The biggest roadblock for me to retire early is the house. Long before I decided to make this journey for financial independence, Mommy Pig and I decided that we wanted to have the “Dream Home” after she sold her business. In 2012 we built our dream home and had everything we ever wanted built into it. I love this house. However, as you might imagine, to have the “Dream Home” I had to have the nightmare mortgage payments.
In my first ever post How the Journey Began, I had 17 years as my worst case scenario to retire early. 15 of those 17 years are to pay off $350,000 in mortgage payments. ”Sell the House!!!!” might be the mantra for many of my FI (financial independence) brothers and sisters, but I have different thoughts on the subject. After all, I’m a consumer and suppose I always will be. A pig doesn’t change his spots…..or was that supposed to be a leopard? Doesn’t matter, let’s move on.
Often times you hear the phrase “Your home is your biggest investment”, or “Your home is your biggest asset”. But that’s not true at all. As long as you have payments and you’re not renting out a house, it is your biggest liability. No income is spinning off that house, only cost. However, this house is where I’ll raise my children. This house is close to work for both me and my wife. This house is in a wonderful neighborhood with nice schools and a great community. This house is our HOME. It is so much more to us then an asset or liability……for now.
In 2013 I have a house valued at $450,000 and $350,000 in mortgage principle. Over the next 15 years I’ll pay approx. $85,000 in interest and have a paid off house. The value of the house should be much more then what it is valued at now. Per this study on Dallas-Plano-Irving area, home values have appreciated 65% in the last 20 years. This includes the disastrous 2008 – 2012 period for home values. So my costs will be:
- $350,000 mortgage
- $85,000 interest for 15 years at 3%
- $435,000 in total costs on the property
Assuming the market does 65% in the next 17 years I would be looking at a property value of somewhere $742,000. Now I’m looking at an asset.
This house plays into my overall strategy. Once the kids are out, my wife and I will be looking to downsize. We won’t be needing nearly this much house for just the two of us. The property upkeep costs will be something that I don’t want to maintain with the overbearing HOA. Side note, I left my trash cans out until 2 p.m. the day after the trash was picked up. Mommy Pig received a text from the HOA with a picture of our trash cans saying we were in violation. Then I received a letter in the mail from the HOA a few days later with the same picture and notice of violation. A few days after receiving the letter, I got notified of a certified letter at the post office waiting for me. It was a copy of the same letter I received in mail. Good to know how my HOA fees are being used. Imagine what would happen if I didn’t have the grass cut for an extra week….I’d probably receive a summons to appear in court! Sorry, got lost in my rant.
Now I have a property I don’t want to retire in that is available to sell. I will have a good portion from the sales proceeds to invest. The rest will be used to find new suitable housing for us (most likely a town home with limited upkeep responsibilities). I would say that this house isn’t my biggest investment (it might be my 3rd biggest, more on that in future posts), but it will be an important one that gave me an avenue to have money grow outside the stock market. I used to worry that we put so much money into this house as the down payment instead of investing it in the market. But over the last year I have felt much more at ease with it after really examining some future projections and also having a way to not have all of my eggs in stocks, bond, etc.
****P.S. The mortgage payments are less then 25% of our income. I have always felt very strongly about keeping payments at that threshold.