The most financially disastrous thing we ever purchased hasn't been a jet ski or a boat. It hasn't even been the very expensive Toyota Tacoma, or the numerous other cars we've gone through over the years (6 in 5 years). No other item in our lives has put us in more debt and costs us more monthly and annually, than this freakin' house.
"Well, you have to live somewhere, so suck it up, Buttercup."
It's incredibly easy to fall into the housing trap. There is a plethora of misinformation floating around about owning vs renting. Period. As if those are the only two options. Let's talk later about housing options and the one that will work best for us, but, first, lets concentrate on why we all think owning a home is such a great investment.
We fell for all the so-called money 'gurus' telling us what a great investment real estate is for the middle class. The big hook for this scam: Real estate always appreciates. The appreciation of our house has been slower than the money we've put into it for maintenance, taxes, insurance, and interest. From talking to other homeowner's, we've found this to be true across almost all homes.
Our house is pretty old, and although it had been remodeled in the few years before we purchased it, we quickly found areas of neglect that had been covered up rather than repaired. We are still in the process of finding and replacing all these areas, so our total costs of owning this home aren't anywhere close to being completely calculated, and until we are finished, we have no idea what the total cost of keeping it standing will be.
That's right, keeping it standing. We haven't even been able to spend our money on areas where we want to, like a new kitchen or bathroom remodel. We've had to do things like replace the roof that wasn't installed correctly, and replace the aging heat pump, and remediate mold because of the previous roof that leaked.
"When you rent, you are paying someone else's mortgage, plus making them rich."
I thought I wanted the "American Dream," and a key component of that dream is owning my own home. A little piece of 'Murica I get to call all my own.
It's a trap. I knew it was as I was signing the paperwork at the closing table, but I couldn't think of a way out of it. We all laugh at people for falling prey to obvious scams all the time. Yet I still allowed myself to fall prey to the most obvious, and biggest scam of them all: Homeownership. Now I'm stuck to a geographic location, and stuck to a job for the rest of my life. Thirty years is a really long time to owe money on something.
In many cases, renting is the best option.
"What about equity!?"
Home equity is a sham; in most cases. If you pay market rate for a home, you are losing money, no matter how long you keep it. Gone are the days, in most areas of the U.S, of purchasing a home and selling it for 500% more 30 years later. Kari and I looked at a waterfront house earlier this year that we really wanted to buy. The sellers purchased the home in 1980 for $80,000 but were losing it in pre-foreclosure in 2019 for $400,000. The home needed extensive work. The after repair value (ARV) would be around $500k, but would need about $200,000 to get there. So now a buyer has $600k in a $500k home. Plus taxes, insurance, landscaping, maintenance and another $100k+ remodel that will be needed to sell it in 20 years, you would have eaten up all the "equity" in that home if it sells for 20% more than the purchase price. Barring a huge market bubble, or millions in renovation/rebuild, that home will not be worth $2 million in my lifetime.
"This sounds terrible! What about those options?"
They say sometimes you have to hit rock bottom in order to realize you ever messed up in the first place. My rock bottom was a mortgage, a couple of car payments, and some consumer debt. I never got in over my head, but I wasn't moving in the financial direction I wanted to. Instead, I was fleecing myself into believing these things were making me happy. Rock bottom was realizing the things I owned were owning me, and they were delaying my real happiness: goals.
My goals are simple: 1. Make my money work for me so I don't have to have a job, and 2. Travel while spending time with my wife, family, and friends on my schedule, not my jobs schedule (vacation/sick days).
I did some math and figured out how much earlier I can reach this goal of early retirement without all my stuff holding me back. Sure, I'd eventually get there with all the nice things, but I'd be too old to enjoy retirement; or dead. I'm not putting my life on hold to obtain this lifestyle, by the way. I'm just declaring enough is enough and cutting things out of my life that are not carrying me towards my financial and life goals. We still travel, eat out often, and have fun. We've always been responsible with our money, making sure to contribute to our retirements and ensure we have money left over every paycheck so we aren't living paycheck to paycheck. But that's how employees think. Now we are thinking more like investors, and less like employees. In other words, we are thinking like wealthy people.
If you read this blog post, you know I sold the cool truck. That was one step in the right direction. Now we are halting putting any more money into the house, while we pay off our consumer debt.
What does this have to do with other housing options?
Housing is our biggest expense. Our house is old, and we got it for cheap compared to the area we live in, but what we save in mortgage payments we spend elsewhere on maintenance and general upkeep. So here are some options we were looking at:
So buying a new home was quickly struck from our list. The huge downpayment, plus the huge mortgage and additional costs just to move in made existing homes look much better to us.
That's another positive to renting: You can move any time you want! Either wait for the lease to expire, or pay the penalty and move early. It's completely up to you when you just walk away from that situation. My mortgage holder pisses me off? Too bad.
The water heater goes out in your rental? Call the landlord. You are out a few days without hot water while they work it out. My water heater goes out? I'm out a few days without hot water AND I pay well over $1,000 to have it replaced. A rental's roof leaks? Call the landlord. My roof leaked and it cost me $20,000 to have it replaced, plus a year later my bedroom is still torn apart and unusable due to the damage that insurance won't cover. So I have about $20,000 more work that needs to be done in there.
This is what rock bottom looks like, y'all.
"But paying rent is making someone else rich!" So what!? Every time you spend money you are making someone else rich. You buy groceries, you are making the grocery store owner rich. You buy a car, you just sponsored the dealership owners' next yacht. You aren't going to get rich owning a home, so why not make some rich dude pay for all the repairs to your house so you don't have to?
"So if owning a home is making me poor, and I can't get over the fact that paying rent is making someone else rich, what are those options you keep teasing me with!"
You want to get rich owning a home?
What did we decide to do?
Living on a boat has it's challenges. This is why homeownership isn't for ONE of us (hint: it's me, Aaron!). Kari loves living in a house. She loves living on a boat, too. But she loves living in the house more. For one, she has pets; 2 large dogs and a cat. And they don't get along. Also, our pets are aging, so getting the two big dogs on and off the boat for walks is going to be difficult in the coming years.
For us, the only show stopper to moving onto a boat is the pets. Moral of the story: As awesome as pets are, they keep you poor. Don't get pets. If you have them, don't be an asshole and give them away. Keep them, love them, give them a good life with comfortable beds (the expensive ones) and lots of treats, then don't replace them when they unfortunately pass away. That's Aaron Johnson's guide to pet ownership.
"Uhhhh, you still live in a house that is costing you tons of money. What is your plan to save money until you get the boat?"
Man, we really struggled with this one. I lost lots of sleep, and there were some times I was ready to just give up and accept my fate that I'd made a huge mistake buying this house, and now I would be stuck with it. But, in despair comes mans most creative achievements. In my rock bottom, I got creative and figured it out.
Step 1. Stop working on the house. We replaced the roof and the heat pump at a combined cost of about $40,000. Luckily, we have roughly $70k in equity today. Put no more money into the house, for now.
Step 2. Pay off debt. Minimize expenses, spend no more than $2,000 a year on vehicles, and pare down so we can retire on much less pay. The less monthly income we need, the quicker we can retire.
Step 3. Save, save, save. Invest in our retirement accounts, mutual funds, and index funds. Maybe even buy some real estate and become landlords. We aren't sure about that yet. Somewhere during this step, we lose our pets to old age (NOT looking forward to this. It's gonna suck). When that happens, we move on to step 4.
Step 4. Fix the house on borrowed funds, then immediately sell. Repay the borrowed funds at sale so we minimize the interest paid on repairing the house we don't even want anyway.
Step 5. Buy that boat! This could come between steps 3 and 4 if the pets live a long time and we have enough invested. We aren't trying to live the lifestyle of the rich and famous, we only want to finance our minimalistic lifestyle without the need for employment or sitting on the street corner with a cardboard sign. Although I'll sit on the corner in the Virgin Islands with a cardboard sign before I ask my employer for their permission to go on vacation when I'm 62 years old.
Step 6. Continue saving and investing until we have enough to retire early. Sail away. Spend the summers (hurricane season) in the Chesapeake Bay, and winters in the Caribbean being pirates or mermaids. I haven't decided which one I want to be. This is when Chesapeake Wanderlust will reach its peak.
Y'all are awesome! Thanks for reading, please leave some feedback in the comments. Go do something today that makes you happy!
We are an adventurous couple exploring the Chesapeake Bay by boat, paddle board, jet ski, and whatever other means necessary!
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