A little less than three years ago, we moved into what we thought might be our forever home. It had cedar shake cladding, beautiful mahogany floors, vaulted ceilings, an abundance of natural light, a large backyard where we could host parties for our friends and family, and (best of all) it was firmly nestled in a neighborhood that, as Wilmingtonians, we had long admired. The neighbors were terrific and soon became friends. We worked from home and could meet our clients there (and they generally loved the house too). We got engaged and married while living there. It did, and does, have a very special place in our heart.
It was also the place where I read The Total Money Makeover and Common Sense on Mutual Funds (RIP John Bogle) and the entirety of the Mr. Money Mustache blog. It’s where we started the conversation about budgeting and saving and investing. It’s where a Facebook post, born out of those conversations, led to the Passively Managed group, Instagram account, and this blog. In fact, I’d say that even before moving into our house, the financial wheels had started turning because, in order to purchase it, I had to do a lot of critical thinking and number crunching. I also had to pay off the balance of my car to make our debt-to-income ratio work for our home loan.
I had never purchased a house before and my reasoning for making the purchase wasn’t exactly financially sound. When I bought my car (a 2010 Cadillac SRX), my rationale was that “it’s time”. That I deserved to have a nice house and a nice car. I was on the path to the American Dream. I had gone to college, gotten a degree, started a business in my studied field, had some success, and now it was time to take the next steps. I was in a relationship with a girl that I wanted to marry. For the record, I’m not bashing The American Dream. But I do think there’s a lot more to it than purchasing your way into a (mostly false) sense of security or following along a well beaten path only because that's what you're supposed to do.
Let me back up.
Our society teaches us to be consumers. It teaches us that we should save what we can, when we can. 15% has been a popular savings rate benchmark. We move along a certain track that, hopefully, leads us to a certain place vaguely resembling the concepts of success and happiness. Go to college. Get your degree. Get a good job. Buy a nice car. Find a partner. Have children. Buy a house. Get a nicer car. Get a nicer house. Go on trips. Get a promotion. Get a nicer car. Get a bigger house. Send your kids to college. Retire at 65. Downsize the house. The end. That’s a pretty broad brush I’m painting with, but that’s generally the idea. I guess we were about 40% of the way there. Right before having children and upgrading the cars. That’s when I started to actually look into my finances.
When we purchased the house I had to pay off my car. I owed roughly $14,000. I had saved around $30,000. (Aside: I have always been OK with money and have long lived with somewhat of a scarcity mindset that has allowed me to operate with some sort of emergency fund. I never carried consumer debt and my parents were able to pay for my in-state college in the early 2000s.) After paying off the car and putting up a 5% downpayment, I had a couple thousand dollars left. That made me feel crazy because it meant that our safety net had been compromised. I rationalized all of the decisions, resolved to build back up our emergency fund, put my head down, and moved on.
We then inherited a brand new mortgage payment (around $1,900/month), but I had eliminated a car payment (around $500/month). This was the first time I didn’t have a car payment, which is a crucial part of this story. I remember my dad telling me years ago that “you’ll always have a car loan”. It was just one of those things. To be clear, I had replaced one debt with a much larger one, but the mechanics and psychology of paying off a sizable debt was an important lesson for me.
We couldn’t ignore our finances because we were operating without a margin for error and had an outsized debt dangling over us. In the aside earlier, I told you that I never carried consumer debt and never dealt with loans (outside of my vehicle). This amount of debt caused a level of anxiety that I’d never felt before and, without it, I don’t think we’d be where we are today. So I’m grateful that we purchased the house because it forced me to come face-to-face with my finances and the psychology behind my decision making. That anxiety pushed me to educate myself; To try and figure it out. And this is what this story has been about. This is where these decisions have led us.
Passively Managed was officially born on May 31, 2017, 11 months after we purchased our house. (And, in fact, on that same exact a day, someone on the Facebook group posted about Mr. Money Mustache, which I find rather serendipitous.) The small level of accountability I felt by creating that group led to a gradual and steady change in our lives. We were budgeting. We were investing. Through tracking our spending, we eliminated needless expenses and lowered our monthly bills. I even traded in my beloved iPhone! Then I sold my car and biked all over the place. I broke up with my brick-and-mortar bank to pursue higher savings account returns with Ally. We re-established our Emergency Fund. We coordinated meet ups and shared our stories with other people who were curious about finances. We started tracking our net worth. We learned about credit card travel hacking. We doubled-down on our businesses and made them more profitable. We got into minimalism and started questioning the psychology of broad-based consumerism. We started looking at other ways to invest and found Bigger Pockets, a real estate investing resource treasure trove. And we started looking at investment properties.
And here we are.
Our original plan was to buy a multi-unit property that we could rent out to create additional passive cashflow. We actually put in a couple of offers, but were ultimately unsuccessful. We then started wrapping our mind around house-hacking, a strategy in which we would purchase a multi-unit home, live in one of the units, and rent the others. In a surprise twist, those options are not super easy to find in our area. While we were engaging in these real-estate based investment ideas, we kept coming back to the elephant in the room: What do we do with our house? The house that we love living in. The house that started this whole conversation. Our forever home.
Could we rent it out and move to another home, allowing us to hold on to it and come back when we were ready? That concept started to feel like treading water and we ultimately shelved it and, instead, we started the emotionally taxing conversation of selling the house and starting fresh.
To our credit, we had been over-paying the mortgage and put a small dent in what we owed, creating some equity. And to our delight, the house had actually increased in value, stretching that equity a bit as well. With these two things in mind, we decided that the time was right to make another major move and put the house on the market.
(One note here about the investment return from our house: It was not purchased as an investment property at all. I didn’t know what that even meant when we bought it. Even though we were over-paying the mortgage to pay down the debt more quickly, we were extremely fortunate that the house appreciated in this relatively small window of time. Further, if the same amount of money was simply invested in index funds at the same time, the return would be greater. All this to say, banking on appreciation is a risky play in real estate. It’s not guaranteed to happen in the short or long term.)
We strategized with our realtor, Brad Crawford with Nest Realty, for months. Luckily, he is a good friend with similar goals and was willing to discuss all of the options at length. In the end, we decided to put the house on the market at the beginning of March, while inventory was relatively low, to see what happened. We spent the next month cleaning (magic eraser FTW!), fixing little things here and there, and prepping for our open house. We had three offers within 48 hours and we closed on the sale April 11th.
Once we decided to list the house, we had to figure out where we would move next. Which is the first question 750 people have asked us since the house went up for sale. We still want to invest in real estate, but for the moment, we are going to get small and nimble, study more and save Save SAVE.
Fun Fact: We have been selling a variety of items that we don’t want to take with us, or store, or we just don’t need (again with the minimalism). We saved that money and used it to go on a cross-country trip, which seems like the perfect manifestation of experience > things and it’s something both of us had always wanted to do.
We have absolutely loved our first home. We made life-long memories there and I will be forever grateful for the change it sparked in our lives. It’s only by examining where we are, why we're doing the things we're doing, and where we came from that leads to growth. That growth is rarely straight forward, often painful or challenging, but ultimately rewarding. Our goals have been set and become more clear every day. We are focused and excited about the next adventure!