hours, the price aligned with four hours. In between the need for a Zip Car, the renter had no car payment, no insurance payment, no gasoline payment, no parking payment, no risk, no liability, no door dings, no parking tickets, etc. WOW!!! This idea should have printed money in the right market with the right demographics. What happened? That’s your homework.

Another good idea that may not be as good as one thinks is to own your home versus renting. Please, before you write me an e-mail filled with venom, I am not attempting to dampen the spirits of realizing the “American Dream.” Nor would I ever douse the flames of excitement by throwing a bucket of water on the idea of “having a home that you own.” That’s not it at all. It involves a host of other variables, not the least of which is flexibility and unintended expense.

Up until the housing bust of a few years ago, owning a home was considered an investment. That’s because as far back as most can remember, housing appreciated in value. The large amount of appreciation equated to home values far outpacing the loan amount. The net effect is that the owner was building wealth. That’s a beautiful thing. Wealth building is truly the “American Dream.” Housing wealth is a time that has passed.

Without the wealth-building component through increased housing values, a house quickly borders on being a “money pit” of sorts – some more than others. It could very easily cost more to maintain than the tax deductibility of the loan interest. And if you’re young and upwardly mobile in pursuit of a career, changing jobs and geography are a real possibility – but not if you own a home. You’re stuck. Now go fix the toilet.

Yes, low rates and depressed housing costs make it a good time to buy. But first, understand your circumstances and your maturity level. If the weekend is for jumping in a Zipcar and heading to the beach, and your home improvement interests and/or money is limited, and chances are you’re going to move in the near future, then renting your crib might be the best thing for you.

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