Our exciting (?) story continues. As you may recall from our previous episode, I talked about the what and the why of building a house using real money. Now for the how...
The financial how is straight-forward. I know you think it isn't, but it is. First off, let me give you the caveat that I am not fresh out of school with a degree and an entry level job. On the other hand, I am also not a rich banker that has just finagled a billion dollar bailout at your expense. I'm an average Joe that's been working for 20+ years. It's not my first house. It's not a starter home. I did finance those. But even with those homes financed, I busted my ass to try to pay them down. I always had a 15 year (or less) loan and I always targeted to pay it early.
But that's not really the point. That's merely a disclaimer. My point is that you don't have to be richer than god to bankroll a house. Where does the money come from? I am glad you asked! It comes from everywhere! It comes from eating dinner at home. It comes from drinking a beer at home that costs a dollar a bottle instead of drinking THE EXACT SAME BEER at a bar for $8. It comes from not having that latte today (and more importantly, not having it twice a day for every day of your life.) It comes from having a phone and a computer... and not a phone that IS a computer and costs $100 a month to use. It comes from squirreling away unexpected money. (Your uncle died and left you a few grand you didn't expect. You can make a nice down payment on a really nice car or drive the same paid-off car you've been driving for 10 years and put the cash in the bank.) In short: it's a conscious effort to evaluate the total cost/benefit of things you want and need. It's an effort to ask "how much does this cost?" instead of "how much does this cost per paycheck?" ... escaping the paycheck-to-paycheck mentality.
And there is more "how" than "how do you get the money?"... How do you spend it on the house?
Our first idea was "buy the land first." This is why I've been living in a tool shed for five and a half years. We bought the land, got it paid off as fast as we could, then kept paying for it -- paying ourselves the house payment. And since the land had a tool shed on it, we moved into it. Granted, this is not something you want to do with someone you don't like -- it's close quarters. I am still amazed at how much crap we managed to shoe-horn into 600 square feet.
My second idea was: don't build it all at once. This is what we did. We were looking to build a 3 bedroom home. But, we built a 1 bedroom home. However, we built the infrastructure for a 3 bedroom home. The rest is just unfinished.
This will make your costs look really odd. Your cost per square foot is going to go through the roof. (The roof that was, in fact, scaled back from a really nice standing seam metal roof to just plain old composition shingles, by the way.) But don't worry about it. You're thinking of the total cost... and the total cost per square foot when you are done will work, okay?
The third grand idea was to be our own subcontractors. There are lots of things that an average unlicensed guy can do: flooring, paint, finish carpentry, tile, cleanup, final grading, landscaping. Does it take longer? OH MY GOD, yes. If you're not good friends with the wife, I'd breach that gap before I took this path, because you're keeping her out of her new kitchen for potentially months. But how long does a typical mortgage take? 30 years? I think adding 3 months to construction isn't such a big deal in comparison.
But I won't lie to you. The biggest savings in building was painful slash and burn to our original plans. As you start drawing, the sky is the limit. Anything is possible. The more you look at what you can have, the more you want. It's a vicious cycle. Keep that draftsman on retainer, because once you have what you want, you're going to have to cut it to what you can build. And you won't really know how much it will all cost until you bid it out to a few builders. Granite counters? How about instead you browse the granite out behind the cutting shed and pick out a few remnants for the powder room? Your mom had laminate counters and they're still looking about like they did 50 years ago. It didn't seem to affect her character. Three car garage? Chef's kitchen? Nope. And nope. Both of those luxuries hit the cutting room floor in a big pile of crushed dreams that is floating in a pool of tears. And guess what? It doesn't really matter in the end.
stay tuned... more to come
Friday, January 20, 2012
Wednesday, January 11, 2012
With much fanfare, I would like to point you to my profile, which has been gleefully updated. Note that it no longer says "in a metal shed" but says "in a real damn house." That's right, we've moved in.
I've mentioned, in not-so-much detail, that we were building a house. And, more importantly that we had the intention of building it using a ridiculous never-done-ever method: using money.
While we were in progress, I hesitated to go into a lot of detail... partly because those sorts of details are hard for me to talk about sometimes... and, to be honest, because I wanted to know if I would succeed or not. It's interesting either way -- failures often teach us as much as successes -- but it's often hard to know how to tell a story without knowing the ending. Now, as the arterial rupture of money spilling on the ground trickles back to a mere mortal hemmorhage... it's time.
This might be longish... so I will be chopping it up as best I can. There are a number of observations I'd like to point out along the way.
I shall start here with the dry, boring bits: the what and the why.
My goal (other than "Ellie gets a kitchen") was to build a nice house -- not a stripped down square box -- but something nice. I didn't want something that looked like it was full of compromises and cutbacks (although, that was painfully a big part of the process). We plan on being there a long time -- maybe forever -- though you never really know what curves life will throw you. And even though I am a cheap ass bastard, we were willing to spend more in areas that we considered to be the bones of the house. (For example, I'm willing to pay double for insulation if it pays off in 4 or 5 years.)
And, as a sworn member of the Tinkerer's Union: Sweat equity. I like sweat equity for several reasons. Obviously I like it because I am cheap. But, maybe more importantly, I like it because it makes it mine. There is a reason why Habitat for Humanity requires it for their charity work. Getting physically and emotionally involved in the building process gives you more of a sense of ownership than writing a check.
As for "why" to do this: I have a desire to be financially independent. Note: that doesn't mean "Bill Gates $100 bills leaking out of your pockets rich" (though this option is surely attractive). What that means is being at a point in life where you work... or not... based on what you damn well want to do. And by "work" I would include spending all day out in the shop at a lathe turning toothpicks out of oak trees.
FI is a mindset that seems rare these days, and sadly so. Even in early stages of FI -- as you get closer to it, but still are not quite there -- it is a wildly empowering mindset. Even if you're only partly there, you realize that the daily grind of your job isn't REQUIRED for everyday life. You could quit (or get laid off) and still be okay for a long damn time. You could discover the meaning of your life involved a master's degree in beaver orthodontia -- and have the resources to retool and pursue that goal.
And probably one of the most important tools (IMO) in becoming financially independent is: a paid off house. There are still expenses: maintenance, utilities, taxes... but imagine all the cool stuff you could do if you didn't have a house payment. Now imagine you DIDN'T do that stuff, but instead wisely invested that house payment for several years....you're there.