When I bought my first house, I took the advice of my old boss who said ‘buy as much house as the bank will let you.’ I didn’t know it at the time, but this is terrible advice that would lead to many sleepless nights. I vowed to not make the same mistake again and to help others avoid it too.
Once I turned my financial situation around and became smarter with money I took a path that would lead me to make a 50% downpayment on my dream home.
Here is the path I followed – some intentionally and some from uncontrollable circumstances – along with some tips you can use to achieve the same result and avoid those sleepless nights.
First downsizing
Katie – my girlfriend at the time – owned a townhouse. I owned a house. After we had got married, one had to go.
I, being a totally awesome husband (Husband of the Year in 2011), sold my landscaped oasis.
I moved from a 2,200 square foot (204 m2) to her 1,200 square foot (111 m2) townhouse.
The housing market was booming when I sold my house, and I made a lot of money from the home appreciating. After the real-estate thieves (I mean agents) had taken a ridiculously huge cut, I made $48,000.
Plus I had thrown every spare penny into the mortgage over the prior four years and had built up a lot of equity in the home.
With the funds from the sale of the house, we paid off Katie’s second mortgage. All that remained was the first mortgage – $600 a month.
Second downsizing
When we decided to move from Atlanta to Texas, we put the townhouse on the market. It was under contract in a few weeks.
Oops. The quick sale was unexpected. We weren’t moving for nine months, so we had to find a rental home or an apartment to stay in.
Once we sold the townhouse, we moved into a 1,000 square foot (92 m2) 1950’s rental home nearby. We paid $800 a month in rent.
It was cozy and even came with free pets – squirrels in the attic.
The photo above is the kitchen. Yes, that’s the microwave on top of the clothes dryer. The top of the washing machine was frequently used for the cutting board when we cooked.
One day we ran into the UPS man. He said:
Oh, you’ve moved. The area right behind your old house is known by the drivers as crack town.
‘Well, I’m glad we don’t live there anymore’ I replied.
In my time living in the townhouse, I only had to call the police twice for domestic disputes, and there were only six home break-ins on our street. Plus I was followed home one day by some guys trying to rob me of a new TV I had purchased (a story for another time).
At this point, I had gone from my beautiful home to a small 1950’s rental with squirrels in the attic and washer/dryer in the kitchen.
Third (and final) downsizing
From Atlanta, we packed up a U-Haul and drove 1,000 miles to Tyler, Texas to stay with my in-laws for three weeks.
Or so we thought.
Katie had excellent references and a bunch of referrals to commercial developers in Dallas. Fresh off an internship and with a shiny new MBA, she was sure to get a job quickly.
Any college grad can get a job in three weeks, right?
Then the economy, housing market, and commercial development market started it’s downward spiral.
Katie couldn’t get a job anywhere.
Three weeks at the in-laws became four weeks, five weeks, six weeks.
Months.
Where others would see misfortune, we saw opportunity.
Let’s bank!
Our side business was starting to do well enough we discussed if it could be a viable full-time income for Katie. She could be her own boss.
Instead of running out and buying a house based on the unknown income of Katie’s new business, we decided to put a small deposit down to have a house built in a new subdivision.
Why new construction?
The time it took to build a new house gave us eight months to stay in our tiny bedroom at the in-laws and save, save, save. The worst-case scenario was the business would not pan out, and we would lose our deposit on the home.
Compare that to running out and buying a new home and then have the business tank. Would we be able to pay the mortgage?
I can tell you the answer would be no. My other business was hurting from the economic collapse. Paychecks were eventually cut, and three of the four partners (including me) left to work elsewhere.
The one year we lived with my in-laws we paid $450 a month rent. We rarely ate out (restaurants in Tyler, Texas suck). We spent less than we ever had and saved more than we ever had. We banked a lot of money.
Enough for a 50% down payment on our new house.
How you can do it
I know not everyone (or anyone probably) will take it to the radical level of living with their in-laws for a year (it helps to have good in-laws) to save money.
You don’t have to.
One of the principal concepts of becoming financially free is patience. Patience to wait for the nice car. Patience to wait until you can afford first-class airfare. Patience to wait for the awesome house. Patience to live with squirrels in your attic.
Some things you can do are:
- rent a small house for a while
- rent a smaller apartment
- find a small apartment in someone’s basement or over their garage
- seek out older neighborhoods and apartment complexes that have lower costs
- live in your current place a little longer
I’m reminded of the Ethan Allen Homestead Musuem I visited many years ago. Ethan Allen was an American Revolutionary War vet. I’ll never forget walking through his home and seeing the bed – that all five family members slept in.
Somehow in modern society a four-bedroom 5,000 square foot home (464 m2) is too cramped for a family of five.
Decades of freedom
The housing bubble of 2008–2009 is slowly fading from our memories. But home prices are on the rise. Homes are getting multiple bids the same day they hit the market. People are paying more than the asking price. Banks are once again letting us take out loans for more house than we should be buying.
If you want financial freedom a huge factor in breaking the paycheck-to-paycheck cycle, getting out of debt, and retiring early is how much you pay for shelter. With a little bit of patience and putting off buying your dream home for even just a few years, you can have decades of freedom and your dream home.
Question: What’s your living situation currently and how is it impacting your financial freedom? Please leave a comment below.
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