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The Prices are Too Darn High

The Prices are Too Darn High

According to the United States Bureau of Labor statistics the rate of consumer price increases, as measured by the Consumer Price Index (CPI) is 2.4%. That is the combination of a variety of factors such as food, fuel, clothing et al. One of the factors is “Shelter” and the rate of price increases for shelter according to the BLS comes in at 3.3% for the 12 month period ending in march 2018.

It sounds comical for me to write it out but I am passionate about inflation. Inflation is a terrible injustice to the people, destructive to the economy and a leading contributor to many economic crises such as the “dot-com” bubble in 2000 and the 2008 financial crisis.

When I talk about inflation I typically mean an increase in the money supply which in many cases leads to price inflation which is an increase in prices as a result of an increase in the money supply.

I have long believed that the BLS CPI is flawed and that the actual rate of price increases is much higher, between 5-10%. And in fact if the BLS measured price inflation in the same way they did in 1990, the CPI would be 6%.


The Rent is Too Darn High

I recently renewed my apartment lease. My apartment hasn’t changed at all. And after the previous 10 month lease has ended my renewal lease rate is 2.6% higher for a new 12 months lease.

That doesn’t seem like much, and in the grand scheme of things it isn’t, but rent is the largest expense I have so it is an unpleasant increase.

I have to admit I’m not as passionate about the rent being too high as compared to say Mr. James McMillan III, who ran for Governor of New York numerous times, with high rent being a core pillar of his political platform.

Parental warning: Video below contains the “D” word

Healthcare Price Increase

According to the BLS healthcare costs rose 2% for the 12 month period ending March 2018.

Source: Bureau of Labor Statistics

It’s time for my annual enrollment in health insurance. I’ve written about health insurance costs and how the affordable care act made healthcare less affordable for me.

I am fortunate (and grateful) to have health insurance coverage through my employer and I would prefer to be in a scenario where health insurance wasn’t tied to employment. I would prefer a true free market system in health care and health insurance. But recently I have been trying, to quote the serenity prayer, to take “as Jesus did, This sinful world as it is, Not as I would have it.”

My health insurance monthly premium actual fell by 0.66%. However, the devil is in the details.

Prior Plan

My previous plan had a $3,000 deductible, 10% coinsurance once the deductible was met and a max out of pocket (or “MOOP”) of $5,000. So if I had the worst year ever I wouldn’t pay more than about $5,000. Since I’m single, relatively young and relatively healthy I think this is a pretty good deal since my monthly premiums are very low.

New Plan

However, this plan was “discontinued” and the new “comparable” plan now has a $3,500 deductible, 20% coinsurance once the deductible is met a $5,950 MOOP.

So this means that while my premiums fell by just 0.66%, my deductible went up by 14.29%, my maximum out of pocket went up 15.97%, and the amount my insurer pays once I reach my higher deductible falls from 90% down to 80%.

I hope I don’t have to use my medical plan at all, and if I don’t I will have saved token amount of money (which I will take!), but if I do have the worst year ever (medically) then I’ll be paying nearly $1,000 more.

Why the Increase?

I’m just one person so it isn’t fair to generalize my experience to the United States as a whole, with this caveat in mind I suspect that the individual mandate being removed has something to do with it.

If people don’t have to buy health insurance anymore then that means there are fewer younger, healthy people buying insurance and on a percentage basis, more sick people with insurance. I’m sure there are a variety of factors as well but this could be part of it.

Of course I think that removing the individual mandate was a good thing–I don’t see how a “free society” can require individuals to buy something.

However, in order for Obamacare to work your really need that mandate. Obamacare made it so that people with pre-existing conditions could still get “health insurance”.

I list “health insurance” in quotes because at this point health insurance in the US is no longer insurance. Insurance is a way of protecting against a potential risk. For example you can’t buy fire insurance when your house is on fire because once it is on fire it is no longer a risk it is a certainty.

But Obamacare made it so that people can essentially buy health insurance after they get sick (they might have to wait until annual enrollment but still).

I want everyone to have access to medical care. Co-opting and ruining the health insurance industry is not a good approach to working towards a world where everyone has access to medical care.

With the individual mandate revoked but the inability for insurance providers to take into account pre-existing conditions means that prices will have to rise. A lot. This is the tradeoff, if you want to force insurance companies to “insure” sick people then the government would need to force people healthy people to buy insurance.

Of course I don’t believe in initiating force to get anyone to do anything. I am saying that in order for this coercive system to work in which insurance companies are forced to “insure” people with pre-existing conditions that you have to coerce healthy people to buy insurance.

What I’m Doing About It

In the short term nothing. I hope to remain relatively healthy and hope I don’t have to foot a $5,000 medical bill any time soon. However, in the medium to long term I have a plan that will help me pay for medical care and fight against health insurance price increases. I’ll write more about this strategy in an upcoming article.

Buying Rental Property

Buying Rental Property

Buying Rental Property and Real Estate has helped create many a millionaire. Robert Kiyosaki, Barbara Corcoran, and even Donald Trump amassed fortunes via Real Estate.

Buying rental property is an investment that hits on three out of five of my Investment Goal Categories: Capital Appreciation, Preservation of Purchasing Power and Passive Monthly Income.

At it’s most basic level, investing in rental property consists of buying a property and then renting it out to gain monthly income.

I don’t directly own any rental property at this time but it is an area I’m investigating and learning more about.

Buying Rental Property has Five Great Benefits

1) Passive Monthly Income (Cashflow)
2) Equity Build-Up
3) Leverage Utilization
4) Very Favorable Tax Benefits (in the US)
5) Appreciation

Let’s explore the five benefits of buying rental property.

Passive Monthly Income

Buying Rental PropertyIn many areas it’s feasible to purchase a rental property that generates positive cashflow each month. Even after making a monthly mortgage payment, taxes, fees and maintenance expenses, a good rental property can be have net positive cashflow from the rent payments of the tenants.

This meets one of my investment goal categories of passive monthly income.

Equity Build-up

Many banks will loan qualified persons enough money to purchase a rental property but typically require a 20-30% down payment. By renting the property you can use the rental income to pay the mortgage and continue to build equity in the property until you own it outright.

With equity in a property you have the option to choose between selling the property, taking a loan out on the property and re-mortgage it, or simply hold onto the property and continue to enjoy the monthly income.

Leverage Utilization

By taking out a loan to buy a positive cashflow rental property you are leveraging the capital you have to make more money. For example by using $16,000 for a down payment you could purchase an $80,000 property and rent it for $600 per month. Lets say after making the mortgage payments, paying property taxes, and other expenses, you are bringing in $150 per month in cashflow. At the end of the year that $150 monthly income would be $1,800 from a $16,000 investment, or over an 11% return. And that doesn’t even include the increase in equity.

Because of the use of leverage, price inflation actually reduces the cost of the remaining loan balance over time. This combined with the universal human need (and hence demand) for shelter even when the economy is not performing well makes buying rental property a great investment for preserving purchasing power.

Tax Benefits

I’m not a CPA or tax advisor, but I understand that when it comes to investment properties, mortgage interest, depreciation of the property, and other expenses that go into maintaining the property are tax deductible. Often times the 11% profit can be made tax free because of all the deductions the tax code (at least in the US) provides to real estate investors.


Partly due to price inflation, partly due to an increasing population and demand for housing, real estate prices tend to rise. So it is possible to grow wealth because the value of the property has gone up. While this is more on the speculative side of the housing and real estate market, appreciation can be a very nice bonus.

This meets one of my investment goals of capital appreciation as well as preservation of purchasing power.

What has stopped me from Buying Rental Property in the past?

  1. Capital I need money for a down payment. Most of my savings go into stocks and I want to buy a rental property with new money. So I’m going to start earmarking money for buying rental property. While it might be possible to buy a property with zero down I think this is reckless and irresponsible. It’s a good way to find yourself underwater on your mortgage. By making a 20% down payment you can weather a 20% drop in the value of the property and still be even in terms of equity. Plus if the property is cashflow positive, even if you are not making money via appreciation, you can still make money via cashflow and equity building.
  2. Knowing how to make an offer I would like to better learn how to coordinate having a loan pre-approved with making the offer. With real estate you have to be able to move quickly. In some markets if you go eat lunch to think it over the property will be sold by the time you get back.
  3. Maintenance Costs and Expenses If you know purchase price of a property and how much you can rent it for (by looking at similar properties being advertised in the same area) and what your costs are going to be you can determine if a property will be profitable (or not). However, I find the most difficult part to research is estimating maintenance costs. The hot water heater breaks, furnace needs repair, a crazy tenant tears up the place, etc. As someone who has been a renter all his life I don’t have a good sense of how much I need to budget for maintenance costs for a rental property. These costs are a huge factor in the profit and loss calculations.

There are five great reasons why real estate investing is a superb way to build and grow wealth. I’ll be sharing my progress in the coming months as I continue to learn more about real estate investing.