Does Anyone Know About Captive Insurance?

December 1st, 2020 by Potato

As the title states, this is a question to all the smart BbtP readers out there — does anyone know much about captive insurance companies?

I came across the concept when looking into how a certain popular be-all robo-advisor was offering people a way to buy bitcoin. Now, without going on too much of a rant, bitcoin is stupid in large part because it’s stupidly hard to get and keep. There are huge barriers to entry to regular people, but it’s going up and people want to buy, so there are a whole host of businesses springing up to serve that market. There are companies that are buying bitcoin on their balance sheet1, trusts that simply serve as publicly-traded securities that hold bitcoin, as well as a bunch of brokerage/exchange type services that range in professionalism from a group of basement-dwelling hackers cosplaying as investment bankers to groups with actual infrastructure and legal agreements.

There’s a huge trust problem with bitcoin (or crypto in general) — if you lose your keys, or get hacked, your coins are gone. If you die and forget to give your heirs the key (or let them know the coins exist in the first place), they’re lost forever. If you let someone else hold your coins and they get hacked (or fake their death and abscond with the money or whatever else might happen), then they’re gone, with no regulator to cry to reverse the transaction. For the most part, people don’t seem too worried about this — it’s a mania after all, you can’t sit around when there’s buying to do! As far as I’m aware, all of the more-convenient ways to access bitcoin trade at a premium, indicating that people want the convenience and are willing to pay for it (or can’t arbitrage it away).

So I checked out that be-all robo to see what all the fuss was about. And while bitcoin isn’t covered by CIPF, they say they’re insured. So if you click through the fine print, they’re using the services of an American company specializing in being a custodian and exchange for crypto. And they have a Bermuda-based captive insurer providing $200M of coverage, and that sounded weird to me. I don’t really know how captive insurers work — I could do a search and see that it’s when the insurer is wholly owned by the company taking out the insurance, which explains the name. But I don’t know how to answer the main question: do they actually have $200M in assets to backstop that insurance policy (or sufficient re-insurance)? Is there a Bermuda-based regulatory filing database like SEDAR?

Hopefully one of you knows.

1. I fully expect Tesla to announce they’re doing that or have been doing it all along and that’s the explanation for the interest income anomaly.

Whether to Lease Your Condo in a Pandemic

November 21st, 2020 by Potato

Rents are dropping in Toronto, particularly for downtown condos (the market that had been driven up the most by the AirBnB crime syndicate phenomenon in the first place).

That raises an important question: what should owners of a vacant condo do? Advice is all over the map, from those who say to sell it while valuations are still high1, to those who say to rent it out tout suite to avoid cash burn, to those who say to do the opposite and hold off because rents will go back up one day but renting at a low price now will lock you in to covid rents until the tenant leaves.

Not so long ago when prices were increasing all the time, real estate bulls had the logic that the best predictor of the near future is the present, so better buy now before it gets even more expensive. Well, that argument can work in reverse too: better take the rent you can get now before rents drop even more — or to bleed money with a vacancy if they don’t go back up. On the other hand, Toronto real estate has always been a story of hope and bullishness over all comers, and unrelenting bullishness and irresponsible leverage has won every time so far, so why not one more victory for that unstoppable pair?

How do you even approach such an important decision with such uncertainty and completely opposing advice? Congratulations to the regular readers who said spreadsheets. Save us math, you’re our only hope!

First off, consider the two choices for renting the place out: early, or late. That will help frame the third choice of selling the place (or possibly buying more while prices are “low” because you can make multiple millions but only go bankrupt once so the risk-reward is clear).

Renting now is more-or-less certain what you’re going to get. The main uncertainty is how long your new tenant will stay in place (which is only a concern if rents to go back up substantially faster than rent control guideline increases). But you can pull a number out of a hat and likely not be too far off. These are downtown condos we’re talking about, even at a discount to market rent it’s quite unlikely a tenant will stay for more than 5 years (or that your intended holding period is that long).

So you’ll have just 3 factors for how much money you’ll make: R, the current market rent; E, your expenses2, and Tr, the amount of time the renter stays, which is unknown but we’ll pin at 60 months.

So renting right away will give you: (R – E)*Tr.

So far so good. Now if you decide to wait, you’ll still have expenses, E, to pay to carry the place. You may have additional expenses that the tenant would normally pay for, such as utilities, but we’ll assume E stays the same for now. So you’ll be losing E for a period of time, let’s say Tv, the length of time until there’s a vaccine or widespread normalcy or what have you, and you get your once and future rent again. Let’s call that A. You’ll then get that for the remainder of Tr after Tv has passed.

Waiting then will give you: (A – E)*( Tr – Tv) – E*Tv

There’s a lot more uncertainty here: how high will A get, and how fast? All the way back to pre-covid highs by the spring? Maaaybe, but IMHO that’s unlikely because that was in part driven up by AirBnB, and pandemic aside, the city has finally moved to restrict AirBnB rentals. But maybe you laugh at my foolish hope in the rule of law and say that it will never be enforced, so that’s fine. Maybe you should consider the scenario where A isn’t all that much higher than today’s rent, R. And you also don’t know what Tv is going to be. It could be a few months, as some on the real estate blogs are saying, it could be a few years to get back up to pre-covid rents.

One approach to make the decision is to compare something mostly known today to an expected value of a bunch of possible outcomes. But before we do that, you have to stop and examine the risks. You could be “totally sure” of an outcome, but if being wrong would ruin you then you maybe shouldn’t take the risk anyway.

So some real estate investors are deep-pocketed with massive unrealized capital gains, so a year or three of vacancy doesn’t really phase them. Their advice to wait may mean little to the start-up specuvestor who expected the condo they stretched to buy to make money, not demand it while they are also financially strained from the pandemic. If 3, 6, or 12 months of that negative E term starts to look like bankruptcy, then you may need cashflow now even if it caps future potential gains (or you may want to look at selling while the selling is still pretty decent).

If you’re able to survive different outcomes, then you can do some math on expected value. How likely is the scenario where rent goes all the way back up in 3 months? How about the one where it takes a year? How about the one where you wait 18 months and settle for rent that’s the same or even lower than today? An expected value is just a weighted average of each of the outcomes, where the weighting is your guess on the probability.

You can plug all those in to a spreadsheet, and give yourself some information to work from.

Here’s an example of how that might work:

Pre-covid rent: $2250. Expenses: $1600/mo. Current rent: $1860.

Renting now would earn $15,600 over 5 years (at which point we assume the tenant with the cheap rent leaves and it’s ceteris paribus).

Rent later might have four equally weighted scenarios, say you wait a year for things to settle out and see where rent is at, and maybe it’s fully recovered, maybe partly recovered, or maybe you decide to wait a bit longer if things are on the upswing but still a bit below the peak, or maybe you get lucky and rent goes through a huge whip-saw and gets back to where it was in just 6 months.
1: Rent for $2250 after 1 year, vacant until then = -$19,200 + $31,200 = $12,000
2: Rent for $2000 after 1 year, vacant until then = -$19,200 + $19,200 = 0
3: Rent for $2250 after 18 months, vacant until then = -$28,800 + $27,300 = -$1,500
4: Rent for $2250 after 6 months, vacant until then = -$9,600 + $35,100 = $25,500
Average/expected value: $9,000

So here’s a spreadsheet, play with your own numbers and assumptions… but three of the scenarios above lost out to renting right away, even at a 17% discount. You have to have either very low expenses or very high hopes for a speedy rental recovery to make the case for waiting for the market to recover. Or fear a rent-controlled tenant will stay substantially longer than 5 years.

Psst!

Hmm?

Psst, Potato!

Oh hey, it’s Italics Man, paying a visit from Nelson’s blog.

Yeah hey, expenses don’t matter.

And indeed, if you’re paying the same expenses whether you rent the place out or not, then you can drop that term in all the math: the only thing that changes between the scenarios is the revenue (though if your expenses change, such as having to pay utilities that a tenant would otherwise pay during a vacancy, that’s a different story). So we could simplify it down even further: look at the difference in rents and how long it takes to go from one level to the other. Taking $400/mo less means you lose ~2 months of rent every year. So if you figure a tenant might stay for 5 years at the lower rent if you rent right now, then your breakeven point would be to wait for 10 months for a full recovery. If that sounds unlikely, then you may as well rent now. Given that renting now means you don’t have to endure 10 months of highly negative cashflow, I’m inclined to think that renting now really should be the preference given these numbers, but I also think getting all the way back up to pre-pandemic rents in a matter of single-digit months is quite unlikely.

However, including a version with the expenses may be important when framing the decision. After all, in the case where you wait a very long time (#3 above), you not only made less money, you had a loss on the condo. Even in the other cases, waiting starts with a loss, which you need to be prepared for and see when making that choice — do you have that first $20k on hand to survive to the high-rent near future you predict? People are sometimes much more motivated to avoid losses than increase gains. When all the numbers are positive, the decision looks very different.

More importantly, remember that there was a third choice: selling and bailing. Here’s where it makes all the difference to look at the amounts with expenses versus just the difference in revenues. If your expenses are high enough, then either the choice of lower current rents or waiting for higher rents may have you staring at a big loss and an even bigger cashflow hole. That may mean selling into a slightly weaker-than-last-year market may be the way to go for you, to take your lumps now rather than bleed cash over the next year or two.

And of course, all of these numbers have more uncertainty than I’ve indicated. For the most part, I think I’m being generous to the owner considering delaying — I didn’t include any scenarios where they wait only to find rent has gone down further. It depends on your view of the market, but I have a hard time believing that after the year that 2020 has been that rents will be sharply recovering for downtown condos any day now.

On the flip side, some people are worried about rent control and a tenant paying less than market rent for even more than my arbitrary 5 years. If you think you may get stuck for a decade or more you can try to convince yourself that it’s worth it to hold a vacant unit for an extended period of time. If you’re worried about being stuck with a below-future-market tenant for 12 years then you might be able to talk yourself into two whole years of vacancy (depending on the difference in rents, etc.). Of course, by that same logic you should have never rented over the past few years anyway, when downtown rent inflation was out of control — getting 10% less than you could get next year was a bad move if you were worried about the tenant sticking around for infinity years with rent control. As the magnitude of the gap between current and future rents widens then you may have an argument for tenants having more of an incentive to stick around – being just 10% below market may not have been enough to get them to forestall their life plan of moving from your 1 bdrm to a 3 bdrm in the burbs, but maybe a 17% would get them to hang around just to spite you? Still, I think there’s an underlying current of fear around rent control that leads people to make these suggestions to keep a place empty rather than make some money and house someone at the same time, rather than a serious economic analysis.

Anyway, feel free to check your own assumptions and situation, but I suspect that the best strategy is going to be to accept that the market sucks right now and rent anyway rather than prolonging a vacancy on hope, or to sell if your view on the long-term market has been changed.

1. While the downtown condo market has cooled a bit from the peak, valuations are still historically high, and astronomically high on a cap rate basis thanks to lower rent, as rents have dropped more than prices.

2. We’re not going to worry about inflation or time value of money to keep things simple, but yes, the costs would be expected to increase over time, with an additional big bolus of uncertainty from what property taxes will do after the sledgehammer that covid was to the city’s finances.

Halloween and the Plague Times

October 29th, 2020 by Potato

Here is me in the Spring of 2020:

Madagascar meme - shut down everything

Now after a long shut-down and with lots of people wearing masks and respecting social distancing, things were getting a bit closer to normal. It was a very tough call, but Blueberry is physically back at school. It’s been a crazy year, with lots of things upended. It’s been especially hard for kids: no birthday parties, no play dates, and months of being way too close to the parents. No funerals for dead grandparents. No trips to the science centre, and even the outdoor playgrounds were taped off through almost all the days of decent weather. We didn’t have a big Thanksgiving get-together (not that kids care about that one), and Christmas will likely have to change a bit (opening gifts should work fine with my siblings together if we wear our masks, though we may retreat to our own homes for separate dinners).

But thankfully, Halloween will happen more-or-less normally (maybe they can’t rove the streets in packs or have Halloween parties, but trick-or-treating is good, right?). Or it briefly seemed that way, until the local health authorities decided to recommend against it in Toronto.

And I’m usually all for listening to the health authorities. We have way too many people who aren’t, and we haven’t been able to join the Maritimers in the covid-free bubble because we just can’t quite get our shit together. The pejorative “mouth breather” has taken on a whole new literal meaning this year with people who only partially wear their masks (“it’s ok, I only breathe through my mouth anyway”).

But the decision against trick-or-treating isn’t one I can get behind. It’s about as safe as we can make a holiday tradition: naturally lending itself to mask-wearing, taking place outside*, very brief interactions, and with a candy chute/tongs/grab-bags lined up on the driveway, it can be even safer. And the kids need something normal this year.

It’s also hard to explain to them why trick-or-treating outside isn’t considered safe, but the kids can go to school in a still somewhat crowded classroom, people can still go inside restaurants to get take-out, and the friggin realtors are back to banging on the door every week asking if we’re interested in listing the house. So why can these other, riskier activities take place but not a super-fun, super-important holiday tradition? Do we want 2020’s November disaster to be the vengeance of the dead?

There is the argument that these other things have economic value to offset the risk — parents can’t effectively get back to work without school and child care, so the higher risk of classrooms is accepted, whereas trick-or-treating isn’t as big an economic force. Ditto for restaurants and stores and what-not (and I guess the terrible realtors going door-to-door?). And there’s a good point in there, but on the idea of risk-benefit: trick-or-treating can be made pretty darn low-risk. (The benefit side is a harder argument: there are non-economic reasons for doing things, and Halloween is the bestest most importantest holiday in the whole spooky calendar, but that’s a slippery slope to people justifying their weddings and thanksgiving dinners and spin classes.

So anyway, I don’t want to be the anarchist guy saying we should ignore the public health authorities at every turn because they sometimes make mistakes. And I don’t want to incite others towards a sugar-fueled covid anarchy… but we will be handing out (dropping down a chute) candy for any kids who want to come to our door. We even up-sized to full-sized Nestle bars ’cause we know the hit rate will be lower for the kids this year.

My one big tip is to keep the mask on the whole time: don’t pull it up and down each time there’s a knock on the door, or as you’re going up the driveway if you’re a kid or roving backup candy hauler.

* – yes, some people live in apartment/condo buildings, which could have been a more targeted message about staying safe for Halloween if you’re not outside.

Passiv and Unbundling All-in-One ETFs

October 8th, 2020 by Potato

Passiv is a neat tool that helps you manage your portfolio. It plugs into your Questrade account, and can send you email notifications when new money arrives in your account, and can even do one-click rebalancing of your portfolio, either by just distributing un-invested cash to the parts of your portfolio that are under-weight, or by also selling parts that are over-weight.

I should mention that they now have a referral program and I’m part of that — you can find a link over in the sidebar where the advertisey stuff goes.

So they recently put up a blog post comparing the costs of all-in-one ETFs to unbundling them and investing in the handful of underlying funds. Usually you’d also have to consider and weight the extra work and complexity that goes along with the savings of unbundling, but the pitch is that Passiv can manage the rebalancing and multiple purchases for you, so it should just come down to cost.

I’m a big fan of the all-in-one ETFs, in part because they force you to look at your portfolio as a whole, on top of the convenience factor. Even with no rebalancing to do, you can still make use of Passiv to do the purchases for you with one click, and send those emails when new money arrives in your account. And for the moment those services are free to the user.

But if you want to get the lowest possible costs, then sure, you can save a bit by investing in a set of individual ETFs. However, the comparison in the post is missing a few important factors. Yes, you will pay a slight MER premium for the convenience of an all-in-one fund. But that doesn’t mean you should automatically break them apart to seize those savings, even with Passiv to help. Also, the MER premium is a bit smaller than their post makes out — only about 8 bp.

Commission Costs

First off, the article completely ignores transaction costs. While ETFs are nearly free to buy at Questrade, you do have to pay to sell an ETF. And if you’re manually rebalancing, you may sometimes have to do that, especially once your portfolio gets large enough to be hard to rebalance from regular contributions making purchases only.

If you have 3 holdings to sell every 6 months, that’s just $30/yr in commissions, which doesn’t sound like much. But with just 8 bps of savings on the table, you’d need at least $37k invested to break-even. That same comparison also shows how little the convenience of the all-in-one funds costs for smaller portfolios — $30/yr for the convenience on a 5-figure portfolio.

Ok, that’s not a high bar, and below that point you’re almost certainly going to be able to rebalance with new cash rather than having to sell something first anyway. But still, it’s worth pointing out if you are considering using multiple ETFs.

US Funds Complication

A mistake in Passiv’s blog post is comparing a Canadian product to a mix of Canadian and American funds. For example, in saying that you can save 13 bp by breaking apart VGRO, the blog post is putting an allocation toward VTI, the American-listed ETF; similarly for breaking apart the iShares funds, the author is looking at several US-listed funds, which would be more expensive on the Canadian side (ITOT, IMEG) or have no exact analog (USIG, GOVT). But those currency exchanges are going to be tricky (and potentially costly) to handle, and those costs aren’t included in the comparison. Using a Canadian-listed fund would make for a fairer comparison. VUN, for example, rather than VTI. The Canadian versions carry MERs that are a bit higher, reducing the benefit for breaking up VGRO to just 8 bp.

What About Quantization?

Take a look at XGRO’s allocation (which I’m pulling from their post rather than double-checking with iShares myself). It has two components with just a 2% weighting, and then a 3% and 3.9% allocation. Will there be an issue trying to actually hit those small targets, especially if the underlying ETFs can only be purchased in whole units costing say $80 each when trying to invest on your own?

I thought this quantization issue might also be a factor in the decision of whether to break up all-in-one funds, particularly for smaller accounts. While I can really cherry pick and say that if you have $18k, you can’t get within 10% of a 2% weighting with a fund that costs $80 CAD (USIG for example) — 5 shares would be 2.22%, while 4 shares would be 1.78%. I don’t know how Passiv would handle that if you had your rebalancing threshold set at 10% or tighter, would it keep flipping back and forth, buying and selling a share to try to hit an unachievable target allocation? But for the most part, quantization isn’t really a real-world argument for sticking with all-in-one funds. You’re unlikely to run into any issues with it, especially if you’re willing to increase your rebalancing threshold until your portfolio grows larger.

But concerns about buying very small amounts of these funds that the all-in-one ETFs happen to use could lead to a bit of analysis paralysis: should you blindly follow what they have done, or use a 3- or 4-fund canonical portfolio instead?

Summary

I’ve been telling people how to invest in a canonical portfolio for years, and I’m a big fan of the all-in-one ETFs. If you want to save a bit of money and use separate ETFs, be my guest, especially if you have a 6-figure portfolio where the minor cost savings may be worth the extra bit of effort. If you want to use Passiv to help you do that, that’s great. But I don’t like the post’s insinuation that all-in-one funds are costing that much (by framing the extra costs as a percentage difference off a very low base cost) or are “less than ideal”. It ignores the other benefits of simplification (such as better behaviour), and it over-states the benefit by ignoring commissions and currency conversion costs.

Prius 10-year Review and Hybrid Challenge

September 12th, 2020 by Potato

I got my Prius just over 10 years ago. I meant to do a look back and review closer to the milestone, but you know, covid and stuff. Let’s just say that ten and a half years is still a good time for a look-back!

TLDR: I love the car, and my next car (whenever that may be) will definitely be another hybrid.

So yes, I love the car. It’s practical, but fun to drive. I still enjoy how smooth it is to drive — no gears, with the eCVT it just takes off the line at full power (or at least, as much as you choose to give it) right away, and sustains that without all the jerking around finding gears and going through different RPM ranges. Then when coasting or at a stoplight, the engine will just turn off! It handles well (surprisingly well for a car focused on economy), and with a good set of winter tires it’s very sure-footed in the winter. I like to think the linear throttle helps there in finding just the right amount of acceleration needed for the conditions, though the weight distribution (the batteries low and in the back) likely helps too.

The hatchback design is so versatile, too. The Prius is also like a Tardis — it’s bigger on the inside. It was so frustrating not even having the option of putting my bike in the car (even with both wheels off!) when I was borrowing my dad’s car, even though it’s a bigger car on the outside! But on other cars so much of that space is taken up by an over-sized engine, that it’s deceptive how much space the passengers and cargo have in the Prius.

Fuel Economy, The Hybrid Premium, and Real Life

A hybrid generally costs a little more than an equivalent gasoline-only car, but also generally consumes less gas. There have been lots and lots and lots of discussions on how to account for those differences, and figure out when you’ll break even on the extra initial investment. So many assumptions go into it — how much will gas cost, how much will you drive, how long will you keep the car? When I bought the Prius, it was approx. $6k more than its closest comparison, the Matrix, but there was a $2k government rebate. I figured that based on my driving and gas costs at the time I would make that difference back up in something like 6 years. The important point is that “break-even” periods can distract from overall savings, because if I kept the car for another 6 years beyond that, I’d save another $4k. A total cost of ownership that’s more than $4k lower over the life of the car with reasonable assumptions? That was a no-brainer.

I don’t know why I kept at it for so long, but I’ve tracked every tank of gas I’ve put in it to see how it actually performed. My lifetime average fuel economy is 5.7 L/100 km. Now I did expect to consume more than the official ratings — nearly everyone does — but that’s a bit of a bigger delta than I had initially banked on (my spreadsheet estimated my real-world fuel consumption would be 5 L/100 km).

Turns out life didn’t go quite the way I expected. I was living in London when I bought it, and driving a fair bit, racking up several thousand kilometers with road trips in the summer on top of regular driving through the year, which was a mix of city and highway.

Then I moved to Toronto, and found I barely drove at all, and when I did it was almost entirely short trips. I haven’t driven to the Maritimes since Blueberry was born, and have hardly even gone up North. I don’t have weekend trips to the city any more — I live here! Most of my driving became short trips to daycare, the subway parking lot, or the grocery store, which is horrible for fuel economy in any car, which is even worse when most of it is in the winter. To underscore the seasonality of my new driving habits, I just replaced the original 3-season tires, whereas I’m nearly done with my second set of winter tires. Of course, that means that I still saved a lot of gas in the hybrid (a gas car also gets horrible mileage on short winter trips).

I’ve driven less than 85,000 km in 10 years — about half of what I was expecting to do by now. My best tank was 3.5 L/100 km, driving around Northern Ontario in a very mild few days in the summer. My worst tank was 8.5 L/100 km, in February where all of my trips were very short (so lots of gas wasted on heat). So the range of fuel consumption was actually rather small — now that I’m used to regularly getting 4-6 L/100 km, 8.5 seems like such a huge miss. But in my Accord I would regularly get up into the teens, and 8.5 L/100 km would have been notably low consumption!

When I originally did the math to decide on getting a hybrid, I had figured on a much gentler driving cycle, and many more kilometers driven each year, with gas prices continuing to climb higher. However, despite moving cities and having a kid and the associated changes to my driving patterns, my hybrid premium was still paid for by gas savings — it just took longer. Instead of 5-6 years to break even, it took almost 10 years. But the 10-year-old hybrid Prius is still worth about $2.1k more than the comparable Matrix (according to a quick search on Autotrader), and I’ll continue to save gas on it for however long I keep driving it.

So, even under less-than-ideal circumstances, financially it was worth it to get a hybrid. And, it saved more than just dollars: it reduced my gas consumption and greenhouse gas emissions. And, it was super cool and neat to drive, in a way that even after 10 years I haven’t had much hedonic adaptation to.

The Hybrid Challenge

Which leads me to my Hybrid Challenge: dear readers, I challenge you to choose a hybrid whenever it is time for you to next get a vehicle. They are as close to zero-compromise as possible now. They may cost a tiny bit more, but in almost all cases you’ll save enough on gas to make that up, even if you don’t have a grueling city commute. And even if you don’t keep your cars that long, they’ll very likely retain that value when you sell them. With the Matrix gone, it’s hard to pick a comparison car for the Prius, but in Toyota’s lineup the hybrid Rav4 is only ~$2k more and the Corolla hybrid is only ~$3k more, which are pretty low bars to make financial sense — so the environment benefits essentially come free!

There’s a hybrid option for virtually every class of car out there, or will be very soon: small cars from the Corolla, Prius C, Civic, through mid-sized cars like the Prius, Ioniq, Camry, Fusion, Sonata, Insight, Accord, Clarity; SUVs like the Escape and Rav-4; and even bigger options like the Pacifica, Highlander, and soon the Venza, Sienna, and Explorer, too. Yes, not every model from every manufacturer, but there is a competitive hybrid option in pretty much every category that you can go and take a look at.

All-electrics may take a little longer yet before they’re mainstream, and they may not suit everyone… but hybrids now have decades of real-world experience showing that they’re if anything more reliable, as well as more economical in the long run.

Reliability

Speaking of reliability, while the hybrid components haven’t had any issues, a 10-year old car has racked up a few maintenance items over the years. Early on there was an inconvenience with the plastic shielding used under the car to make it more aerodynamic. It was repaired under warranty.

The regenerative braking has really saved on brake pads, but a little too much. I still needed a brake job ($2k, plus a EFI service and transmission fluid change on that bill) because my rotors were rusting without enough usage to keep wearing them down! Now I have a look every now and then, and if I see rust starting to form I’ll do a few hard stops to wear it off. I had a tire valve crack, leading to a flat, and had to get that fixed ($30). I had a mouse decide to make a home in the air intake, which caused nearly $1700 in damage.

There were a few suspension-type repairs, all within the past two years: a rear wheel bearing $1500, a lower control arm and exhaust heat shield, $1250, and a drive shaft boot replacement, $1000. Plus I had to replace the rear washer fluid pump at roughly $300.

There’s one deferred maintenance item, which is that many 3rd gen Prius owners have found that carbon deposits can build up inside the EGR system over time, so it needs to be cleaned every so often, with one suggestion to do so at ~80-100k miles [~125k-150k km] (I have penciled in to do it at ~110-120k km). The PriusChat folks generally recommend to DIY that one.

All-in-all, not too bad or unexpected for a 10-year-old car, but it’s only a bit less than my Accord had cost me by the time it was 10, and I had expected a bit better of a Prius. Hopefully the next few years will be trouble-free to make me rave about that aspect, too!

Despite the repairs, other than the flat tire the car has never left me stranded or even afraid I might be stranded. The powerful motor-generator and high-voltage battery start it right up every time in the winter, even on the coldest mornings.

Looks, Tint, Paint, and Seats

I was a touch apprehensive about how well fabric seats would hold up long-term, especially as my dad had been a big proponent of leather seats for years, and was pushing me to upgrade when I got the car. But these have been amazing. I know I haven’t put many miles on it, but all the short trips has meant a lot of ins-and-outs on the seats, and they still look great. I did scotchguard them (a few times). They’ve been puked on once, and cleaned up without a spot.

I was worried about the paint being delicate, especially after some bad luck early on with scratches. If you look close you can see that the clearcoat is now completely swirlied from automatic car washes, but the paint has otherwise held up well — I was mostly just unlucky that my first few scratches came so early in the car’s life. There’s no peeling or fading though, despite some Civics of the same vintage looking a little worse for wear.

I still absolutely adore the ceramic tint I got. It hasn’t bubbled or separated at all over 10 years, and it really does help cut down the heat when it’s in the sun. I highly recommend ceramic tint to anyone who asks (and many who don’t), and will definitely get it again on my next car (though that may be complicated if my next car comes with factory tint).

I heard on a review someone say that Toyota really put a lot of care and effort into everything that you can’t see, and cheaped out on what you can see and touch in the cabin. I actually found that the cloth seats worked really well (my last car had a leather interior and it actually held up less well), but there is a lot of hard plastic in the interior that looks well, economy. But I do have to say that the plastic on the dash has a very neat texturing effect to it that really reduces glare, so I’d disagree with the statement that it lacks care and effort — it may look cheap, but it actually works quite well. There are a few minor scratches on the glove box though from passengers (and their bags).

The Prius looks pretty unique (though over the years more cars have taken on the aerodynamic profile). It’s really grown on me though. One thing that was really weird and unique was the instrument cluster: this high-centre display, with nothing behind the steering wheel! I very quickly saw how awesome it was though: the speed is in the corner of my vision all the time, and I barely have to move my eyes to check the displays. I really wish other models had picked it up, it really is neat. Of course, some newer models (including the new Prius Prime) are developing heads-up displays, which are even cooler. As I was driving my dad’s car, or driving my mom’s van, or thinking about future cars (see below), one minor thing was getting used to looking soooo far down for my speed. An added benefit is that I can position the steering wheel purely for where it feels comfortable, rather than some compromise position of comfortable enough while still being able to see the instrument cluster past it.

Prius high centre instrument cluster

Heating and Cooling

The air conditioning is electric powered (so it can still run when the engine is off) and is great at getting cold fast. Combined with the ceramic tint, it’s really nice in the summer and a huge improvement over the old Accord (which got hotter and took longer to blow cold air). To be fair though, most modern cars have much faster air conditioning units than a ’97 Honda. However, heat comes from waste heat that the engine generates, and being so efficient there isn’t much of that. So it can be sloooow to heat up in the winter. I don’t mind much — I’m wearing a jacket anyway when I’m going out to the car, though it can mean it takes a bit to defog the windshield if that’s needed. Wayfare is not a fan though, which is why I got an aftermarket seat heater for the passenger seat. Built-in seat heaters and even steering wheel heaters seem to be more common on cars these days, and if you’re shopping for a new hybrid, you may want to opt for them if they don’t come standard.

Comparison to Mercedes C43 and the Big Choice

As my dad got too sick to drive, I would sometimes drive his car — either because I rushed up from work on the subway to take him to the hospital, and had no other choice to then get myself home, or because he wanted me to drive his fancy car so someone would get to enjoy it. He also wanted me to have it after his death… and it was briefly a tough choice whether I should take it and sell the 10-year-old Prius, or vice versa. The C43 is faster and “sportier” than the Prius. It costs more, and has a leather interior. But other than that… I have to say it’s inferior in every way.

It’s larger on the outside, but wastes all that space on the engine, so it has less usable interior space, and what space it has is vastly less versatile (the seats don’t even fold down! It’s impossible to fit a bike in it). The UI is infuriatingly terrible — there are buttons at the ready to change the response of the shocks or how aggressively it changes gears or how loud the exhaust is (it’s not clear to me why anyone over the age of 19 would ever need to change those things, let alone often enough that those would be the most accessible buttons), but changing the radio station was some stupid process involving a touchpad and taking your eyes off the road. It has a great backup camera, even constructing a bird’s-eye-view of the car… but it only turns the camera on if the radio is on (why are these things linked, rather than coming on any time you shift into R?).

I had both cars sitting in my driveway for quite a while, and I could drive either one. So for the first two weeks or so I picked the C43 almost every time. Partly for novelty’s sake, and because going fast and going VrooomVROOOMvrooomvrooom is supposed to be a thing we want, and it’s supposed to be luxurious… But after the first two weeks of driving the C43, I chose the Prius every time I had to go somewhere. They both get the same people and the same stuff to the same destinations, and the time it takes in both cases is limited by traffic and speed limits, but one was calm and smooth while the other makes things not be smooth. In addition to the experience of driving, there’s the factor of the absurd amount of gas the Mercedes burns.

And it does burn a lot of gas. It has some kind of engine stop technology to marginally cut down on gas usage, but that only actually worked enough to let me know that it wasn’t completely broken. At almost every stop sign or red light, the engine continued to rumble and burn gas like an unrefined savage. Like a goose that walks across the road when it has the power of flight that it simply chooses not to use. And it does rumble, not just idle — like when I was 12 and riding my bike and pretending it was a sports car. VROOMvrumvrumvrumVROOM vrumvrumvrum. It makes the girls carsick when they’re passengers. After a few weeks of driving it (city driving), the C43 clocked in at 19 L/100 km of premium gas, compared to the Prius sipping on a hair under 6 L/100 km on the same trips (over 3X the carbon emissions, and 4X the cost at the pump). [My brother took it on a golf trip, which was weekend highway and rural road cruising, so about the best case scenario for fuel economy, and it still burned 10 L/100 km, so merely double consumption, but still premium gas at that].

Then after my dad passed away I had to choose which car to keep, and it was briefly a tough choice. A nearly new car that I didn’t like as much, but was a “luxury” car, or a hybrid that had cross the 10-year-old mark. The weighing and indecision stopped as soon as I realized that it’s not like the one I didn’t pick would just disappear, I’d be selling it. If the Prius was valued at more than the C43 it might have been a harder decision, but the inefficient market seriously over-valued the Mercedes — even used, even in the midst of a pandemic with prices of luxury cars way below where they were a year ago, I could get the price of a new Prius from the C43. Add in the fact that the C43 was so much more to operate (from using 3X as much gas, and premium gas at that, to the higher costs to insure and maintain it) and the choice became clear.

The things that the Mercedes does well are the things that you rapidly acclimatize to and stop noticing. Sure, the first few times it’s all “vroom vroom, oh, look at all the nifty little LEDs they’ve put all over”. But once the novelty wears off (which took about two weeks for me) you just want the car to get you places safely and comfortably. Instead, I found I was more frustrated by traffic knowing that the car could accelerate faster and the other road users were just holding me back. Having the engine sit there and rumble at a red light, or race up and down through the gears if traffic was stop-and-go made driving less enjoyable. And I know I stereotype sports car drivers as assholes, but now I think it’s only partly because assholes choose those kind of cars — I felt like the car was turning me into an asshole when I drove it. The things it does poorly (like the UX, lack of interior space and versatility, burning a stupid amount of gas, and making you feel every bump in the road) are things that you would be less likely to get acclimatized to. Thinking about what makes people happy and hedonic treadmills, I had to conclude that this kind of car would not make me happy in the long run, even if it seems more fun in a short-run head-to-head test versus a hybrid.

Summary

Things haven’t turned out the way I had planned in terms of how and how much I drive, but I’m still very happy with my Prius purchase. I had a few more non-hybrid-related repairs than I was hoping for, but not totally unexpected for a 10-year-old car. It’s a very smooth, calming ride, and I still appreciate that. The looks have really grown on me over the years, and I’ve really come to love the high speedometer and instrument cluster, and wish other models would hurry up and steal that design.

Hybrids have come a long way and have really proven themselves, and even when things don’t go as planned they can end up saving money and carbon emissions, so now I challenge all of my readers to choose a hybrid option for whatever their next vehicle might be.

Future Plans

I should have already seen how the world can make a mockery of our plans, but here we are anyway, with a plans section. When I first got the Prius, I had planned to keep it for about 15 years or so — buying new but keeping it forever. As my dad neared the end of his life, he talked about getting me a new car, or giving me his car (which I could then use as a trade-in if I wanted something more versatile and green), and that he’d even give me some money on top because a Mercedes is a much, much higher total cost of ownership experience. Then covid hit and the value of that trade-in tanked along with the portfolio that would have funded such a gift, so a new car is not in the cards for me. Yet another whip-saw in plans and expectations this year. I’ll continue to drive the Prius until the wheels fall off as originally planned.

I had started to research other options though. Getting a new Prius was the first choice — I loved this one so much, after all! And though the 4th generation Prius is even more efficient, there were some minor things I didn’t like: the 3rd gen has a really nifty under-floor cargo area, where I can keep all the things I have to be over-prepared, like a battery booster pack (which has been used multiple times to help other drivers out), a change of clothes for my kid, paper towels, a spare phone charger, etc., leaving the main cargo area uncluttered. The 4th gen consolidates all that trunk space, which I didn’t like as I’d have to either choose to stop over-preparing, or go back to having my trunk as cluttered as it used to be with my old Accord. I also didn’t like Toyota’s styling choices — the Prius isn’t chosen just for its looks, of course, but the new design just seems less friendly to me, with too many weird creases. Plus the Prius V was shelved, which was the model that I was most likely to pick next.

So I looked at some bigger vehicles, though I still have a bit of SUV aversion. The Rav-4 hybrid is nifty, but you have to go exceptionally high up in the options packages to get the super-cool heads-up display (which would save me from having to re-learn how to look down an additional 5″ to check my speed). Moreover, I didn’t like how the redesign made the front look like a squared-off, pedestrian-killing truck. The Ford Escape hybrid looks a little friendlier up front, though its heads-up display was a separate piece of glass, like something Chuck Yeager would have used instead of projecting right on the windshield (and though it was also a top-tier option, on a Ford that’s about the same price as a lower-package Rav-4). I looked at the preview of the hybrid Sienna, but there isn’t much information out on it yet.

I don’t drive enough for a plug-in hybrid to be an economic no-brainer, but I do like the idea of one and cutting fossil fuel usage even more. And they’re really good solutions for most people — all the practicality of a gas car, with the efficiency of an electric for short trips and commuting. With a battery small enough to be charged from a regular outlet, saving the need to install a special charger (or have a garage for one). So I’ll be closely watching what the next generation Prius Prime will look like (I expect late 2022 or early 2023?), as well as the Escape and Rav-4 PHEVs that came out this year (though as of writing are not yet widely available). If in a few years somehow I find myself with the money for a new car, and then a few thousand more beyond that to upgrade needlessly, I think I will be going the PHEV route.