I've been meaning to write this for a while now but it keeps getting away from me. I’m a bit nervous because I’ve broken some of my mustachian policies and I fear for any face punches. :) Also, apologies for the long post!
August 1st I closed on a house I bought from a good friend of mine for 30K less than the bank’s it’s appraised value (and 45k less than the seller’s appraiser’s value).
The deal started rather suddenly while my friend (we’ll call him Bob) and I were having our weekly beer together and he told me that he had accepted a job in another state and had just contacted a real estate agent earlier that week to start the process. I told him to hold up! I had been to his house several times and had helped on a couple projects. I half-jokingly earlier that year that I would buy his house if he ever moved. Now I told him I was dead serious, but we need to go about this carefully to keep our friendship intact, but I had one cravat - no real estate agents and no 6% overhead - I was going to be doing this several months ahead of my house purchase schedule, but I couldn’t let the deal get away from me.
Now, he had purchased this house in foreclosure in early 2009 for $125,000, the house was appraised by his real estate agent for 170-180k in current condition and zillow put it at 177-190K. He told me that he would go back to his wife and they would sit down and calculate how much they’d put into the house and they’d give me their break-even price for two reasons: 1.) I was a good friend and 2.) He was in no mood to deal with selling this house and was just looking to break even. He came back at $135,000, and I pay closing.
Long story short, I bought a 170-190K house worth and have a loan of 129K after it was all said and done, no PMI and a 4.5% interest. Yes yes, if you do the math I did not put 20% down. I admittedly did this earlier than I planned to purchase, so I did the best I could. But, no PMI through my credit union. So there’s that. I’m also making 1.5x payment and am going to refinance in a year to bring the interest down to 3.25% and continue paying the higher amount. The goal is to pay this off in 10 years and I’ll calcuate the actual payment schedule after the refinance..
So, what about this house made me break the 20% rule and jump at it before I was completely ready? (minus being able to do this without the 6% issue).
Here’s the quick, condensed version so ya’ll don’t have to read all the nitty details:
The house is a 3100 sqft, all brick construction ranch-style house with a basement and attached garage, 4 bed 3 bath, energy-efficient designed home on .88 acres of land 2 miles from work in a neighborhood that that was recently awarded neighborhood improvement grants to add sidewalks and a multi use path that will go right in front of my house that will connect to my work (1.8 mile ride!), but more importantly to an existing 13 mile MUP system and a planned 26 mile MUP system that receives full funding in 2016 that will connect the neighborhood to the entire city by multi-use paths, bike lane build outs are starting on all roads surrounding and will be within .5-1 mile of a new light-rail system stations being installed currently. It also has easy access to the interstate. Home values are expected to increase by 30-40% in the next 5 years.
Lets start with the one that everyone is probably freaking out about right now: I just bought a 3100 square foot house… Yes. I did and it’s huge and it scares me a little. The main floor is ~2400sqft, with the rest being in the basement/garage. Admittedly this is a change from my desire to have a tiny home. Perhaps as my retirement home, but not right now. :)
That being said, I have some future events I need to plan for that are forthcoming:
*My family is very family-oriented and different groups get together 2-3 times a year at my Grandparents house. Unfortunately my grandparents are aging quickly and people have already started nudging me as the new meeting place afterwards. I have always wanted to provide a place where my family could gather ongoing into the future and this house and property provides that.
**Children. Although we are currently DINKs, I think once we get closer and closer to our networth/FI target, kids are going to come back into our minds in a big way. There are good schools and plenty of space for them (bedroom-wise). Kind of a washy-reason but I'm throwing it in. I know it's very easy to raise children in much less house.
**Entertaining. We are getting more and more into entertaining our friends and we are working on starting up a board game night (monthly at first) and have already used a guest room to house a friend who drank too much and didn't feel comfortable driving home. I like being able to offer those services!
*Second is the large amount of land. My SO and I are very big on self-sustaining gardening/agriculture and plan on turning the back quarter and space around the house into garden/chicken space and would also like to build a greenhouse with aquaponics for fresh fish.
*Third, all the multi-use paths and alternative transports! Closeness to work! This was a huge huge huge selling point. This process has already been completed in the south of town and it is now coming to the north where the university is. The long-term study of home prices in the area where MUPs and light rail stations were built in the city saw a 30-40%+ increase in home value in 5 years. Estimations put this home valuation at 221-266K by 2020 not including the many improvements I’m making. That and I can bicycle from my house, to work, the grocery store, head south to meet my SO for lunch and then back to work and home and not ever get on a road. Pressed on time? I can cycle to the light rail in 3 minutes and use that instead. My SO can cycle to the light rail, take it south, and cycle the 2 miles to her job. Seriously. It’s kinda awesome.
*Fourth (and not included in the top) is that the home was a ‘worst home in the best neighborhood’ deal. Structurally the house is solid, but needs to be updated in the worst kind of way. The backyard needs to be cleared from overgrown ivy, all the brick needs to be pressure washed and cleaned up, the front yard needs some love, I’m laying new floors, pulling out wood paneling and putting up drywall, updating insulation when needed, replaced an old rusted out door in a sunroom and I’ll be remodeling all 3 bathrooms in the coming years. Every room in the house has had a remodel plan built and budgeted for it already. Not for the faint of heart by any means. Luckily I’ve done all this work before and will be doing it myself.
The roof, foundation, appliances, HVAC, water heater, electrical, plumbing and general structure of the house is all in good, solid working order and passed inspection with flying colors. HVAC, roof and water heater was all replaced 8 years ago and I still have the original paperwork from two owners ago.
After all that my Net Worth is currently sitting at $88,000 and I hope to hit 100k by the end of the year! I’ve got 10k in cash right now for projects/house surprises, and the rest is in IRA/401k. January I’m adding a 457b contribution and then a 403b contribution once I’m comfortable with current draws. I’m ashamed to say that earlier this year I was going to jump in and max out my 457b/403b (I even wrote a post on it here!), but the house purchase came up and I put that on hold to pull together a down payment/closing costs and an “oh shit” fund in case anything went wrong with the house right after purchase (because ya’know, shit happens.)
And for those wondering my monthly mortgage payment (P&I + Escrow for taxes and insurance) is $890/mo. I am paying an additional $450 to the principal every month as well for a total payment of ~$1,340. And I plan to be in this house for a minimum of 10 years.
Thanks for reading!
