Sunday, September 5, 2010

Homeownership - Liability or Lifesaver? A Primer on Economic Fallout Shelters (Part 2)

   Last week, I talked about the concept of the "Economic Fallout Shelter" or "Fallback Property", which are essentially the same thing: a cheap-to-buy, cheap-to-keep dwelling that, when the chips are down, is a place for you and yours to live, ride out the "Great Decession", and if necessary, a lost decade or two.  Last week, I covered the "What".  This week, let's move on to the "Where".

    First and foremost, on my list of considerations is COST.  The two main components of which, are the purchase-price, and the property taxes.  We want BOTH to be low, of course, but to my mind, a somewhat higher purchase price is more tolerable(assuming one has the money to purchase outright) because it may get you a better dwelling, perhaps in a more convenient location, or perhaps with an extra bedroom(think: rental income), or one in better condition, or one with a bigger lot (think: gardening/growing your own veggies), and the added cost is basically a one-time investment.  Property taxes, however, are recurring - you pay them every year, and are an integral part of your monthly cost of ownership.  They are also forever, so I tend to let the property-tax-factor carry a LOT of weight in any decision to purchase an EFS (Economic Fallout Shelter)

   Ok, so we want LOW property taxes.  My own personal rule-of-thumb is: one week's take-home pay, MAX, should cover a year's worth of property taxes.  Property taxes are like rent - ongoing and perpetual, so you want to keep it to a minimum.  For the record, my current EFS costs me 2 days take-home pay per year - and I only work P/T.  Were I to switch to F/T, I could knock off a year's "rent" in one day.  And my EFS came with 2 extra bedrooms.  Here's a pic of Scoob's secret hideout in the balmy Carolinas:

   Purchased for about $6,200 (including all closing costs, title insurance, ect) in June of `08, this 12x68' 3 bdrm single wide came with a detached garage, screened-in porch, and large family-room addition(not shown here) on it's own 80x155' lot with lots of tall, mature shade trees.  It has city water and sewer, is in a rural-ish/suburban setting on the edge of a privately-owned forest, yet minutes from an international airport,  Amtrack station and fairly major city.  Yearly property taxes (land and MH, combined) run about $110.
Not in a flood-zone, not in hurricane alley, not prone to earthquakes.  Best school district in the County, moderate 4-season climate, not too hot, not too cold.  Occasional snow, but melts quickly. VERY close to the Post Office(ebay business was run out of the place by previous owner), and very close to internationally famous large corporations that have chosen the area for either their headquarters or manufacturing branch location.  Small town of around 2,000 with good demographics.  Average home price in 2008, was $175k.

   This property has the characteristics that we are looking for.  Other than a 25% higher chance of tornados than the national average, it fits the bill rather well.  There probably is no "perfect" EFS - at the price range we`re taking about, you're probably going to have to live with a wart ot two - the important thing here being that any wart(s) ARE one(s) you can live with - perhaps for quite some time.  Remember, you aren't shopping for a vacation home, here, and it is highly likely you won't be buying in your "ideal" location - not only for reasons of cost, but other reasons as well - reasons you have not yet considered or thought-through, because your mind is still in vacation-home-shopping mode. 

   For example, that rustic cabin in northern New England you've been renting every September for the past 5 years during foliage-watching season.  It may SEEM ideal - it's certainly idyllic - so much so you're thinking of buying there.  But have you thought things through?  Though the taxes may not kill you, the winters just might.  Not only is it remote, in winter you'll be needing a gas-guzzling 4WD truck w/plow just to get to it.  Many businesses up there are seasonal, meaning you'll have to drive further to get supplies(and help, in the event of a medical problem).  And what seemed like a nice outing in September, could be a treacherous, nail-biting slog by October.  And what would you do for an income there?  If you need a job to survive, who would you work for?  And how far would you need to commute?  What about heating costs?  Does your property come with a few acres of standing timber?  If so, are you able to harvest it, split it, stack it and let it season - and have enough to last you over the long, cold New England winter? Or will you have to buy firewood or other fuels to keep warm?  How's your health?  Are you physically fit enough to shovel snow and be your own lumberjack?  What if your 4WD breaks down?  Can you fix it?  If you need a part, can you get it delivered?  How reliable are the communications networks there?  These are all the sorts of questions you should ask yourself when considering a particular location. 

   The above example was a bit extreme and to me, rather obvious choice of example, but hopefully, I've opened your eyes and mind a bit towards seeing things in a different light and from a different perspective.  Regardless of where you choose to buy your EFS, it's always best to run through a worst-case scenario and let someone else who is more neutral and impartial, help you by also doing the same thing.  He or she might bring up an issue or three you hadn't even thought of.  Also, as I said in the previous installment on the subject, we're focusing on an EFS, NOT a Doomstead, which is an entirely different animal.  Doomsteads are, briefly, properties ideally suited to self-sufficiency, defensibility, are generally large and much more expensive than a EFS, generally has at least one of it's own uninterruptable potable water supplies, and is suitable for going off the grid and generating it's own power.  It will also be well-suited for growing all or nearly all of it's own food, firewood, and raising at least some animals for protein. They tend to be large on several acres of property, and tend to be off the beaten path, even remote.  The idea behind them is to survive in the event of a severe crisis - govt collapse, currency/banking-system collapse, interruptions in food supplies and shipments, civil unrest, rioting and looting.  In short, for surviving beyond the end of civil society. Doomsteads are another subject entirely and deserve their own separate thread.  Something we'll leave for another post at another time.

   Ok, so let's get back on track.  You want low property taxes, and ideally, a low purchase price as well. Where would you find such properties?  Well, I think we can safely eliminate most of the northeastern US as well as most of the West Coast.  There are exceptions here and there, of course, but by and large, anything you find in these areas with cheap property taxes and a low purchase-price, is gonna be in the southern California desert(which is ALREADY an economic desert at this time - no sand needed), or in the case of the Northeast, will likely be pretty far north into the Snowbelt, and be fairly remote - income opportunities will likely be few and far between, and keeping warm in the winter will either eat up a goodly chunk of your limited income, or you will have to expend quite a bit of time and effort to gather enough firewood to see you through the long winter.  Not a good quality for an EFS.

  For low property taxes, look to the South, the southeast, and the midwest.  There other areas with low property taxes and often, low purchase prices also - one area has extremely low unemployment as well, but I hesitate to mention them because they fall outside what is for me, an important parameter: CLIMATE.  I think it's important to keep your HVAC costs as low as possible.  In these uncertain economic times, along with the troubles in the oil-producing regions, particularly the Middle East, a major spike in energy costs could happen due to war or other conflict, and even absent such troubles, the possibility of the USD losing it's reserve status, or serious inflation caused by debasing our currency, could send energy costs skyrocketing.  It is for this reason, I strongly suggest you choose a location with a moderate climate - one in which you can comfortably get through the winters with the fewest "degree-days"(as fuel-oil companies call them - they use this figure to calculate when automatic deliveries are needed), yet at the same time, not be heavily-reliant on air-conditioning during the summer.  For this reason, I would eliminate Florida, the Gulf States, most of Texas, the upper Midwest, New England and the "refrigerator States" like Minnesota, Idaho and Montana - the last 3 States being great for Doomsteads, but NOT so great a location for your EFS.

   Personal tastes as to what constitutes a comfortable climate vary, of course, but for a good combination of a moderate climate, low taxes and access to jobs and income opportunities, the southeast is a good choice.  Or at least, a good place to start your search.  The Carolinas are a personal favorite, as they are about halfway between NY and FL, have a balmy, 4 season climate, are developed enough so as to have a mature
economy, a manufacturing base, and every service you could want, yet rural enough that there's little traffic on the highways.  They also offer a variety of settings, from mountains, to woods, all the way to ocean beaches and everything in between.  The area is also convenient to major transportation hubs. I also like Arkansas, with it's super-low taxes, easy-going zoning, few restrictions, no lawn-mowing requirements, and
it's freedoms, strong private property rights and pro-business atmosphere.  Missouri is another good choice, albeit in the more rural areas (of which Arkansas and Missouri both have in abundance), I'd suggest doing some serious recon work before you buy a place in the middle of nowhere, far from most employment.

   But in general, a "belt" about as far north as the NC/VA border, and south to the SC/GA border, going west to around the western edge of Arkansas, is where you'll find the majority of your EFS candidates.  SOME parts of the,...let's call it the "EFS-belt", are prone to flooding and/or prone to tornados, so you have to do your research and weight the risks vs the benefits for yourself.  You also want to buy in a decent neighborhood.  After all, you may be there for quite some time, and don't want to bother with high-crime areas.  This too, will require research on your part, and since you're not about to drive hundreds or even thousands of miles to check out a town, neighborhood or area, you'll want to research that online.

   In the next installment, I'll show you how to research an area or particular town online, and reveal a couple of my favorite free online resources for doing just that.  I'll also show you how to get in contact with "the locals" and ask questions about a prospective town, neighborhood or area (How are the schools? Electric rates?  Areas/ neighborhoods to avoid, nearby shops, restaurants, services.  Which are good?  Which are not so good?, ect, ect).  You can get a lot of information, free, just for the asking.  And you can also develop preliminary local contacts and recommendations for the services you will need.  For better or for worse, people like to talk about their towns and neighborhoods almost as much as talking about themselves.  Why not take advantage of this,and save yourself a ton of time, hassles, traveling? Nowadays, you can do much of your due diligence in your underwear, saving the travel for the "last mile" of your search, when you actually go to inspect the property just prior to making an offer or signing a purchase agreement.

                                                                              Stay tuned ;-)
                                                                                  Scoob

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