I’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…
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):
- 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.
- Then, we’d save up again and buy rental property #2.
- 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…
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.
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:
- Get approved for a $250,000 mortgage (on just my income, this might be tight, but we’re going to try)
- Watch the housing market like hawks on a teacup poodle
- If we see something we like, we’re going to put in an offer and buy it
- We’ll sell the project house (which should be done by then)
- Then sell our primary house
- 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. 😉
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?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.