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Counterintuitive Advice: Borrow to the hilt

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Yesterday I called my investment adviser to discuss the possibility of buying a smaller house in a nicer neighborhood. I was operating under the assumption that I would apply all the proceeds from my present paid-off home’s sale to the new house.

He, however, urged me to finance as much of the new purchase as possible—80 percent—and invest the remaining cash in the stock market. The 5 percent drawdown (projected “take” for retirement income) from the increased amount in savings would cover the cost of the mortgage and, when combined with Social Security, would give me enough to live on. And then some, in his opinion.

Leveraging debt, as we know, is something that goes against my bourgeois grain. However, since this is a very smart guy with an MBA, I reckoned I’d better listen up.

So today I ran a bunch of figures, in an attempt to see the practical outcome of borrowing against real estate instead of paying it off. The fly in the proverbial ointment is the $1,000/month payment I’m making toward the house my son and I are purchasing as an investment, which we would like to hold until after the housing market turns around. That could be anywhere from two to ten years.

I assumed my monthly costs of groceries, clothing, gasoline, and the like will not change significantly, since I do not eat out and don’t have to buy special clothing for the office. Gas probably will drop a little, but not much, since the Valley’s sprawl requires everyone to drive from pillar to post just to accomplish ordinary errands. Monthly routine nonnegotiable costs such as tax & insurance, utilities, and the like probably won’t change if I move to the cute little house in Willo, but will drop sharply if I move to Sun City.

So: would I be better off to mortgage my home and add the cash to savings? Here’s what my calculations show:

In the first scenario, my real estate agent gets the seller to come down off his price by $10,000 and I get my full asking price of $325,000, netting a grandiose $274,100 after the Renovation Loan and closing costs are paid.

That’s depressing. Even without the cost of the Investment House, I can’t afford to move to the cute little house in Willo. Moving on…let’s suppose the guy is right, that carrying a mortgage on my house would allow me to leverage debt in such a way that I would have more to live on in retirement. Maybe that strategy would make it possible for me to stay right where I’m living. Suppose I did that right away, while I have a job, since no lender is likely to fork over 240 grand to an old lady on Social Security.

Wow! I profit by a fantastic $1,076. What keeps me in the black is my salary. In theory the positive balance is a bit higher, because I get a small income tax advantage. That notwithstanding, this does not look like it’s worth the effort, or the psychological stress of diving into debt up to my eyeballs.

Once all I have to live on is Social Security plus retirement savings, this scenario puts me deep in the red. Clearly I can’t afford to stay in my house using this strategy after retirement.

So, what if I pay off the Renovation Loan, leaving my house free and clear, and try to stay here after I retire. Can I afford that?

What with the ever-increasing property taxes and skyrocketing utility bills, it doesn’t look good. The only way I can stay here is to sell the Investment House prematurely, taking a loss on that. This will cause my son also to take a financial hit, which I would prefer not to do.

Ohh-kayyyy…. This leaves moving to Sun City as the last option. Costs there are much lower, because taxes are controlled and home and car insurance is much lower. Videlicet:

This represents a significant savings on the cost of living in my present (much preferable) home. So, what happens if I finance a sorta comparable house, which out there will cost around $260,000?

Lovely. I’m still in the red. Either my son has to come up with an extra $542 a month, or we have to sell the Investment House. This is getting depressing: so far, no matter what I do, I can’t afford to retire. Period.

But I can afford to pay for a Sun City house in full. What happens then?

OK! I probably could survive if I move to Sun City, buy a place for much less than I get for my present home, and continue to live frugally. The amount of play in my present budget is $29 a month, and so in this scenario my lifestyle would not change much. Except, of course, I would be enjoying the silence of the mausoleum in a ghetto for old folks.

In any event, this comparison suggests that paying off your debt is better than leveraging debt, at least in terms of providing you with cash to cover your living costs. Math is not my strong point, and there very well may be something in the logic that I just don’t understand. But if these figures are right, paying off all debt—mortgage included—is the sanest way for a middle-class earner to go.

What happens when a live Qwest guy shows up

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How many weeks are we into the ongoing Qwest DSL drama? I’ve lost track. Finally, yesterday Qworst sent a living DSL technician. John alarmed at first sight: tall, dark, and dreadlocked. On second glance, it became clear that John actually is tall, dark, and handsome, with a quiet and gentle demeanor that quickly charms the stranger. He is, I recognized, one of those rare men who can be called “sweet” without insult.

He also has an intellect, the first I’ve encountered since the DSL puzzlement began. He, too, was puzzled: why did Qworst Call Center Dude #3, the Josh, send him out with a new $100 modem, which indeed was identical to the modem I had been sent for free by Qworst’s Philippines subcontractors and been told by #3 to return. More puzzling: there was no reason to replace the existing modem, which works just fine.

After some experimentation, John concluded the problem was not in the modem but in the phone line. He set out to discover what was going on. He climbed around the yard for a while, but eventually tracked the matter into the garage. While he was outside, I started to hear an irritating little “beep” repeating about every three seconds—probably, I thought, his equipment at work.

Pretty quick he resurfaced.

“Hear that alarm?” he said.

“Alarm? You mean the beeping?”

“Yeah.”

“I thought that was your gear.”

“No. That’s your burglar alarm. Something’s wrong with it.”

The burglar alarm system has been turned off for a good year. After it became clear that the Perp was not going to commit all the mayhem my lawyers predicted he would, I discontinued the monthly subscription.

When I tried to mess with the control panel to see if I could turn it off, I felt something like an electric shock. He said, “That’s odd.” On further investigation, he announced the sensation wasn’t electricity: it waswater! The burglar alarm is mounted to the wall next to the water heater. Some part of the copper spaghetti above the water heater (lines to the swamp cooler; lines to the refrigerator; lines to parts unknown) had sprung a tiny leak, and it was spraying a fine, invisible mist. Lo! On the concrete floor below the burglar alarm panel, what should we see but a little puddle developing.

Dang. He now climbed up to the main panel and disconnected the burglar alarm system. This did nothing to stop the Chinese-water-torture beeping. We called the burglar alarm company: no answer, midafternoon on a business day. We punched buttons. Nothing. But—no cops; that’s good. Finally, he took out his wire cutters, pulled open the cover, and cut a fine fat white wire.

That stopped the alarm. Amazingly, it did not stop the telephone service, as friends have told me messing with a hardwired burglar alarm will do.

Then he said—get this!—”I don’t understand why they ordered this modem. You don’t need it. You don’t need any of this. I’m canceling this service call.”

So, I got the DSL fixed and the burglar alarm shut off just as it was starting to register its dismay at being sprayed by the defective plumbing: free of charge.

Such are the glories of having a live human being respond to a service call.

Along about 8:00 p.m., another live human being—the Plumber Extraordinaire—showed up to figure out where the water was coming from. Over the phone, he’d already coached me on how to make it stop, a maneuver that entailed shutting off the hot water to the house. In 100 degree heat, you don’t need a whole lotta hot water, anyway.

He replaced the two-year-old flex line, one of the many benefits of globalization we Americans now enjoy. Annoyed, he showed me a brand-new flex line that he had been about to install at another customer’s house: it sported a two-inch-long split. Then he handed me a bill for $75. I was glad to pay it for his long after-hours time.

Customer service personnel outsourced half-a-globe away. Plumbing supplies that break before you can install them. Think of it. Let those who question whether globalization equals the Third-Worldization of America think of it.

LOL! Forget that!

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Well, La Maya managed to get into the County Recorder’s site and extract some information about the cute little Willo house. Taxes not only are NOT lower on a house and lot signficantly smaller than mine, they’re higher: $2,641. Good lord. I almost fainted when I got this year’s bill for $2,050!

Even if the utility bills are lower (they won’t be: the house is in a district served by one of priciest utility companies in the country, which charges extravagant amounts per KwH to fund its white elephant of a nuclear plant), I certainly can’t afford that. So…looks like it’s gunna be Sun City for me. Day-um!

Cute little house

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Still thinking about the adorable little house I saw in the downtown historic district. It’s a lot smaller than my house: more than the equivalent of two bedrooms smaller. On the other hand, my house is one or two bedrooms too large. Contemplating retirement, I’ve thought I need a smaller place, and two bedrooms would do. In addition, it has what appears to be an intact garage. Many homeowners in that area insulate and drywall the old garage, fill in the doorway with a regular door and a window, add a heat pump, and call it a “guest cottage.” This hugely jacks up the property value, because it adds about 300 or 350 square feet to the livable space. Put a bathroom and a kitchenette in there, and you can get $500 or $600 a month in rent, or have a nice place to put up visiting friends and relatives.

On the other hand, moving is a big expense: do I really want to blow off what I’ve put into this house (which is very pleasant, the neighborhood and pending train-track construction notwithstanding) to move to a smaller place?

What’s the worst that could happen?

I move to Willo and…
…the house and moving expenses are more than I can afford; the house is no cheaper to maintain. I’m forced to move to an apartment or Sun City.

I stay here and…
…the house is more than I can afford, I’m forced to move to an apartment or to Sun City. Property values stay static or drop, so I can’t get into a place where I want to live.

Kinda looks like a wash, doesn’t it? Is it wishful thinking, or are there really more advantages (and fewer disadvantages) to moving than to staying?

In the wells of silence

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Somebody has been marking my comments at others’ blogs as “spam,” making me incommunicado where WordPress sites are concerned. The WordPress support guy used the term “users”—plural—which means more than one person doesn’t care to hear from me.

So, I guess I’ll stand down off commenting. Too bad: it takes some of the fun out of blogging. But it does consume a lot of time that I ought not to be diddling away, particularly if comments go directly to the trash. Oh well.

Costco scores in customer service

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If I weren’t already sold on Costco, its staff would have won me over yesterday.

Headed home at the end of a workday made interminable by the mind-fuzzing effects of a two-week-long spate of insomnia, I made a run on Costco. I needed several food and household items and, most urgently, gasoline. First I stopped at the Target, where I found some place mats that would do (sort of) as companions for the new dishes. After a nice long stand in line at Target’s check-out, my American Express card wouldn’t work. Swiping it brought up an error message. The cashier tried to swipe it on his machine and then looked stymied. Stunned with exhaustion, I decided I didn’t need those placemats (knew that…why’d I ever think otherwise?) and told the guy to forget it.

Now I stumble into Costco. I’m so tired I literally feel weak in the knees. The prospect of trudging through acres of merchandise to pick out the half-dozen things I need only to arrive at the check-out stand and have them reject my credit card: ugh! It’s more than I can contemplate. So I stop by the customer service desk, where I ask a gentleman named Glenn if it’s possible to tell if the card has a hold on it.

Well, yes, there is. He checks it and discovers no problem. Barely coherent, I explain what happened at Target. He suggests I call the number on the card, printed in submicroscopic characters, and ask. I say I can’t read that number. Now—amazingly!—Glenn directs me to a telephone at the far end of his counter and dials the number for me! After a relatively brief navigation through the robotic punch-a-button maze, I reach a fellow who tells me the is account is in good standing.

So I trudge through the acres, retrieve the goods I need, and show up at the check-out. There, my credit card won’t work. I explain, no doubt altogether incoherently by now, what’s been happening. The cashier calls for a supervisor, and one Ernesto shows up. He punches in the card’s number and some sort of code, and thereby he makes the card work. Hallelujah! He says the magnetic strip has given up the ghost and advises calling AMEX and asking for a replacement.

Imposing some more on Ernesto, I ask if this means I can’t get gas at Costco, adding that I’m almost out and can’t get to work without a refill. He instantly comes up with a solution: pay upfront by purchasing a Costco cash card.

“How much gas do you think you’ll need?” he asks.

“About $50 worth.”

Presto-changeo, he produces a $50 cash card and adds the cost to the food bill.

Wonder of wonders. It worked. Stick the card in the pump and it lets you buy $50 worth of gasoline.

What a relief. I really didn’t want to have to find another gas station on the way home—wasn’t even sure the car had enough gas to get home.

Glenn and Ernesto’s kindness went a long way toward making a trying day tolerable. Not only that, but the discovery about the cash card will make it possible for me to buy Costco’s gas again before the new card gets here. American Express informed me that it will be the 19th before a new card arrives—that’s ten days! If I insist on going to work every day, the tank will need a refill before then. So, another Costco cash card is in my future.