The Cost of Waiting - or "How to Avoid Paying the Procrastination Tax"

So, given all this, doesn't it make sense to wait? Not really.  There is a potential cost associated with waiting, that I like to call "The Procrastination Tax".  You pay it, and don't even realize it! And it's likely the biggest tax you will pay!

Well, remember when you bought that Jan Michael Vincent "AirWolf" Leather Jacket back in 1984, instead of putting that $500 in Apple Computer stock? Well, that $500 of Apple Computer stock, if bought on September 7, 1984, would be worth over $31k today. 

What is the "AirWolf" Jacket worth today? Not so much, not even if it were signed by Jan Michael Vincent AND Ernest Borgnine!

Don't you wish you could have THAT decision back?

Like that decision you wish you could have back, here is an opportunity to avoid as costly a mistake by waiting in the market.  I have shared this exercise with some active clients and they appreciated it -- the insight about the money lost to waiting.

So, let's assume this is you:

• You have a $250k home
• You want to buy 50% up (as most folks do) to a $375k home
• You put down 20% (or $75k) with a $300k loan on your new home and are able to get a 6%, 30-year fixed mortgage
• BUT, you wait, because you think you can get that last $1k or $2k out of the market and rates creep up.

What does that cost you?  Well, depending on how long and how far rates move, potentially, a lot!

Take a look at this table.

Even if you make no decision, you really actually HAVE made a decision - or acquiesced to the decisions the market is making for you. Even waiting and losing ½%, can cost you nearly $1,200 per year.  The longer you delay, the more you pay...all for waiting.  The market made that decision for you. I call it the "Procrastination Tax".

Now, if you think rates will go down, then you get some uplift.

Have rates come down? Do you think they will again? Conventional wisdom is betting against you.

Think about it: at 6%, rates can go only go down a numerical maximum of 6%, but they can go up INFINITELY!!!  Though unrealistic that they would go up infinitely, it is more probable that an upward change would occur rather than a downward change. 

BUT, that isn't the only cost of waiting. 

You also have the cost of lost appreciation, too!

So, you can lose on the front end with interest rate changes and on the back end with missed appreciation opportunity.  If you waited one year to pull the trigger on the $375k home with the $300k loan, and saw rates go from 6% to 7% and held onto the home for 10 years, how much did you lose?

• Incremental payments due to interest rate change (year 1 to year 10):  $23,670.71
• Lost appreciation (you only lose the 1 year of waiting, assuming prices stay relatively the same on both homes): $2,532.50 
  • Remember, 2.03% is a fairly low appreciation rate for Denver and is only indicative of the past 5 years, not the next 5; the historical, national average is over 5%.
• Total incremental cost of ownership caused by delay: $26,203.21 or 7% of the $375k home price (new home).

So, consider this email my $26,203.21 gift to you...but it's only good if you use it.  So, knowing me just made you $26,203.21 - how many other Realtors® have done that for you today?