I was thirty three years old not very long ago.
I had been living and working very hard in a good-looking, and extraordinarily expensive city for about a decade by then. Financially speaking, I had little to show for where that time had gone:
- I was one of three names on some papers for a piece of recreational property that the bank owned. The place continues to be worth the same today as when we signed those papers six years ago.
- I had managed to sock away perhaps $30,000 of stocks and investments by then. It sounded like a lot at the time! But no, it really was not. Given where that money was sitting, I was on track to have maybe $150,000 by the time I’m sixty five. Not nearly enough to squeeze twenty five years of retirement out of, especially after taking taxes and inflation into account.
- Similar to most people I knew back then, we lived in a rental suite. Ours happened to be in someone’s basement.
For years, I hummed and hawed about clawing my way into my good-looking, and extraordinarily expensive city’s real estate market. “Half a million dollars for a six hundred square foot apartment? Is this some sort of cruel joke? These prices can’t possible stay this way. They have to come down!”
But they never did. Even when they did seemingly everywhere else around my continent, they kept going up and up in my city.
Then one day my landlady got snippy with me about something, and that was it. I was done with sharing things with strangers. And I was done with giving away my money, waiting on the market sidelines, too. I was done being a child.
Onto MLS I went that night, and within a month we were living in our very own house, with our very own yard. We made it! We finally grew up!
We loved that house. It was perfect for us in every way. Old and full of character, yet modern and charming. We decorated it nicely, maintained it well, and even befriended some of the neighbours.
We made it into our home.
Houses and Homes are Not the Same
It is important to make the distinction between a house and a home. They are not the same thing, despite what your realtor might want you to believe.
A house is a physical structure that was built by someone. It’s purpose is to shelter and protect you. It is inanimate, and virtually never moves. When purchased, it is an investment. A business decision.
A home on the other hand is as full of life as you make it. It is a mindset and it is different for everyone. It moves with you wherever you go, and can remain in one place for as briefly as a single day. A home is where you hang your hat, as the saying goes.
I know it can be tough to keep the two separate. Especially when you feel you’ve found, or perhaps built your dream house. But failure to do so can allow emotion to get in the way of sound judgement, which can result in lost opportunity.
Our House… Was a Very, Very, Very Fine House
And so after three enjoyable years of living in our fine house, we made the decision to leave our good-looking, and extraordinarily expensive city in favor of the recreational property we’d be hanging onto. Through no fault of our house, of course.
At first we hung on to the house because we feared it might continue to rise in value. I question if the real problem was us being emotionally attached to it though. Probably the truth was somewhere in the middle. And so we found people to rent it while we ‘waited to see what happens with the market’.
But after a short while of enduring the pain of renting to someone, and after learning how much money we could make out of the deal if we did sell the house, we put our emotions aside, and made the decision to put it on the market.
As of this month, the house is gone. And we have one hundred and twenty thousand dollars in our pockets that we didn’t have three and a half years ago. Boy did we get lucky.
As an aside, from the sounds of all the feedback we got from potential buyers, I really don’t get the feeling that its value was going to go up much further any time soon. Its natural limits seem like they were being met: it was only a two bedroom house, and the basement was insufficient to be made into a mortgage-helping suite. Yet the cost of purchasing it was bordering on necessitating a doctor’s salary to afford it. Interesting times in our old city, I must say.
In the end, the feedback was a good thing to hear because it makes me think our decision to sell was the right thing to do.
So Now What?
The immediate plan with that money is quite simple. Of course I will also be keeping my eye open for other opportunities that may come my way, like any good investor would do!
But until then, it will go into our investment account along with my sixty two thousand that I already have in there. So a total of around $180,000 of our money will be invested.
That account is a margin account which means I can borrow up to an additional $180,000 at a cost of 4.5% per year. Which I will likely do, at least in part.
So I will purchase a diversified array of around $350,000 worth of stocks. Probably somewhere between ten and twelve different ones.
If I can make around 7% per year which I believe I can do most of the time through a combination of dividends and value increase, we will profit around $18,000 per year. Some years I believe I will make more than that, some years I may make less. We will see.
If I make less than 4.5% in a given year, well that’s just the risk I’ll have to take. But don’t fool yourself into thinking there is no risk involved with hanging on to a hundred year old house that you paid more for than you may ever see in your entire life! Again, a house is just an investment. Their value can go up, and it can go down.
This money is obviously not enough to fully retire on yet, but it does give us a huge leg up on this lifestyle we are pursuing. When other sources of income are coming in, like I pick up a short contract somewhere, or I release a video game, or I write a book on traveling through Asia, or I build a deck for someone, or Jen has a great month selling nuts at the farmers’ market, or whatever, the money will sit there and compound, increasing its ability to payout.
But in times of need, like while I’m writing a book, or working on a video game, or traveling through Asia, or whatever, the bills will continue to get paid and we won’t starve or go into debt. Note that $18,000 is in fact enough money to cover all of our annual, mandatory bills, if need be. That is a key ingredient to this plan having any hope of working at all.
Also note that even if I wanted to go lower risk with this plan, and not borrow out of my margin account, we would still make enough to at least live mortgage free from now on. That is also a pretty attractive option which we may end up going with in the end.
Well I hope you got something out of this post, I do believe there are a number of important points in there. But if you could only take away one thing, it would be this: A house can be a good investment. No doubt. But it is also possible to invest your money in a way that you don’t need to wait twenty five or more years before you see any benefit from it.
Thanks as always for reading, and pass on the good word if you enjoyed!