Am I a Hypocrite? We’re Going Back Into Debt

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back into debtI’m dead serious. This isn’t a guest post where someone comes along and rants about good debt vs. bad debt. This is me, Derek Sall, and all the reasons why I’m about to go back into debt after 3.5 years of complete debt freedom.

Am I a Hypocrite? Why We’re Going Back Into Debt

“Whoa, Derek. You just blew my mind a little. You, Mr. No Debt, are talking to the banks about taking out a loan? What happened?”

I know, I know. Never in a million years did I think I’d write a post that was titled, “We’re Going Back Into Debt”… I vowed to myself that I would never take on debt again. But you know what? This site is called Life And My Finances for a reason. Not every decision can be made based on financial common sense. Surprisingly enough for some of us math nerds, life is also a major factor…

The Situation

No, we’re not diving into debt because we want a fancy sports car or take an elaborate vacation (you should know me better than that!). We’re not even getting into debt because of  unforeseen medical debt (thank goodness we’re still perfectly healthy!). Nope, this post has everything to do with real estate.

A couple months ago, I wrote a post about all the ways you could buy your next house without taking out a mortgage. That was basically me trying to convince myself and my spouse that we had tons of options to stay out of debt when it came time to move. As it turns out, the post wasn’t really that convincing and it left us woefully unsatisfied.

Even if you have your current house paid off, pretty much the only way to buy the next house without debt is to:

  • Sell your current house and go rent somewhere until you find your next place (double move…not all that appealing)
  • Sell your house and agree to stay in it and rent from the new owners until you find your next house (people rarely agree to this these days)
  • Buy your next home contingent on the sale of your house (this is typically only acceptable in a buyer’s market…which we’re most definitely NOT in right now)
  • Save up the cash to pay for it outright (ummmm…this could take a while)

Liz is a country girl. She’s been dreaming of owning her own farmhouse, barn, and horses her whole life. And actually, she held that dream for a few months, but decided to let it go just to be with me when we started our lives together. She’s sacrificed a lot and I’m finally starting to see it weigh on her.

Emotionally (and relationally), it’s time for us to move out into the country. Financially…we’ll need to go back into debt to do it.

The Original Plan

When Liz and I first got married, I had a plan (emphasis on the word “I”…oops):

  1. We’d work our butts off, save up our pennies, and buy a rental property. This rental income would give us enough cushion for Liz to stop working and stay at home with our beautiful new daughter.
  2. Then, we’d save up again and buy rental property #2.
  3. Finally, we’d use all these earnings to save up even faster and buy a place out in the country with cash. Our current house would become a rental, which – between the 3 rentals – would completely replace the income she gave up as an office manager.

Pretty clear cut, right? The only problem was…time.

So far, we’re nearly 3 years into the plan and we don’t even have that second property rented out yet (we still call it “the project house” – the renovations have been going on for 6 months…).

By the time we get it rented and save up cash for a country property, it’ll probably be 7 years from today, which would make this a 10 year plan… Based on the emotions that are flooding this home right now, that’s just way too fricken long.

The Morphed Plan

About a year ago, we realized the above plan just wasn’t going to cut it for us, so we changed it (that’s legal by the way. If a plan isn’t working for you, tweak it, modify it, heck you can even do an about-face on it if it’s totally not working!!).

Instead of trying to have 3 rental properties, we decided that we’d sell our primary residence. What we didn’t realize at the time was that this plan really didn’t gain us anything in terms of cash flow. If we wanted to buy a place, we’d still have to go into debt (which pains me to say…) to buy the next place – at least for a short period of time anyway.

As of a couple months ago, the flaws in this plan reared their ugly head…when the perfect farmhouse came on the market…

The Farmhouse

And there it was…the house Liz had been dreaming of. It was up for sale and the price was actually dropping rapidly – nearly every couple of weeks that it was on the market. Come to find out, it was an estate that was being sold by the kids – their mom had passed away after living in the house for 50 years.

$299,900…

then $279,900…

and yet again, the price dropped…this time down to $259,900.

At that time, we owned a project house with no walls, had just $8,000 in the bank, and were nowhere near ready to buy this farmhouse…but we couldn’t help ourselves. We had to go look at it. After all…we figured we probably wouldn’t even like it since it was only a small 3 bedroom, 1 bath house. We were interested in a 4 bedroom, 2 bath house.

Fast forward a day… We stepped up to the second level, looked at bedroom #2, bedroom #3, and then saw yet another door… A completely unfinished space that could easily be converted into bedroom #4 and bathroom #2.

Crap, this house was perfect.

Since that day, the house went pending, then came back on the market, and is now pending again.

I could see the joy on my wife’s face when we walked through the house, the massive barn, and while looking over the expansive 11.5 acres of property. I wanted nothing more than to buy it for her on the spot…but we didn’t have the money then, and still don’t have it now.

It’s either we keep letting opportunities like this slip through our fingers…or we go back into debt.

The Current Plan

It’s safe to say that this farmhouse changed our perspectives on debt. Sure, we could scrimp and save for 7 more years, hopefully find a farmhouse like that one, and be well off financially. But by that time, our daughter will be 9 years old and baby #2 (we’re expecting in September) will be 7. Think of all the life lessons and serene mornings that will be missed by then! Liz and I just don’t want this city life for that long.

So here’s the new plan:

  1. Get approved for a $250,000 mortgage (on just my income, this might be tight, but we’re going to try)
  2. Watch the housing market like hawks on a teacup poodle
  3. If we see something we like, we’re going to put in an offer and buy it
  4. We’ll sell the project house (which should be done by then)
  5. Then sell our primary house
  6. And finally, pay off the mortgage loan

Between our house and the project house, we should clear about $300,000, which would be plenty to get us out of mortgage debt and living debt free again! So, ideally, we’d only be in debt for one year or less, which I think I could handle without a padded room and straight-jacket. We’ll see. 😉

Thoughts?

Alright faithful readers. I’m dying to know what you think about this new plan. Am I a total hypocrite for wanting to go back into debt? Or, are you rolling your eyes at me right now, wondering what the heck I’m so nervous about? Or, maybe you’re somewhere in the middle. Tell me your thoughts in the comments below!!

What would you do in our situation? Would you go back into debt?

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29 comments to Am I a Hypocrite? We’re Going Back Into Debt

  • whiskey

    I think if it were me (which we are looking at kinda the same thing) if you are in the same area then Id rent both out for a minimum of one year. That would make my mortgage plus a little extra. After one year, offer the tenants a lease to own but with a caveat of they would need 20% of the total.(have a contingency plan in case they say no or they bolt on you etc. but at least its still yours) Put that in savings for one year. Thats two years at this point. Now you and the missus really know if you want to stay in the country. (I live out in the country and will never go back to the city or suburbs). If you do then great, take the $$ in savings and put towards to house. If not, now you have $$ to put towards something else.
    Its all about risk… Ask yourselves how you feel about the current economic situation in your area, do you have at least 6 mos emergency cash to cover all expenses including the new mortgage in case something goes awry …

    IMO – that a couple of bucks will get you some coffee

    • Thanks for the thoughts, whiskey! Sounds like a lot of work, but it’s something I hadn’t thought of. We’ll keep you posted on what we decide to do! In another few weeks, the project house will be ready – either to sell or to rent!

  • Katie A

    No, you are not crazy! You guys are in a great place financially and work really hard. Plus, a happy wife in worth WAY more than a pile of money in the bank. Every families story is different and I love hearing your adventures! Plus, this new chapter sounds like ideas for a ton of great content for the blog 🙂

  • Jamie

    Sounds like you have a robust plan to pay off the mortgage very quickly so go for it! Even if plan has to adjust and it takes a little longer to pay off mortgage your fine. Most likely you will not take the 30 years most folks are taking… And, sometimes sacrifices must be made to keep the entire family happy.. One last thing, and most important, a Happy Wife = Happy Life! A little cheesy but lots of truth in that statement…

  • Derek, I like your plan. It is more than a dollar, in fact, an unmeasurable degree if happiness for your family. You can handle the fiances and this is not long term. In addition, I would sell the rental property necessary to pay off my primary residence and buy more later….buying a good rental property us quite different that purchasing a home of your dreams. It does not sound extravagant by any means! You hate debt and it is not like you are buying more toys. Think of those sweet children on that farm and the wholesomeness provided for their life. God bless and good luck!

    • Thanks Jane! It seems like you’re one of the few that like our plan! 😉 I think you’re right about the kids loving the vast property. It should be a blast!

  • Kathy

    Sometimes a person needs to take on debt if the reason is sound. After all, you aren’t borrowing to take a vacation or new furniture If this allows you to get your dream home, go for it. Perhaps hold off doing that 4th bedroom until you have renters for the 2nd rental property. But otherwise, it seems like you have a plan in place to get it paid off.

    • Looks like that farm house is officially gone (it’s no longer pending and taken off Zillow), so we’ll have to set our eyes on the next one. And, we were planning on selling the second property to fund our next farm property. It’s still not a plan I’m 100% set on, but that’s what we’re looking at doing for now.

  • Matt T

    why dont you take a Home equity line of credit out on your existing home and the cash flowing rental if you need more. That way you are prepared for a cash offer when the home comes so you have higher chance of an offer being accepted or you could even offer less and get the house due to the fact that it wouldn’t be a contingent offer. Then rent out the project house and your previous to pay for said heloc and hopefully some cash flow on top for years to come. Maybe that’s a bit aggressive but that’s the way I would do it, that would give you 3 rental properties and the home of your dreams for one or mortgages that would be completely paid for by renters. Curious to know your thoughts?

    • Hi Matt. I would consider taking a line of credit out on our house to make a solid down-payment, but at most we’d just keep the two rentals and still sell this house we’re living in. This way we’d only have to borrow $100k (above and beyond the value of our current house) and we could pay that back in a couple years.

  • Tina

    I agree with taking on mortgage debt- not using leverage for buying your investment properties is the only part of your original plan I didn’t agree with.

    I know you already said you weren’t interested in a double move, but if you can find a decent place to rent for less than what you can rent your current home for, it might be worth looking into. If you’re already vested as a landlord with 2 tax returns of experience, they will count the rent as income, and you will have cash flow to help pay the mortgage on the new place. The only thing I don’t like is selling an asset that can produce income to get non-income producing property. To me it’s same as selling house to buy cars.

    There’s nothing wrong with using mortgages to help build your wealth- it will get you to end goal faster if you do it responsibly. Take out only 15-year mortgages, don’t have more in mortgage payments than you can afford on your own income with no renters, have your emergency fund, and pay down and recast mortgages until they are low enough that you can take on another.

    To have the cash you need for new place, and not have to move twice, and not have to depend on buyer, your best bet it to pull the money out of your current home and mortgage that, then you can buy your perfect farm house with cash, making you a stronger buyer, then rent out current home. Better to have a mortgage on a rental than your primary residence anyway- the tax benefits are a lot better 🙂

    • Yeah, I hear ya, Tina. We’re getting rid of a cash cow to purchase a cash sucker… Not the best of moves. But I just hate being in debt! I’m not sure I could handle making payments on a place for 3-4 years. I might be willing to pull cash out of our current home for the down-payment, but I’d still sell this house (and keep the other two).

  • Dani

    What I don’t understand is why it took you so long! No really, though, I think it’s a sound plan, and gets the family where they need to be at the time they need to be there. It’s not that hard to get pre-approved for a mortgage (it’s not the same as pre-qualified) to find out how much you can “afford.” Hopefully, real estate is moving in your city, and you’ll be able to add the proceeds from selling your current residence fairly quickly.
    A word of caution on a farm property: insurance is higher (more buildings to insure) and maintenance is certainly higher, and that’s before you get into the “hobby” of owning horses and/or other animals. Vet bills and feed add up quickly, so make sure that you and the Mrs. have a wise and well thought-out plan for adding to the homestead. And then get out there and make it happen! The opportunity cost of waiting is immeasurable.

    • Guess I’ll have to plan on working the day job for a bit longer! I’m okay with the added expenses of farm property. the serenity and the experiences we have there will be well worth it.

      • Dani

        I also think there might be room to keep the rental. If you get a 15 year note and make it a priority to get it paid down, I would think–given the psychology of saving vs. the psychology of getting out of debt–that you might get back to where you want to be *that* much faster–you know you’ll be able to pay it off in much less than 15 years, anyway. Just a thought…

  • Money is to be spent. We have chosen to spend it on what makes us happy. Nothing wrong. With that. Try to go the DR way with a 15 yr loan.

  • Rick

    I don’t consider my home an investment–it’s an expense. Somewhere in your budget you know how much you can spend (burn, lose, etc.) on a shelter for yourself and family. Somewhere in your heart you know how much you’d pay for a happy wife/life (there is no difference). Add those two together and see if a mortgage payment (plus PMI, if necessary) is less that the some of housing and happy wife. If so, go into debt. If not, the stress of the cost may be too much for you. Don’t forget to project the cost of that room addition, fixing the barn, the horse, the vet, the dog, the cats, etc.

    I’m not trying to discourage you, but do the hard math. You may never recover this investment, so decide if you’ll still reach your goals if you burn that monthly cost. If you get lucky, someday you’ll get your money back. But never consider this an investment in anything but your happiness.

    • Well said, Rick. And I am learning…happy wife IS a happy life. If she’s not happy…well, you know.

      If we sell the rental, I understand that it might be a while before we get one back again. Man this is tough… Appreciate the thoughts!

  • Derek,
    Please don’t sell any of the rental properties. You both worked so hard to get them. Get some equity out to buy the farm. Then use the rental money to pay back the equity loan. Later you could use the rental money to pay off the farm. Please, please don’t sell the rentals.

  • Stephanie

    I hate a mortgage as much as you my friend, but maybe having a small one for a little longer would work for you. This post has a “never say never” feel to it, and I like it. It shows maturity, flexibility and growth. Buy the farm that works for your family, sell 1 of your rentals, (keep 2 and you’ll be set for the long term) and once your lovely (patient) wife has baby #2 and has a routine going see if she’s interested in doing her own very part time side (from home?) hustle. The extra income could go towards paying off the debt. Farms have a lot of space/value, veggies for upscale restaurants or farmers markets, horse boarding, dog kennels/doggie daycares, or kid daycares to name a few. She may even want to side hustle away from it all too;). Good luck and keep us posted.

    • Good thoughts Stephanie! Thanks for the comment. Liz does already do photography, and it’s starting to ramp up nicely. Your other suggestions are awesome too, and we could absolutely do most of them! Love it! Thanks again!

  • Leona

    We went back into mortgage debt too about 3.5 years ago to get into a bigger house. We ended up building a new house on a little lake and we love every day we wake up in it! We’re on target to have the mortgage paid off by the end of this year again. You aren’t crazy to do this. You have a wife to consider in all this too and not everything should be put off for years based solely on finances. If you’ll be able to live fine financially after doing this, then why not? You only live once & your kiddies will grow up fast. Enjoy your farm when you find it!

  • I don’t think there is anything wrong with your decision (and you are certainly not a hypocrite). After all we have only one life to live. If you can afford to have another house (which is your dream project) then why not doing it. 7 years is a long time and we don’t know how will be our life that time. Your priorities may change or even new priorities can come up in the front row. So, if you think your decision is rational and won’t hurt your financial future, just go for it. Think about the happiness you are bringing into your wife’s life by fulfilling her dream! 🙂

    • Thanks for the comment, Tiara! I agree, and we’re still on that track. We’ll hopefully be wrapping up our project house soon. We’ll put a for sale sign in the yard and have it up for offers! Then, time to fix up and sell our primary residence! Man, it’s not going to be super quick, but we’re getting there!

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