Steve and I took a GRI class last week in pursuit of more knowledge about current real estate trends and practices. I always find these educational courses to be informative and helpful.
My biggest “take away” from this class was when one of my fellow classmates, who drove over 900 miles from El Paso for the 4-day class, shared with us the current landscaping requirements in El Paso. ALL new homes there are now being required to use xeriscape landscaping in the front yards because of the water shortage.
I wonder how long before the same requirement comes to Austin?
So Saturday as I was taking my buyer clients around looking at different houses, I was pointing out features that I may have overlooked in the past. One home had full gutters and a rain barrel capture system in place which I highlighted as a plus. Also, in the very small fenced in front yard where there was mostly Bermuda grass, I suggested, “You can take this grass out and put in xeriscape with native Texas landscaping”.
This whole idea of “no grass” front yards has really got me thinking.
Sylvia and I just refinanced our Austin home. When we bought the home in 2010, 4.75% interest on a 30 year loan was the lowest interest rate we’d ever had on any real estate loan, ever. Yesterday we refinanced at 2.75% for 15 years. Bottom line, this will save us about $40K in interest payments and chop 13 years off the life of the loan. Let’s take a look at some numbers:
|Refinancing from 4.75% 30yr to 2.75% 15yr|
|Old Loan||New Loan||Diff|
The above numbers are taken from my October mortgage statement for the old loan, and the first December payment for the new loan, so they will actually grow more favorable over time.
OK, first let’s look at the bottom right box where you’ll see that our monthly payment increases $444 over the previous payment. I don’t care about that, and neither should you, unless you can’t afford the increase. All I care about is my Net Worth spreadsheet that I update monthly, tracking our progress toward financial freedom aka retirement. Everyone should have one of these spreadsheets and update it monthly. It helps you focus on what really matters, which is the growth of your net worth.
So how can I be adding to my net worth if I just increased my payment by $444 per month? Aren’t I “losing” $444 per month now? I assume most readers (hopefully) think that’s a stupid question after looking at the chart, and you already know the answer. But I’m surprised by the number of otherwise pretty smart people who do in fact think of a monthly payment as just one number. So, the explanation is that the interest portion of the payment decreased drastically (by $420/mo) while the equity paydown portion of the payment increased drastically (by $864).
So, almost the entire extra $444 monthly payment is actually saved with a smaller interest payment while the equity paydown is accelerated and the loan will be fully paid off in 2027 when I’m 65 years old instead of 2040 when I’m 78 years old. This is the $40K in interest savings and 13 year sooner “free and clear” date.
But I want to talk about the concept of “monthly payment” a bit more, because it bothers me that we live in such a payment driven society and that so many consumers, including real estate buyers and owners, think in terms of monthly payment instead of wealth building.
One of my favorite pastimes while driving in Austin is listening to Bloomberg News on my XM Radio. More specifically, I enjoy hearing interviews and discussions with people who explain and justify the positions they take on a wide range of (mostly) business topics. This includes small business, the economy, politics, real estate, etc., but also more specific micro topics such as the current and future outlook for farm tractor sales. And, thankfully, Bloomberg Radio is free of the bluster, yelling and arguing heard on the other XM Radio news stations. These are, for the most part, reasoned subject matter experts giving their honest take on things.
Call me nerdy, wonky, or whatever, but I really dig listening to this sort of stuff. When not listening to it, I’m reading about it. I believe it helps me better understand my own life and business. And it helps fulfill one of my ongoing goals, which is to never stop learning.
Recently, a dating expert was being interviewed about the business of match making sites and the state of modern “mate seeking”. She also discussed the mistakes she sees made by most aspiring romantics. Turns out there are a lot of frustrated romantics unable to find what they want in a mate. This despite the fact that finding and “connecting” with good, quality candidate dates has never been easier. I was struck by how similar her points were to the typical “match seeking” efforts of real estate buyers looking for the “perfect” home.
The quote that stuck with me most was related to how many daters reject someone who actually possesses more than 85% of what the seeker says she “must have” in a mate. To that point, she said. “Do you know how hard it is to get to 85%? If you find someone who meets 85% of your most important criteria, you should be running, not walking, to the alter with that person”. That’s what she said. Run, don’t walk to the alter.
Daters, apparently, allow too many small, picky “deal breaker” distractions into the evaluation process. “I don’t want to date a guy with thin hair” or “I can’t see myself with a guy who would wear a checkered shirt”. But if the guy loves horses, wants kids, and appreciates and “gets” her sarcastic irreverent humor, he’s going to make the great husband she says she wants because he meets the most important set of criteria. Even if he’s only average looking and a little too short.
Dating is more complicated than house hunting because the three (and only three) most important criteria a mate seeker should be evaluating will differ from person to person. House hunters, on the other hand, have had the same three static criteria forever – Location, Price and Condition (which includes age/size). It’s really not complicated at all. But modern buyers have made it so, by allowing too much information and data into the equation.
So, why do so many Austin buyers reject homes that are priced right, in the desired location, and of acceptable condition/size? Are Austin real estate buyers too picky? Yes. And many are just as frustrated as the single 34-year-old gals that dating expert was talking about.