Cousin's Dream House
I recently wrote about a path to become rich for the average wage earner (like me) to follow. While I play a good financial game, this is one of the areas in my past financial path where I didn’t do the best that I could have.
For a few years I rented a 1 room apartment for a few hundred dollars a month. This path (renting the one room apartment) wasn’t bad, but then shortly after I got married, we rented a small apartment for around $410/month. Even though $410 was a great price, instead we should have tried to build up some equity!
We should have purchased an affordable “cheap” house that we could have built up equity with instead. Now in our defense, we didn’t know how long we were going to be in the neighborhood (let alone state). It turns out we spend about three or so years there.
Contrast this with my wife’s cousin Anna. Anna and her husband didn’t go to college and decided to start working after high school. After a few years, Anna and her husband decided to purchase a mobile home and save money. Anna scored a pretty good job, while her husband tried to start a few business while they were young. He failed often, but never gave up and eventually his last business attempt succeeded.
This was their Housing Plan:
They decided that they would buy a mobile home. Since their payments on the mobile home was low, they also started to socking money away for their dream home. Their annual income was inconsistent, but they always manage to save some money for their dream home each year (some years they saved more than others). After 7 years they were able to sell their mobile home and buy their dream house just before they decided to start a family. Their new house was in a cute suburb in a good city with an above average educational system. Their two-story house is a little over 1,850 square feet, but compared to their mobile home the new house is huge.
Doesn’t sounds too incredible huh. Well, here is the interesting part! They were able to pay off over 60% of the cost of the house, so their mortgage was relatively low. They did this while making less than $45,000. Their property size is about 1/2 acre and the kids have plenty of room to play (especially versus the mobile home in the mobile home park).
Since their mortgage expense was relatively low, they opted for the 15 year mortgage instead of the 30 year mortgage. Anna’s husband business is still growing, so they are increasing they income each and every year. But even if his venture doesn’t pan out, they can still afford (barely) the house payment with Anna’s salary.
My wife’s cousin had a better housing plan than I did, and although they had to sacrific for a few years, the end result turned out to be a huge win for them!
Would you sacrifice your housing situation for 7 years to buy your dream home? What do you think about their housing plan?
Cheers,
MR
Normally I would say if the mortgage and the rent comes to almost the same amount, it makes sense to invest in a home. But what happened with the housing market during the boom was just insane and lot of people got hurt.
I’m assuming they sold the mobile home for a profit – but the situation could’ve been different in say California or Florida.
They did sell it. I don’t think they made much profit, but it was forced savings for them though.
I once had a co-worker who did the exact same thing as your wife’s cousin. The only difference is that he bought his house at the peak of the housing bubble. It makes me kind of sad to think that he saved and saved and saved for all those years only to end up with an overpriced house. If he had just held on for like two more years…
Equity is not a guaranteed thing and I’ve learned from many other people’s mistake that you should never view your house as an investment because so much can go wrong.
True, very true. They were luck that they bought the mobile home over 7 years ago, and they bought the newer house recently at a great price and a wonderful interest rate. I’m actually kind of jealous.
Sacrifice in itself will not get you a dream house or anything else. All goals need a plan and a little luck when it comes to real estate.
Yeah, they got lucky, they had both… It was a huge win for them
I think that’s how it should be. It’s insane that people who are right out of college expect to jump right into their dream home.
My plan was that I continued to live like a college student for the first 4 years out of school until I could pay off my student loans and scrape up 20% for a downpayment. I kept my old car, I kept my crappy old furniture, I had roommates..I think the only thing I bought was a mattress.
I’m happy with my decision.
I’m similar to your scenario, but instead of roommates after college I lived in my cheap bachelor’s pad. It was a good route too, and very frugal 🙂
I like your cousin’s plan. It is a good one and seems to have worked out very well.
60% down payment is huge! They sacrificed for a few years and now they are doing great.
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