Frugal Japan

I’m back from too brief a vacation in Japan, where we saw Tokyo, Tsukuba, and Kyoto. I have a few financial factoids to share:

• Near parity between the yen and the dollar makes Japan a great place for vacation travel right now. This means you don’t lose at the ATM or currency exchange, and that tracking what you’re spending as you go along is easy. We used the “drop two zeros” rule: 1,000 yen minus two zeros is about $10.
• No tax, no tip. On your restaurant tabs and whatever else you’re buying, what you see is what you pay. After a day or two of this, we realized we were spending less on most purchases than we do in the U.S. Taxes and tipping really adds up more than we realized.
• Surprise! Japan isn’t as expensive as everyone said it would be. I’m not sure why this was the #1 comment we heard when we told people we were headed to Japan. Unless you’re buying a house or renting an apartment in Tokyo, I couldn’t discern what cost more than it does in the U.S. (besides coffee). Meals out were about the same (we stuck with $10-entree level places for the most part), but often less for the quantity of food we ate, since miso soup, rice, raw cabbage, and tea were included with everything. This eliminated beverage costs and we got a lot more for our money overall. We ate, for example, at a top-notch yakitori place in Kyoto and had a LOT of food (edamame, about eight sets of skewers, french fries) and alcohol – three beers and one bottle of sake between us. The total tab was $48, $24 each. And it was some of the best food we’ve ever had, anywhere.

So do consider visiting Japan. The coffee cost more; I paid $2 daily for a good size (i.e., U.S. small, which is larger than the Japanese small) McDonald’s black coffee, so that was about $.50 more per cup than in San Francisco. Nicer cafes had coffee drinks that approached $4-$5, but if you’re a Starbucks fiend in the U.S. you’re familiar with that price range already.

Yen Zen

Greetings from Tokyo, where everything is not as expensive as you might think!

Flying here yesterday took 11 hours, so I had a lot of thinkin’ time. I thought about what this trip has really cost so far, and I thought I’d share it with you in case you’re considering international travel soon.
$260 – Japan Rail Pass (tourists only, unlimited)
$1,000 – Japan Air plane ticket, roundtrip
$135 – new passport
$25 – City Hall service to get passport
$50 – little trinkets to hand out (Japanese custom)
$50 – English language books to read
$64 – yarn for scarf-knitting on 11-hour flight (and worth every penny, I can say in retrospect)
$500 – cash for (so far) $105 worth of Tsukiji Fish Market sushi for three people, $3 coffee, $25 dinner for two (not bad!), $4 subway tickets
$2,084 total

That’s a lot of money, and much more than I usually spend. I admit, though, that since this is my first real vacation since September 2001, I’m not feeling guilty at all. Let’s see if the guilt-free feeling holds after getting my hair done in Harajuku on Thursday…

One in Ten

You must read Elizabeth Warren’s post, One in Ten, at CreditSlips.org.

Highlights:

“So what’s the plan here?  One in ten homeowners could just walk away right now. Indeed, most of them, if they were the rational maximizers so prominently featured in classical economic analysis, would stop paying now, put the money in a savings account and wait the 90 days or two years or whatever until the lender could force them out by foreclosure.  In non-recourse states, they could just pocket the money and walk away free and clear.  In other states, they might need bankruptcy or a last-ditch deal with the lender for a short sale. The economics of the deal shift when the homeowner has no equity to protect.”

I’m a big fan and reader on behavioral finance and economic theory, and thus a big fan of Warren’s, and (as you can tell from yesterday’s post) actually found myself  thinking “Maybe foreclosure’s not so bad, really” in a recent conversation with a friend.  Warren’s example explains when foreclosure is reasonable, if not actually good for you.

Home Sick

I don’t agree that, as suggested in this NY Times article, mortgage loan amounts should adjust to reflect the appraised value of a home rather than the original loan amount. I don’t understand how that’s possible to manage in the long term, or what it would mean for lenders if that precedent were set. We’d never say that it should work in the opposite way, in which an increase in appraised value would increase the loan amount. No, we’d never go for that, because that’s how things are supposed to work (according to only a piddly few decades of housing data, but I digress)! Homes are supposed to increase in value!

What would it mean for my credit union, which loaned me a certain amount of money? Why should my credit union take the hit for lending me an amount of money that, at the time it was lent, corresponded to the appraised value of my home as determined by an appraiser? Why shouldn’t the appraiser take the hit, for not seeing through the gloss on the market and determining the true value of the home (whatever that is)? Why should mortgage lenders be responsible for a situation that so many different entities (including the Fed itself) helped to create, by keeping interest rates artificially low and thus helping to create a Housing Bubble. What about all those real estate agents, who encouraged shoppers to purchase more expensive homes to increase the amount of the sales commission? What about all of those “advocacy” organizations that encouraged lenders to lower their standards so more people could own homes, even if they couldn’t afford them anyway? The list of parties responsible for the Housing Bubble and its effects is very, very long.

I understand the emotional side of this situation, though, as a friend and I discussed via IM today. I understand having absolutely no desire to continue paying for a loan that’s larger than the appraised value of my home. He’s in the same boat. He’s honestly considering how bad foreclosure would be. And neither of us would normally think this way, would not honestly reconsider how bad foreclosure is. We know it’s bad! But homeownership sure isn’t what it was cracked up to be by our traditional Midwestern families, that’s for damn sure.

Most of you know that I purchased a condo in City A in September 2006, then moved to City B for my dream job (and a substantial raise) six months later, in February 2007. Oh, I regretted not being a renter then, believe me. Homeownership threatened to limit my mobility, and I was not about to let that happen.

But oh, February 2007… (insert time-travel spinner image here)… The housing market was beginning its descent. It was deep, bitter winter and not prime selling time in City A (who would want my condo with its patio literally encased in ice?). Several other, brand-new, never-lived-in units were still for sale in my newly rehabbed building: Why would mine sell before those?

I had to move fairly quickly (within three weeks). I had no idea what sort of apartment I’d be able to get in the more expensive City B, or how much it would cost. I’d spent my $7,500 emergency fund leaving my ex and purchasing my condo. I had no cushion, so I wasn’t sure if I’d be able to afford the mortgage AND rent in City B while waiting for my condo to sell. I wasn’t sure how long my new job would last, or if I’d even like City B all that much and want to stay. For all I knew, my new employer could have been nearly out of money when they hired me and ready to declare bankruptcy, and I wouldn’t have a job in a few months and would hate City B and want to move back.

For all these reasons, I kept my condo. I rented it, and quickly, for $1,350 (I had asked $1,400). I had to move in three weeks, so I figured SOME money, guaranteed for one year, was better than no money. I watched Craigslist and noted that comparable places in my neighborhood listed for $1450 were sitting and sitting for a few months, so I didn’t want to push my luck.

Of course, $1,350 does not nearly cover my mortgage, and is $100 less than my rent in City B (though not anymore, since I am moving in with Dear Mans!). My mortgage is closer to $1,900 all told, because I have a small second mortgage and only put 7% down, opting not to touch my $32,000 in retirement savings (a good idea, for the record). And then there are the monthly assessments of $200 (they were $180 but they increased this year for improved snow service). And then there are the property taxes, freshly reassessed at $4,200/year (which I didn’t know when I bought my condo, since the county hadn’t reassessed them yet). Homeowner’s insurance is $400/year, plus I spent about $500 on furnace repairs last year, and money on two plane flights to check in on the place (a total of nearly $900). Granted, much of this was tax deductible (hail to my CPA, I tell you), but my cash outflow for housing is much higher than it should be.

I’ve had the good fortune to have terrific, dreamy renters. My condo was immaculate when I saw it last, the neighbors love my renters, their rent is never late (and is usually early). If this were not the case, however, my life would be a living hell. A friend of mine, who lives in Seattle and rents his former condo in D.C., ended up in court with his (now former) tenants last year. Even though nothing has happened yet, I can’t help but worry about how much I can do to control the quality of renters (and ensure they’re good ones) in the long term – or if I want to. Sometimes, I just don’t want to deal.

I’ve tried to keep the long term in mind. My grandparents say, “Oh, if we still had every property we’d owned, and turned them all into rentals, we’d have so much more money.” But the fact is, they weren’t ever 3,000 miles away from any of those properties, and managing one from this far away has created mental overhead for me. It’s all just mental overhead right now: Factually, objectively, the past year has been great. There was one furnace issue and the renters had no others.

Everything is fine, but the sheer fact of owning and paying for my condo creates mental overhead. I have made such great effort to simplify my life – getting rid of things I never use, spending less, buying less, doing less better. I worry about what it will be like when everything isn’t so easy, when something DOES go wrong, because it’s crazy to think it never will. I wish I could put more money in the bank right now instead. I’m starting to do the math on whether I’m really breaking even after tax time, or if I’m spending more than is worth it. Even I’m spending more, I’ll be crushed (and I have a feeling I am).

With the housing market the way it is, I worry that I owe more than my condo is worth. I worry that if I have it appraised, my fears will be confirmed and that, if I decided to sell it, any interested buyers would get the same appraisal. This would mean (especially after having to add 6% for the real estate commission) lost money, that I would owe money on the sale of my condo. I have no equity, and I have no money to pay for a loss like that. This makes me think I can’t sell my condo and will be forced to keep renting it, whether I want to or not (provided that I don’t suddenly find foreclosure a real option, like my friend!).

But, positive thoughts, even though positive thinking and over-optimism are exactly what got us here in the first place: At least my place is rented. At least I’ve brought my City B housing costs down. At least my condo is in desirable City A and is nice and has parking. If the worst is continuing to have renters, I suppose that’s OK, compared to foreclosure!

Tax In, Tax Out

It’s been too long since my last post. I swear I’m going to be better about that.

In happy tax (refund, that is) news, I’ll be getting the following back from respective governments:
Federal: +$4,475
IL: +$378
CA: +$621
Total Refund: $5,474
Cost of CPA: -$600
Actual Total: $4,874

My emergency fund currently has $4,788 in it. If I put my entire refund into savings, as I plan to, I will be SO CLOSE to my $10,000 goal for 2008, with $9,662. So close!

But, just as these refunds are coming, so is my 2006 property tax bill. I owe the bank a nice $5,500 for all of 2006 and one installment of 2007. I’m trying to decide what to do: Use the tax refund to pay off most of that bill, or get the emergency fund established and pay off the property taxes more slowly. I’m leaning toward getting that $10,000 stash established. There’s no interest added to the property tax bill, so there’s not a huge drawback in paying them more slowly. There’s definitely NOT the same sense of urgency with property taxes that there is with an APR at 16% or somesuch!

Vacation plans are throwing another wrench into this. Man and I are going to Tokyo next week. I haven’t taken a real “vacation” since September 2001, when I was out of work and went to visit my mom, who lives in Europe. It’s actually part work, part vacation, but we felt we should take advantage of the fact that work is paying for a hotel in Tokyo for five nights. When would we ever be able to afford THAT?

My plane ticket was just under $1,000, but I paid for that in cash already, and the Japan rail pass is $300 per person. It is, however, much less expensive than rail passes in Japan ($100 each way for the speed train), and is ONLY available to tourists. If we eat a lot of decent but frugal ramen, and manage to stay at this place in Kyoto for about $75 USD per night, I think we’ll be in OK shape. My goal is to spend no more than $1,000 total. Fortunately, I’m thin but way too Euro-curvy (i.e., I’m a 32D people) for most of those expensive and tempting clothes in Tokyo to fit me – ha! I’ll keep track of how we save money in Japan and post about it when I get back.

This was also the last month for which I paid $1,450 in rent for my apartment. From now on, my share of rent is about $800/month (DSL included), a definite improvement. Moving in with Mans is official and I’m surprised at how truly happy I am (and I’m not talking about financial reasons this time!). I just love him and his video-game-playing, home-cooking, frugal ways.