Planning tool for home purchase, increase in rate of return reduces account balance

dkinsella1023

Does anyone know why, in the planning tool for a home purchase, an in increase the annual rate of return on a home reduces account balances over time? This applies to a home purchase that is held and not sold during the planning period. Thanks!

Scooterlam

I wasn't able to recreate the decrease the "account balance" by manipulating my current home or a future home by increasing the home's annual "rate of return" - just too little information provided.  Can you step us us through what you are doing and seeing? Also, screenshots are helpful but please redact any sensitive figures!  

Since you are not selling the home,  any increase in value of the home (via rate of return) should not be shown in the plan results, either an increase or decrease..  When you say "decrease in account balance", do you mean a change in the Lifetime Planner's Plan Results Graph?  Or some other graph or table?  Can you illustrate how the balance changes?

In Lifetime Planner, did you setup a loan associated with the purchase as well?  Or did you selected an existing asset (home) and loan (home).  Were you changing this rate of return in "change assumptions" or "explore what if" screens?

Again,  stepping us through what you are doing or seeing may help narrow down the issue.

dkinsella1023

Hi Scooterlam, thank you for looking in to this and responding to my question!

In this first planning scenario, there's a house purchase in 1/2020 that's sold in 6/2025 when another house is purchased and not sold. In this scenario, the annual growth rates for both houses are 0% and the first chart shows the results.

In the second planning scenario, there's also a house purchase in 1/2020 that's sold in 6/2025 when another house is purchased and not sold. In this scenario, the annual growth rate for the first house is 0% but the second house has been changed to 5% and the second chart shows the results.

My question is why does the chart show us running out of money sooner when we increase the growth rate on the second house?

The first 6 screenshots apply to the variables for scenario 1 and the second 2 screen shots apply to change the one variable - growth rate - in scenario 2.

I do have loans setup for each house.

Thanks,

Dan

Scooterlam

Hi dkinsella1023,   

Thanks for the detail.  I now understand what / how you are comparing, although I am not able to reproduce what you are seeing in my own LTP test file.   

What I am seeing is what I expected - that a change in Home 2 (scenario 2 ) rate of return has no effect on the final value of your plan.   That is because you haven't sold home 2 (scenario 2) at your end of plan.    

I assumed that the ONLY variable you changed, between scenarios,  is the "rate of return" of Home 2.  Also, I assumed that the loans you took against these assets had the same terms other than the loan amount.   Lastly, I assumed that the selling figures of Home 1 are the same in both scenarios (ref image 1). 



To be sure, I'm a bit stumped over the last few hours trying to recreate the issue!   A couple of things to try to narrow it down further:
1.  Backup your QDATA file
2.  Run a File>File Operations>Validate and Repair...>Check box = Validate File>Go
3.  Restart Quicken and recheck both scenarios to see if file validate could find/correct any data corruption that would cause this strange result.

If still an issue, lets see if we can narrow things a bit more.   I would suspect there is some change in expense or portfolio value associated with the home sale/buy in the years 2024 and 2025. Everything equal, that is where I would drill down into the Plan Results graph - simply click on a bar to reveal the "Income and Expense Summary" table for that year.  See images below.

I looked closely at your Plan Results graph for both scenarios and its a bit difficult to see a change between the scenarios for 2024 to 2025 - but there appears to be a drop in portfolio value in 2025 between the scenarios, albeit slight.

4.  You can drill down into the 2024 and 2025 bars in the Plan Summary graph to reveal the detail of what makes up the balances for each line. Consider 2026 as well if you don't see changes in the summary tables for 2024 and 2025.  The basic approach here is to find where the scenarios start to diverge in terms of plan balances.

5.  Compare both scenarios 1 and 2 for 2024 (I suspect they both have the same figures for each line item).  Then, compare both scenarios for 2025 (suspect there you might see a change in one or more figures). A small decrease in portfolio value can make a big difference (TVM) on your plan balance some 28 years in the future, as you know!   Keep in mind that in 2025 Quicken will prorate some of your figures based on the month (example Loan Payments).

If you like, feel free to post the Income and Expense summary tables for the years/scenarios, if you want another set or sets of eyeballs on them.  You may have to take a couple of screen grabs for each year as the Summary table can be long.  See below image.

Please do be sure to redact any personal ID info!

dkinsella1023

Thanks for looking in to this.

There are a lot of screen shots below.

Basically, "24 before 1" means page 1 of the plan summary for 2024 before 5% adjustment and "24 after 1" means page 1 of plan summary for 2024 after the 5% adjustment. So I did a side by side comparison for each page for each year.

In general, withdraws and expenses went up and portfolio value went down after the 5% growth rate increase for the second home purchase in 2025. I don't understand why, nothing really jumps out at me.

Thanks again!

Dan

Scooterlam

Thanks!  Did you by chance add property taxes and other expenses associated with either or both Home 1 and Home 2?  See image 1.   From what I can tell from the plan summary tables, you have property taxes increasing at some rate in 2025 and 2026 and likely beyond.   

My working theory is that the property tax (an expense) you entered in Image 1, rises with the 5% you used as a rate of return in Scenario 2.  I say this because property taxes generally rise with increases in home value.   I don't know if Quicken has modeled property taxes tied to the rate of return in Scenario 2, but if so, it may explain why there is a decrease in plan balance over time (vs. Scenario 1 where you assumed 0% rate of growth).   

It may explain why I couldn't replicate your issue in my test file as I did not use the Asset Expenses dialog but rather opted to model home related expenses in "Living Expenses".  Perhaps @Quicken team can give us a clue on how "Inflation" or "Home Value" figure factors in here.  I've been searching Quicken help files on Lifetime Planner but cannot yet find the inflation assumption for this "Asset Expenses" dialog in Image 1.
It seems though, to me, that property taxes alone may not solely account for the substantial miss between your scenario 1 and 2.

Are there other expenses listed in Asset Expense table in Image 1?  Similar question as before, does Quicken use the rate of return (vs. inflation setting) to increase those expenses?   An aside....Could these expenses be accounted for in your Living Expenses or in Special Expenses - in essence are you double dipping expenses by reporting them elsewhere? Just checking because I see you have also used "Special Expenses" extensively as well.  Its easy to double dip your expenses!

Personally, I have not used the Asset Expenses dialog but will likely now use it this year to more finely model a planned home downsizing 5 or 10 years out!   So far, I have limited my expense modeling to Living Expenses and Special Expenses.

Just a thought...alternately, you might also consider using Expenses>Adjustments to factor in material changes to your expenses for assets held long term, such as new homes or vacation properties.  Adjustments simply increase or decrease your "Living Expenses" over a defined time period.  Granted using this feature would require that you manually match the dates of the future home buy/sales vs. the Asset Expenses dialog.  

BTW....there is a LTP idea thread you ought to consider voting on.   The thread is a compilation of bug fix and enhancement requests to LTP.  In this thread, there is a idea link to building in a scenario planner as well - seems appropriate to this thread.  Have a look and vote here.

Image 1


Image 2

dkinsella1023

I think this is a good theory. I will have to run some tests. I do
enter home related expenses in the asset expenses table including home
maintenance, home insurance and closing costs. It automatically gets
added to special expenses and the inflation rate is applied. Not sure
if the 5% growth rate is a applied. Thanks again for all your help! I
will keep you posted.

dkinsella1023

i went to the link. How do I vote?

Scooterlam

I'll have a look at this again, in the next few weeks, when I add in a future home.
If you scroll down to the end of the first post (rather long), you will find a voting button - see image.  Place the cursor over the arrow, under the vote count and click.  There is a slight delay in registering your vote.
https://community.quicken.com/discussion/7713110/lifetime-planner-bug-and-idea-list-make-yourself-heard#p1

Scooterlam

So I had a deeper look into how the "Expected Growth Rate" of a current or future asset (home) relates to the Property Tax expense.    As I theorized in my Dec 3 post:

My working theory is that the property tax (an expense) you entered in Image 1, rises with the 5% you used as a rate of return (edit: Expected Growth Rate) in Scenario 2.  I say this because property taxes generally rise with increases in home value.   I don't know if Quicken has modeled property taxes tied to the rate of return in Scenario 2, but if so, it may explain why there is a decrease in plan balance over time (vs. Scenario 1 where you assumed 0% rate of growth).   

The effect of adding a "Property Tax" in the "Asset Expense" dialog does indeed increase year over year based upon "Expected Growth Rate" used in the "Sale Info" dialog.  See image.   

To verify this....switch the "Plan Results" graph to "show amounts in future value" and then drill into the Plan Summary tables, you will see that the property tax does adjust each year by the value entered in "expected growth rate" for the asset.  Makes sense...

Interestingly, I noted that expenses that may be included under "Asset Expenses" dialog each have their own inflation rate setting.   As mentioned in a prior post, as you add "asset expenses" line items, be sure to avoid including them in "Living Expenses"!