Studio711.com – Ben Martens

There are a couple stores around here that push their extended warranties ridiculously hard. Sports Authority is probably one of the worst. No matter how I say “No”, I continue to get the guilt trip throughout the entire transaction. It almost makes me want to explain why I never buy it, but I question whether they’d understand the math. Here’s how it works out:

The break even price of a warranty is equal to the cost of replacing the item times the percentage chance that you’ll need to replace the item. So if the product costs $100 and there’s a 20% chance that it will break, then you should buy the warranty if it’s less than $20. The trick is that it’s usually impossible to define the odds that you’ll need a warranty. There’s still a way to prove that it’s a bad deal though.

Think about the company offering the warranty to you. If they charge everyone less than that breakeven point, they’re going to go out of business. They need to make a profit so the warranty is almost ALWAYS going to cost more than that breakeven point. Therefore it’s a bad financial deal for you to buy it.

There are, however, some cases where warranties and insurance are a good thing. Those cases are generally when you do not have enough financial reserve to cover the replacement cost if the item is destroyed. Think about your house or your car. If you have $30K lying around to buy a new car, then you could technically get buy without insurance (though they’ve made insurance a legal requirement since almost no one has this kind of reserve available.)

So when you’re standing at the register and they offer you the extended warranty, know that it’s a bad deal and if you can envision paying that much money again to replace the product, do not buy the warranty. You’ll come out ahead in the long run even if you do have to pay full replacementreplacmenet value every once in a while.

A few weeks back, KenC mentioned Dan Carlin’s Hardcore History podcast and I listened to one (three hour) episode. It’s incredible! He takes a small slice of history and dives really deeply into it. The story he weaves is deep and really helps you understand all of the complicated forces that combined to shape the event.

He only cranks out a handful of episodes a year and I imagine that’s because each one requires so much time and effort. There are 50 total episodes and starting with show 34, they’re available for free on his website.

If you enjoy history, I recommend that you give one episode a shot. That’s all it took to get me hooked.

When I moved here in 2006, I looked at a bunch of condos and townhomes. One that I really liked is right down the street from where our house is right now. It was tall and skinny with three floors, very similar to the townhouse where I lived in Jersey. Since buying this new house, I’ve wondered if we would have moved after getting married if I had bought that townhouse because it’s in the right location and it had three bedrooms. But now I’m extremely thankful that I didn’t buy that townhouse.

In June of 2006, I would have paid about $310K for a unit along the backside of the complex. Today that same condo is worth about $204K. But that’s not the worst of it. The buffer of trees that were behind the complex have been completely removed for the I-405 project. The new ramp from 405N to 522E is going to end up almost directly off the back porch of those townhouses! You can see some of the piers for the ramp in this picture.

I owe my realtor a lot for suggesting that I might not want to buy this townhouse. Even with the trees the road noise was loud, and we weren’t even there during rush hour.

It will be interesting to see what happens to the property values as this project continues.