My default stance with personal expenses is “stay variable.” Renting, rather than owning is a good way to live. In-and-out of a property costs you a minimum of 15% of the gross capital value and being tied down geographically reduces your human capital.
That said, the best deal that I’ve done in the last few years was the purchase of my current house. It’s a half block away from a great public school and my mortgage/taxes/insurance cost me 65% of my owner’s equivalent rent. While I have a large amount of equity tied up, it’s increased 30% in the last two years (see – how I value real estate for a calculation method).
Three factors dominate my cost-to-own being less than my cost-to-rent:
Mortgage interest rate – these remain historically low. My rate is fixed for another 28-years – a valuable asset for my young family.
Cost to insure – Ten months ago, I realized that my home was grossly over-insured. As part of a 2nd mortgage restructuring, my place was appraised. I used the appraisal value to get a more realistic level of insurance in place.
Local Taxes – In 2013, the county reassessed my property at a 30% increase in value. I reviewed the county assessor’s website, pulled together more appropriate comps and requested a do-over. The assessor agreed with my comps and cut my taxes significantly.
The above, combined with an incorrect escrow calculation, means that my monthly payment has been resetting downwards all year. Starting October, I’ll be paying 20% less than two years ago.
The lesson is to be pro-active with checking the components of your mortgage payment. It takes times to get things right but there’s likely money to be saved. Everywhere I poked, I could save money.
Be patient with property purchases – great conditions happen once a decade and it’s nearly always better to wait.
In my portfolio, three main adjustments:
- Sold US Equity Index to rebalance and raise funds for a property deal. This came out of a taxable account and I’ll pay CGT on the sale. Normally, I’d avoid the CGT but the account is a minor custody account that we’ve decided to spend on the kids before they’re 18.
- Exchanged International Bond Index for US Bond Index to simplify my portfolio, lower my total cost and because the fund manager wasn’t able to convince me of any benefits of the product. Non-taxable exchange.
- Staying the course with asset allocation ratios but will tweak if I sell an investment property.
Our long-term care insurance provider increased Monica’s premiums by 45% so we dropped the policy. Due to my cycling, it will be a tougher decision if they seek the same with me.
Our largest discretionary expense is preschool and childcare. We started tracking this weekly and comparing against my spouse’s gross income from working part time.
- This calmed my mind because it showed that we were more in balance than I thought.
- It gave us a weekly snapshot of how we were doing with cost control.
- It showed us the trade-off between more work and more childcare.
Overall, we keep chipping away at making our family a little more efficient each month.