AskDong

A friend of me pointed to this article on NPR on the benefits of taking turns paying the tab. I’ve always been a fan taking turns. My friends and I almost always do it with drinks, and sometimes with smaller meals, but hardly with more expensive meals. Maybe we should start.

The basic premise is that whenever we have to spend money, we feel a little bit of pain regardless of how much that is. As a result it’s better to take turns paying the bill because only one person feels that pain. In addition that person who picks up the tab gets the opportunity to feel good about him or herself. It’s good feelings all around.

This is all great, but from purely financial perspective there can be pitfalls. There of course is the free loader problem, something I feel fortunate in not suffering from amongst my group of friends. However, usually there will be at least one person if not a few individuals who will take advantage of the generosity of others, purposely or by thoughtlessness. This problem can be avoided by not associating with these individuals which is generally advisable anyways.

The bigger problem is overspending. Because taking turns is really quite effective in minimizing the pain of spending money, we often spend too much. I know this is the case, and there is no place more obvious than at a bar when taking turns buying rounds of drinks…

I hope everyone had a great 4th of July weekend. I personally spent some time at “the Beach”, though not actually at the beach. The weather was not cooperative, and to be quite truthful I’m not much of a beach person. I like going to beaches in far away and “exotic” locales, but don’t like going to the beach just to go to the beach.

Everytime, I go away for the weekend within driving distance, I wonder if having a summer or winter home makes sense. Would I use it? Would it be a good investment? I have only mulled the question without really coming up with an answer.

Would I use it?
This is the most important question. While making a great investment is all good and dandy, the real reason to own a place is to enjoy it’s use. Living in boston I’m within two hours of both the mountains and the beach. I firmly believe that if it takes more than 4 hours to get “there,” it’s not worth it. Both summer beach homes and winter ski lodges are really only useful 3 to 4 months of the year. The question is, would I use it enough to make it worthwhile? Given my current habits, I know I wouldn’t. However, I can envision changing my habits. I would have to go on fewer long vacations and replace them with shorter trips to the vacation home.

Is it a worthwhile Investment?
The question of evaluating a property as investment is much more straightforward, or at least on the surface. But really the question can’t be fully answered without also taking into account the personal benefits. Vacation homes are rarely good investments in themselves, but can be a fantastic investment when they also provide weekends spent with family and friends. With the housing market in turmoil, this might be a great time to get a great deal on a place, or not.

The one area that Vacation homes can provide unique benefits is in the area of taxation. The IRS provides a great deal of flexibility on how a vacation home is treated depending on how much it gets used as personal property or as rental property. While I have my own personal reservations on why the Government should be giving tax breaks on mortgage interest, let alone second home mortgage interest, I can hardly argue against anyone for taking advantage of the rules as they are.

A Home on the Cape:
For example a 2 bedroom home on the Cape near the beach would cost me about 300-380kk. If I were able to put down the full 20% down of a 320k home that would leave me with a mortgage of about 256k and monthly payments of $1620 a month (assuming a 30 year term and 6.5% rate) or about a little over 19,000 a year, and more like $21,000 after considering property taxes. A realistic scenario would allow me to rent out the unit for 8 weeks of the year for $1000 a week. Renting it out for about 8 weeks would then leave me with 2 “prime” summer weeks, and another 4 weeks slightly out of season. Without considering the tax consequences or other complexities; the question is $13,000 worth 6 weeks of a vacation home? I could spend $13,000 and have a fantastic 4 week exotic vacation for my girlfriend and I.

The last part is the rub really. A vacation home is much more worthwhile when you have a family to share it with. Being unmarried and without children that benefit is greatly diminished. Without expectations of inflated real estate returns, the economics do not make sense. A vacation home is best used when more people are able to take advantage of it. That’s why, I’ve actually never seriously considered purchasing a vacation home on my own. I would much rather go into such an endeavor with either family or friends at this stage in my life.

I went to pay my electricity bill the other day on the NStar website and noticed that they are offering customers the option of signing up for green power. While it’s been possible to sign up with a competitive electricity supplier for “Green” power, green power has not been an option for users who have chosen to stay with the incumbent utility. This includes me and the majority of residential electricity users. Retail electricity choice for individual consumers has not taken off as the supporters of electricity deregulation have hoped for. Why that is, is a story for another day.

According to NStar, most people would likely only pay $4 to $7 dollars more for green power than they would for conventional power. $4 to $7 doesn’t seem live very much at all. However, much of this is due to the fact I live in New England. New England is one the highest priced areas for electricity in the country. According to my last bill I pay .11172 per kWh. This translates to 111.72 per MWh in industry standard terms. To put that in perspective, coal generation costs about $30/MWh, and nuclear less than $5/MWh to run once constructed. New England on the margin does not run on coal. Coal and Nuclear plants are few and far between. New England is powered by Natural Gas which even with the newest and most efficient technology costs at least $90 a MWh to run given that natural gas is priced north of $10/mmbtu. Most new electricity generators are natural gas, conceived and developed when natural gas was cheap as cheap could be. People talk about oil all the time, but Natural Gas was once $1-2 per mmbtu at the turn of the century (and I mean 2000). They couldn’t give it away. It was often a byproduct of oil production. Oil may be 4 times more expensive, but natural gas is nearly 10 times more expensive.

If I were to sign up for the the Green Power Plan, I would like be paying 10% more on the cost generation which is about 1/2 of my bill. My electricity bill is about $80 on average a month. Under the Green Power plan, I would likely pay about $85. Five dollars a month does not seem like a lot to pay to increase the demand for green power. Unlike Field of Dreams, “Build it and they Will come.” does not apply to wind or solar generation. The demand needs to be there first either through the actions of environmentally conscience consumers who are willing to pay more, or through regulation. Regulation can take one of two methods. 1) Outright mandates 2) My Preference, Pigovian taxes that price in the true cost of pollution.

Electricity unlike some other products cannot be directly sourced. If that were the case I would have to a dedicated transmission line running directly to the generator I purchas power from. Electricity flows from generation to demand via the path of least resistance, regardless what financial commitment consumers might make. This is not to say that consumer choice does not affect the market, but only via aggregate demand. Signing up for the renewable energy option increases the aggregate demand for green energy and that is best I can hope for.

I was in Berkeley, CA last week. One of the most famous restaurant in that most hip(ppie) of cities is Alice Water’s . I was lucky enough to dine upstairs one night. The cafe is upstairs while the more formal restaurant is downstairs.

Alice Waters practically invented California cuisine and popularized eating “locally and fresh.” Chez Panisse is HER restaurant. I’m not one to bow at the temple of the celebrity chef, but I was stirred to a frenzy by the accolades. My girlfriend and I walked into the restaurant with more than $400 in cash. We were ready to spend every penny of that.

At the end of the meal, my girlfriend had spent less than $100 on entrées and appetizers, and we only spent that much because we ordered three entrée. Every entrée was priced under $30, and most were between $20 and $26. We ordered three entrées because we were so shocked by the low prices. The menu reflected the cuisine – simple and flavorful.

I came away from Chez Panisse more than satisfied but further agitated with how many other high end restaurants believe they are only as good as they charge. For every Chez Panisses there are three French Laundries, and Per Se’s. The Prix Fixe at Chez Panisse ranges between $55 to $85 for dinner while lunch at Per Se doesn’t even start at anything below $150. Great food does not need be too pricey. I am guilty as the next person falling into to the trap of thinking more expensive is better. There’s a relationship, certainly, but especially towards the top of that scale that relationship become more arbitrary than fact.

I’m not the mightiest of bargain hunters. In animal kingdom of bargain hunters, I’m probably a badger - an omnivore that predominantly preys on pocket gophers.  I don’t go out of my way for bargains, but at the same time I want to try to get a better deal when I can.

Last night I was helping my girlfriend shop for a hotel.  She’s going on a trip to Puerto Rico with one of her friends this coming weekend.  I recommended that she stay at the Marriott Hotel and Casino in Coronado.  Last year at my friend’s Bachelor Party, we stayed at the Radisson around the corner, but we actually hung out at the beach at the Marriott.  The Marriott has a nice beach front, pool, and outdoor bar.

My girlfriend looked online to book the hotel, and could only find an average nightly rate of $270/night which was much more than many of the other hotels in the area including the Radisson.  The previous year I had asked at the desk about rate and was quoted a rate in the $170 range.  My first couple Internet searches returned the rate she was seeing. Generally speaking, I expect the different travel portals to return approximately the same rate.  I usually don’t usually bother with the individual portals but go through aggregator kayak.com.  What I expect to vary is the hotel selection, not prices.

Though after a slightly more exhaustive search, I found that Travelocity had the hotel for less than $200/night. Not a great rate, but quite a bit better than what we were finding before. The average rate would’ve been lower had all the nights been in May.  As is there was one night in April.  In my experience May and June are two of the better months to go down to the Caribbean, especially May. Both months are only slightly past peak season, but not in the dead heat of summer. Prices and crowds are both much better.

I was very surprised to find that the major travel portals quoting very different prices for a major hotel chain. I had never encountered this before. I’ve encountered different prices, but usually in some kind of special package promotion. I guess it always pays to make a thorough search.