Just over a year ago we had a heck of a weekend with one of our rental units. On a Sunday afternoon, our Renter called us up and told us: The AC isn’t working. Oh, yeah. And the washer hasn’t been working for the last month either.
Really, Renter? You couldn’t have told us when this first started? How 21-year-old boys can go weeks without feeling the urgent need for a clothes washer is more than slightly gross. But I digress.
Long story short, we replaced the AC unit ($3350) and the washer ($400) all in one swoop a year ago, and it stung a bit. In fact, it stung enough that when the AC repair company offered us the opportunity to replace the other AC unit in the duplex (which was of a similar vintage, though slightly better condition) at a 10% discount, we hesitated. And, as I am so often inclined to do, we did some math.
Our calculations went something like this. If an AC unit lasts 10-15 years, how much longer would this system have to last to recoup the $335 (10% savings)? Let’s assume it lasts 12.5 years. Then straight-line depreciation gives us a cost of $3350/12.5yrs = $268/year.
So, to recoup the $335 (10% savings), we were betting that the system was going to last $335/$268/yr = 1.25 years (15 months).
We Rolled The AC Dice
We were betting on 15+ more months of service out of the system. Well, 12 months later, the AC system broke. Crud. We lost 3 months on our break-even point. That’s not so bad, right?
Well, not quite. In fact, if I were writing a post based on being off of break-even by 3 months that might feel a little cheap/petty, even for me.
The kicker came when we went to get estimates for a replacement system this go around.
The Price Went Up Significantly
We had not factored this possibility into the equation at all. Typically, as technology ages, the price decreases. Heck, everyone knows that you can buy last year’s iPad for $100 less than this year’s iPad. But apparently, we hit a unique period in time when AC unit inflation was significantly higher than normal. And by that we mean that the manufacturer’s price for these systems went up. By $350. Across the board.
That means that AC unit inflation was a whopping 10.4% in 2012. Which stinks.
We tried to find price matching on the system we had installed last year, but to no avail. All of the quotes came within $50 of one another, so we went with an installer that we have used and trusted in the past.
Needless To Say, We Should Have Done It Last Year
We got about $268 worth of value out of squeezing one more year out of the AC system, but at the cost of losing the 10% discount ($335), and finding ourselves facing that 10.4% price increase ($350).
So I’m going to call our net loss on this gamble a solid $417. Crud.
Hindsight is 20/20 on this one, and although we did have the money in our emergency fund last year to take care of both systems at once, we also had a decent chunk of non-mortgage debt that was hanging over us at the time, too, which played a role in us deferring this AC replacement. The debt was, to recap:
- Our $38K HELOC – paid off completely in January
- $8.6K car loan – paid off in February
- $50K loan to Mr. PoP’s parents that we used to buy the duplex… still on schedule to pay this back in August, albeit a little tighter after this almost $4K hit
Had all of that debt not been there, we probably would have made the more optimal decision thinking the breakeven was close enough that it was worth saving the hassle to get it all done at once.
So the big lesson of today is this:
Debt can cause suboptimal decision making.
Shocking, I know. But hey, sometimes the simplest lessons bear repeating once in a while.
When has debt played a role in your decision making? What kind of sub-optimal decisions did you make that would have been different were it not for your debt?