RPF0269-Why_We_Sold_Our

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00:00:30.000 | As I record today's show, I am sitting here in the office,

00:00:35.000 | in my rental apartment,

00:00:37.000 | thrilled with the fact that the house that my wife and I have owned

00:00:40.000 | for the past two years and 11 months has now sold,

00:00:44.000 | and we are no longer homeowners.

00:00:46.000 | Now, why would somebody with a personal finance podcast

00:00:48.000 | who presumes to teach others about finance

00:00:51.000 | be happy about the fact that they've given up on the American dream

00:00:56.000 | and moved from home ownership, living in a nice fancy house,

00:01:00.000 | to moving into a fairly basic rented apartment?

00:01:04.000 | Well, today I'm going to tell you that story

00:01:06.000 | in hopes that you can draw some lessons

00:01:08.000 | that may be applicable to your situation.

00:01:10.000 | [Music]

00:01:27.000 | Welcome to the Radical Personal Finance Podcast.

00:01:29.000 | My name is Joshua Sheets, and I'm your host.

00:01:31.000 | Thank you for being with me today.

00:01:32.000 | Thank you to those of you who have been with me through this whole saga.

00:01:36.000 | I'm going to be sharing this show as a standalone resource and story

00:01:41.000 | that will be especially helpful for new listeners.

00:01:44.000 | Some of the content will be very familiar with long-time listeners

00:01:47.000 | because many of you have walked with me through this whole process.

00:01:52.000 | [Music]

00:01:59.000 | Throughout the course of Radical Personal Finance,

00:02:02.000 | I have tried to bring together a blend of instruction,

00:02:06.000 | teaching you about topics and things that are interesting,

00:02:08.000 | with also a little bit of personal story.

00:02:11.000 | I try to gain some lessons and share a little bit of my life with you

00:02:14.000 | without making the show simply about me.

00:02:16.000 | Today, however, that's going to be a little different

00:02:18.000 | because it's going to be all about me.

00:02:20.000 | Or it's at the very least going to be all about my story.

00:02:23.000 | This past Friday, we actually closed on the sale of our house,

00:02:26.000 | and I posted a picture on my social media account

00:02:29.000 | of two images that I fused together.

00:02:32.000 | One was the picture of my wife and me standing in front of the house

00:02:36.000 | on the day that we bought it, on closing day, December 31, 2012.

00:02:41.000 | The other was a picture of us on Friday morning,

00:02:44.000 | standing in front of the commercial office building

00:02:47.000 | where we signed the closing paperwork for the sale of our house,

00:02:50.000 | basically two years and 11 months, and about two days or three days later.

00:02:56.000 | We posted this on social media, and I thought it was kind of fun,

00:03:00.000 | but it's not really normal for people to post pictures

00:03:03.000 | of when they move from a house into a rental apartment

00:03:07.000 | where you downsize from a big fancy house into a modest apartment.

00:03:12.000 | There's a real social stigma to that,

00:03:16.000 | and I've obviously experienced it all the way through.

00:03:19.000 | Frankly, when we decided to sell our house,

00:03:21.000 | I had to sit down and carefully explain to all of our friends and family

00:03:24.000 | that, "Hey, it's okay. You don't have to feel sorry for us.

00:03:27.000 | We're doing okay. We're not bankrupt. We're not behind on our bills.

00:03:30.000 | Just because we're moving from our house doesn't mean that everything's wrong

00:03:34.000 | and that you have to feel sorry for us," because many people have sincere inquiries,

00:03:37.000 | and especially in family relationships.

00:03:39.000 | Sometimes family wants to respect your space, but yet they're concerned about you.

00:03:43.000 | So we tried to head that off at the pass and share proactively.

00:03:47.000 | But on social media, I got a number of questions about why we're doing that,

00:03:51.000 | and I think it's an instructive story.

00:03:53.000 | So in today's show, I'm going to share with you the story of the house from beginning to end,

00:03:59.000 | and I'm going to dig into just some of the details that perhaps I've discussed here and there,

00:04:04.000 | but this way they'll all be in one place.

00:04:07.000 | I'm going to give you a lot of detail on my personal decision-making process because it worked out.

00:04:13.000 | I made many good decisions going in and going out.

00:04:16.000 | Thankfully, the deal has a happy ending.

00:04:19.000 | It was a profitable transaction in every way,

00:04:22.000 | and I'll share that thinking process with you, but I'll also share some of the down moments,

00:04:27.000 | some of the negative emotions.

00:04:29.000 | You can expect this episode to be very personal to me and primarily be a narrative of the story.

00:04:34.000 | Tomorrow's episode is planned to be the myths and facts of homeownership,

00:04:39.000 | some of the real lessons I've learned given in an advice format,

00:04:42.000 | but drawing from this personal experience.

00:04:45.000 | The shows are intended to be complimentary,

00:04:47.000 | but if you would like to know the narrative backstory, listen to this one.

00:04:50.000 | If you just want to get to the lessons, listen to tomorrow's show.

00:04:53.000 | Before I share with you that story, let me talk about the sponsors of today's show.

00:04:57.000 | There are two sponsors today.

00:04:58.000 | Sponsor number one is Paladin Registry.

00:05:01.000 | Paladin Registry came on board to the show as a result of my searching for a way to answer the question

00:05:08.000 | that many of you ask me, "Joshua, how do I find a really great financial advisor?"

00:05:12.000 | I looked around, and I didn't know exactly how to answer that question because I thought,

00:05:15.000 | "Well, I'm a great financial advisor, of course, but I'm not doing financial advice anymore, so what do I do?

00:05:21.000 | Where do I send people?"

00:05:22.000 | Paladin Registry came across my desk as I was looking for a solution, checked them out every which way,

00:05:30.000 | and ultimately became satisfied that they were a good place to start.

00:05:33.000 | As we end 2015, I'm recording the show on today, December 8, 2015.

00:05:40.000 | As we end 2015 and head into a new year, it's a really good time for reflection,

00:05:44.000 | to reflect on what's gone well and what hasn't gone well.

00:05:47.000 | And finances are an important component of what's gone well and what hasn't gone well.

00:05:52.000 | Personally, I am convinced that the vast majority of us need the services of an excellent financial advisor,

00:05:59.000 | but it's not easy to find an excellent financial advisor.

00:06:02.000 | So if you are interested in finding one or at least starting your search, start it by using Paladin Registry.

00:06:09.000 | The way it works is you go to radicalpersonalfinance.com/paladin.

00:06:13.000 | There will be a form that will link you through to a special landing page where you'll put in your name,

00:06:18.000 | your phone number, your email address, your zip code,

00:06:21.000 | and the amount of the assets that are potentially available for the financial advisor to help you with.

00:06:26.000 | Putting that information in, Paladin will go through their list of vetted advisors,

00:06:31.000 | and they will suggest to you a number of advisors, sometimes two, three, four,

00:06:35.000 | depending on what they have available, and they'll put you in touch with those advisors.

00:06:39.000 | There's no obligation to contact those -- excuse me -- to meet with those advisors,

00:06:43.000 | although obviously that's the whole point is you should meet with them.

00:06:45.000 | There's no obligation to do business with any of them, but you should be interviewing them

00:06:49.000 | and seeing if they can impress you enough and with their ability to help you build wealth for you to hire them.

00:06:55.000 | So please consider doing that as you begin the new year, and at least do the interviews.

00:07:00.000 | You may find even if you don't choose to hire any of those advisors,

00:07:04.000 | you may still find it to be helpful and instructive.

00:07:06.000 | I was working as an advisor before a client hired me.

00:07:09.000 | One service they could at least be promised to go away from the initial interviews with would be an idea of the problems that might exist in their financial plan.

00:07:17.000 | So that can be really helpful to have a professional review your situation.

00:07:20.000 | Go to RadicalPersonalFinance.com/Paladin, P-A-L-A-D-I-N.

00:07:25.000 | Second resource and sponsor of the day, number two, is YNAB, the You Need a Budgeting Software, Y-N-A-B.

00:07:33.000 | Because the number – this is – if I polled the audience and I have done this informally through email,

00:07:37.000 | but if I were to poll the audience with what is the company, financial company or financial product that you love more than anything else, it would be YNAB.

00:07:45.000 | YNAB is the best budgeting system that I have come across, period.

00:07:50.000 | If you're not using YNAB, you should at least try it.

00:07:53.000 | At least try the 30-day free trial.

00:07:55.000 | As we go into 2016, this is a really great time to sit down and get a handle on your finances.

00:08:02.000 | If you've never tracked your money, start tracking.

00:08:04.000 | There are three major budgets that all of us need to be aware of.

00:08:08.000 | Number one is a budget of our time.

00:08:10.000 | Number two is a budget of our money.

00:08:11.000 | Number three is a budget of our calories or our food.

00:08:14.000 | And those things are very important.

00:08:17.000 | Just by tracking what we're doing with our money, with our time and with our calories,

00:08:21.000 | you can predict a lot of what's going to happen and what your life is going to look like.

00:08:27.000 | So try out the You Need a Budgeting Software.

00:08:29.000 | Go to RadicalPersonalFinance.com/YNAB.

00:08:31.000 | Please use that tracking link so I get credit for your download.

00:08:34.000 | 30-day free trial, the full functioning software, and then if you like it after 30 days, you can buy it.

00:08:40.000 | Just as an indication of how serious I am about that endorsement,

00:08:43.000 | I've recently been helping somebody work through their own personal problems.

00:08:47.000 | They're in a place of real financial stress right now, behind on some bills.

00:08:51.000 | I've sat down. I've worked with this person, coaching them on how to use YNAB,

00:08:55.000 | and they were getting to the end of their 30-day trial.

00:08:57.000 | They used my tracking link for their free 30-day trial.

00:09:00.000 | They're getting to the end of it, and when sitting down and going through the budgeting process,

00:09:04.000 | they agreed after my working with them and helping them,

00:09:08.000 | but they had to budget for the cost of purchasing the program.

00:09:13.000 | I think it's about $60 to purchase the program if you decide to buy it.

00:09:16.000 | They had to budget for that, and they're behind on a couple of bills.

00:09:19.000 | I didn't force them into it, but I said, "Listen, you have no chance of getting caught up

00:09:24.000 | and getting this figured out if you don't do this," and they budgeted for the purchase of YNAB

00:09:29.000 | before even getting caught up on other outstanding credit card debt and things like that.

00:09:34.000 | It's that good.

00:09:35.000 | So let's talk about Joshua and my wife's—her name is Tiffany—Joshua and Tiffany's home purchase journey.

00:09:41.000 | First, though, you should know about some of the background.

00:09:43.000 | My wife and I married on January 1, 2012.

00:09:46.000 | We like to keep our dates orderly.

00:09:48.000 | We actually had a New Year's morning wedding.

00:09:51.000 | Our wedding was at 9 a.m. on New Year's Day, 2012.

00:09:54.000 | And for the first year of our marriage, we lived in a 234-square-foot studio apartment

00:10:00.000 | in downtown West Palm Beach, which was fantastic.

00:10:03.000 | She was living there for the year prior to our marriage,

00:10:06.000 | and after looking around at some apartments a little before our wedding,

00:10:10.000 | we ultimately decided that we wanted to just stay there.

00:10:12.000 | It was awesome.

00:10:13.000 | It was a really great location.

00:10:15.000 | We paid $500 a month of rent total, which West Palm Beach is a fairly high market price rent.

00:10:20.000 | Some of you guys for $500 can practically live in a three-bedroom house, but for us, it's not that way.

00:10:28.000 | For us, $500 gets you a little tiny studio apartment with kind of rotten wood in the walls and windows.

00:10:36.000 | But we loved it.

00:10:37.000 | We absolutely loved living there.

00:10:38.000 | It was low-stress, easy living, and we had a lot of fun facing the challenge of figuring out,

00:10:43.000 | how do we live well in a small space?

00:10:46.000 | That first year of marriage was a really, really fun year.

00:10:49.000 | It was very, very low-stress, and the best part about living there was simply how much time we had.

00:10:55.000 | Both of us were working full-time jobs, but beyond that, we had plenty of time.

00:10:58.000 | We'd, in the evening, ride our books over to the Barnes & Noble in downtown West Palm.

00:11:02.000 | There's a development.

00:11:03.000 | It's called City Place.

00:11:04.000 | It's an outdoor shopping district, and we could ride there in about 10 minutes on our bikes.

00:11:08.000 | So we'd ride over to Barnes & Noble and browse the bookstore and go walk around the little plaza.

00:11:12.000 | We saved a ton of money, and it was awesome.

00:11:16.000 | On Saturday morning, the joke is we would say, "Okay, well, today we've got to clean the house."

00:11:19.000 | So 10 minutes later, we'd get on our bikes or get in the car and go to the beach.

00:11:23.000 | So we certainly had to be creative about how we did it, but we didn't lack for anything.

00:11:28.000 | We had an amazing time.

00:11:29.000 | We had plenty of people over.

00:11:30.000 | I think the record was we hosted a party with 14 people.

00:11:33.000 | That was probably the most people that we had over, and certainly they were distributed on our bed

00:11:38.000 | and around the house, but it worked, and it was really, really fun.

00:11:41.000 | We saved a lot of money, but that wasn't the key thing.

00:11:43.000 | It was just a nice thing.

00:11:45.000 | Our landlord, however, was never really happy with the fact that there were two of us living there.

00:11:49.000 | He didn't kick us out.

00:11:50.000 | He agreed to let us both stay there after we married because, frankly, he was broke and he needed the money,

00:11:55.000 | but he didn't make life easy, and he was a difficult landlord to work with.

00:12:00.000 | We wanted to live in a rental apartment for at least the first year of marriage.

00:12:06.000 | Didn't want to buy a house because I just generally don't think it's a good idea for new young couples

00:12:10.000 | to put themselves into homeownership early in their marriage.

00:12:14.000 | There's too much stress.

00:12:15.000 | There's too much work, and you don't know each other well enough.

00:12:19.000 | When you marry and you're first learning just how to simply live with another person

00:12:23.000 | and how to function in a relationship together, there's a lot of adjustments,

00:12:27.000 | and I didn't see any point in trying to make that any more stressful than possible.

00:12:32.000 | Plus, owning a house is a lot of work, and my wife and my marriage, with Christian marriage,

00:12:39.000 | you do things a little differently than perhaps what is common,

00:12:42.000 | but we spent a good amount of time together, but we didn't spend tons and tons of alone time together before marriage.

00:12:49.000 | So we saved a lot of the really in-depth romantic dates, a lot of the really in-depth peak experiences for after marriage.

00:12:58.000 | I believe that marriage is the context in which intimate personal relationships between men and women should be developed,

00:13:04.000 | and that's really hard, though, because when you're in a culture that doesn't value marriage

00:13:09.000 | and many of your friends are enjoying the fun of those intimate relationships,

00:13:13.000 | but you're waiting patiently to be married, it's valuable to wait, and then once you are married,

00:13:19.000 | I wanted to make sure that there was time for us to do that.

00:13:22.000 | Again, that was one of the major benefits of having such a cheap, small apartment to live in.

00:13:27.000 | There was no stress. We had plenty of time for all kinds of fun adventures here and fun adventures there.

00:13:32.000 | So it was great to be there for a year, but we thought about actually staying in that apartment longer,

00:13:37.000 | even potentially with kids. In retrospect, I sometimes wish we had.

00:13:43.000 | We had figured out that we could make the space work for kids.

00:13:46.000 | We actually had a serious plan that we could handle kids there.

00:13:50.000 | But what we couldn't handle there was a dog, and we wanted to get a dog.

00:13:54.000 | It was very important, especially to my wife, to have a dog.

00:13:57.000 | She had spent years waiting patiently to be able to get a dog because of her transient living situation as a young single woman.

00:14:03.000 | When you are living on a small budget and generally living as a roommate in a house,

00:14:09.000 | if you have a dog, it really is difficult to be able to live.

00:14:12.000 | It's just a tremendous amount of responsibility, and she wanted a big dog, not even just a little teacup dog.

00:14:17.000 | So that makes things even more complicated.

00:14:19.000 | Of course, as a husband, I wanted to make sure that we could do that.

00:14:22.000 | So in some ways, the dog was actually a bigger motivation for us to move than kids, but I knew that we needed to make a plan.

00:14:29.000 | The landlord was going to be a major pain with – if we were to have a baby there, the landlord – he was already upset with two of us living there.

00:14:37.000 | But with three of us living there, he would have gone ballistic, but probably more important than the landlord.

00:14:42.000 | I could deal with the landlord.

00:14:43.000 | He was so broke that he probably would have let us stay if I had pushed it, but I didn't.

00:14:47.000 | But more importantly, I didn't want my wife to be stuck in a one-room house with a baby.

00:14:51.000 | That didn't feel like love to me, especially when we had the means to live somewhere nicer.

00:14:56.000 | Now, perhaps in retrospect, we would have done it, but we were still working and learning how to integrate our goals and dreams together and how to work together.

00:15:04.000 | The beginning of marriage is really tough because you're learning your spouse.

00:15:08.000 | It's especially tough as a husband because you're responsible for setting the vision and leading your family, but you're not yet comfortable with knowing exactly how to be a leader and how to integrate the disparate goals and values in your family between your wife and you and how to make sure they're all met properly.

00:15:25.000 | So it's easy for me to be extreme about what I want to do and say, "We're going to live here," but how do I make sure that I'm carefully considering the needs of my wife?

00:15:34.000 | And so we decided to go ahead and look around.

00:15:37.000 | We started looking around the houses to buy around six, eight months after being married, and we originally wanted to spend about $100,000.

00:15:44.000 | There are a few major mistakes that people make when it comes to finance that keep the majority of middle-class, middle-income people broke.

00:15:53.000 | Those mistakes are classified in mistakes with income, mistakes with expenses, and mistakes with investments.

00:15:59.000 | But the major mistake on expenses involves simply spending too much money on cars and too much money on houses.

00:16:05.000 | The average person is broke not because they make a median income but because they spend too high a percentage of their income on their car and of their income on their house.

00:16:14.000 | Middle-income America swallowed the marketing that you should spend 25% or 30% of your income on your house and you should spend 15% of your income on your transportation.

00:16:23.000 | Meanwhile, wealthy people, although they spend much higher dollar amounts, if calculated as a percentage of their income, spend much, much less on the cost of their housing and the cost of their transportation.

00:16:39.000 | Many people who live in $200,000 houses are very impressed by a $20 million house.

00:16:44.000 | But what they fail to consider is the net worth and the income of the person with the $20 million house.

00:16:51.000 | Often, that $20 million house is not even a blip on their radar screen, whereas the person with the $200,000 house, that house is often their biggest asset.

00:17:01.000 | So, since I had the opportunity to learn that watching people, I was determined not to repeat those mistakes in my own life.

00:17:10.000 | We made a list of what we were looking for.

00:17:13.000 | We had some unique requirements.

00:17:15.000 | Probably the biggest requirement was I wanted the house to be very close to my office.

00:17:20.000 | Our plan from the very beginning was that my wife would be home from work and be home forever, so soon after marriage.

00:17:27.000 | So the key location that was important was the location of my office.

00:17:30.000 | Now, my office at that time was in a nicer part of town, which made things challenging, and we had some other unique requirements.

00:17:36.000 | For example, we refused to consider a house that was in a homeowners association.

00:17:40.000 | Well, here where I live, that's very difficult to find.

00:17:42.000 | We live – if you're buying a house, generally it's going to be in some sort of planned community.

00:17:47.000 | And if you're buying a house that's at all nice, it's almost certainly going to be in a planned community.

00:17:53.000 | There are very few neighborhoods that aren't regulated by homeowners association.

00:17:57.000 | We also didn't care for cookie-cutter neighborhoods.

00:18:00.000 | We wanted neighborhoods that were old-fashioned in style.

00:18:02.000 | We wanted a house that was big enough but not too big, nice enough but not too nice.

00:18:06.000 | And these were important aspects to us as far as long-term planning.

00:18:11.000 | For example, nice enough but not too nice.

00:18:14.000 | And housing, it's almost always a bad idea to go for as nice of a house as you can "afford" or afford based upon what the mortgage lender will allow you to afford.

00:18:24.000 | Because what comes with the house is not just the house.

00:18:27.000 | It's the whole lifestyle.

00:18:28.000 | It's everything else.

00:18:30.000 | It's the cars that are in the driveway, the makes and models of those cars.

00:18:34.000 | It's the schools that your kids attend.

00:18:36.000 | And it's the weekend activities.

00:18:38.000 | Simple illustration, think about it.

00:18:40.000 | If you live in the sticks, your kids are running around the woods shooting 22s at squirrels on the weekend.

00:18:45.000 | Well, that's cheap for you.

00:18:46.000 | 22s or 22 bullets are cheap.

00:18:48.000 | If you live in the hood, your kids are at the basketball courts on the weekend.

00:18:52.000 | If you live in the fancy-pants neighborhood with the doctors and lawyers, well, that's Major League Baseball game tickets and weekend deep-sea fishing boat charters.

00:18:59.000 | And you don't want your kids to miss out and you don't want to miss out and you don't want to pipe up and say, "Hey, I don't want to spend money on chartering the fishing boat this weekend."

00:19:05.000 | So all of a sudden what would have been $2.63 and 22 shells is now $263 for the fishing – deep-sea fishing boat charter.

00:19:16.000 | Housing drives all that stuff and what neighborhood you live in.

00:19:21.000 | And also we wanted to build an urban homestead if possible.

00:19:23.000 | I wanted to have the house provide all of the needs for us instead of me working for the house.

00:19:30.000 | So we looked and looked at the $100,000 price range, working hard just to spend a little bit of money and we just couldn't find – we really couldn't find anything.

00:19:38.000 | The only neighborhood that fit our price range that was anywhere near the office was a little bit sketchy and just decided not to do that.

00:19:46.000 | So after looking and looking, we finally started to increase our price range and we decided to look at a neighborhood that's actually very near my office.

00:19:54.000 | And this neighborhood was much higher in price but it was a really unique neighborhood.

00:20:01.000 | And this is where in the story, the emotion starts to come in.

00:20:05.000 | And make no mistake about it.

00:20:06.000 | Emotion is a hugely important part of finance and emotion in home buying is something you've got to count on being there.

00:20:13.000 | So we looked at a bunch of houses and finally we walked into this one particular house and it was much higher than we'd intended to spend.

00:20:23.000 | But as we walked in the house, my wife's whole face changed.

00:20:28.000 | And I watched her walk around and you could just see the difference on her face.

00:20:33.000 | You could see the sense of excitement and the sense of emotion that was there.

00:20:37.000 | You could see the possibilities written on her face.

00:20:42.000 | And as a husband, seeing that look does something to you.

00:20:45.000 | As husbands, we're called to be the providers and protectors of our families and it's a rare man who doesn't want to do those jobs well.

00:20:51.000 | And so there's a tremendous amount of social pride in making sure that your family and your wife are well taken care of.

00:20:58.000 | And that plays its role when you're picking out an engagement ring and when you're choosing a car and when you're choosing a house.

00:21:04.000 | And it's really hard to balance that emotion with cold logic and know where is the right place to wind up.

00:21:11.000 | The engagement ring – sometimes I'll do a whole show on engagement ring.

00:21:17.000 | But basically, engagement ring, the whole point is to satisfy that emotion of, "Look, I'm a provider."

00:21:22.000 | It's totally fabricated.

00:21:25.000 | The whole idea of the diamond meaning anything and the whole idea of the diamond having very much value at all is complete fabrication.

00:21:33.000 | But yet it goes deep.

00:21:35.000 | It goes very, very deep.

00:21:37.000 | So seeing that look and considering that house, which was $220,000 instead of $100,000, made me – made us really go back and consider.

00:21:45.000 | Am I being too much of a hard nose?

00:21:47.000 | After all, I had a solid business on a solid foundation.

00:21:50.000 | I had a huge income potential.

00:21:52.000 | We had money.

00:21:53.000 | We were very frugal in other areas.

00:21:55.000 | And so I reconsidered it and we worked through the numbers and we talked about it and ultimately, we went ahead and decided to make the numbers work.

00:22:04.000 | After finding that nothing in that $100,000 price range was suitable for us, we went ahead and decided to make the numbers work on this particular house.

00:22:11.000 | Now, I'll go through some of those reasons because I believe they're important.

00:22:15.000 | What we didn't do was just look at the first house and then jump on the first house that we got emotionally attached to.

00:22:23.000 | What we did do was appreciate and recognize the fact of the emotional attachment and then apply the logic and apply the carefulness of the planning and thinking to make sure that it was still a reasonable decision.

00:22:37.000 | And so there were a few major reasons why we decided to make the numbers work.

00:22:40.000 | Number one, the higher price was still affordable for us.

00:22:44.000 | We were determined at that time to put 20% down.

00:22:46.000 | After all, I'm a financial advisor and this is what we say.

00:22:49.000 | Put 20% down and avoid private mortgage insurance.

00:22:51.000 | So we were determined to put 20% down no matter what.

00:22:54.000 | That was the range of our affordability.

00:22:56.000 | Well, we had about – we had saved at that time about $50,000 in savings accounts and so liquid cash that was available to us.

00:23:04.000 | And if we put 20% down, it wouldn't leave us with as much spare cash as we like but we could still do it.

00:23:10.000 | We could stretch just a little bit and do it.

00:23:12.000 | The contract price for the house was $219,500.

00:23:16.000 | So 20% was $43,900 plus the other closing costs and expenses.

00:23:21.000 | And then if you look at the cost of the mortgage, the monthly cost on a 30-year mortgage at that time was substantially cheaper than comparable rental prices.

00:23:30.000 | Our initial loan amount on the property was $175,600 and our monthly payment inclusive of principal, interest, taxes, and insurance was about $1,250.

00:23:42.000 | Rental rates on a comparable house would be in the neighborhood of about $1,800 a month-ish.

00:23:47.000 | And it would give us a really cool lifestyle.

00:23:50.000 | And as far as straight mortgage to rental cost, we'd be able to live in a 3-2 house in the middle of the city with awesome amenities for the equivalent payment of what a 2-2 rental apartment would cost us here in our local real estate market.

00:24:03.000 | Obviously, that number is not including other expenses, which I'll get to later.

00:24:07.000 | But relatively speaking, it was a relatively affordable monthly number.

00:24:12.000 | Big reason number two, however, that we decided to increase our price range is we could cut back and save money in other areas that would make a big difference.

00:24:20.000 | For example, the house that we chose was less than half a mile from my office.

00:24:25.000 | That makes a huge difference because doorstep of my house walking to the desk in my office including the elevator ride up to the third, fourth floor was nine minutes.

00:24:36.000 | Even when wearing a tie and walking slowly so as not to sweat too much in the Florida summertime.

00:24:41.000 | And that allowed us to make some other decisions that made a huge difference.

00:24:45.000 | It allowed us to easily get rid of our second car, which cut the amount of money we had tied up in depreciating assets, the cars, and also to save the monthly costs of maintaining two automobiles, cut out half the insurance, half the maintenance costs, all of that.

00:24:58.000 | Because of the amenities of the neighborhood, we could do a lot of things without actually needing to use the car.

00:25:04.000 | We could walk to the library, which was less than a mile away in less than 15 minutes, which made a really nice outing later for the kids to go to library story time with my wife during the day.

00:25:13.000 | The backyard was huge, which meant there was little or no need to take my son to external parks or things like that.

00:25:21.000 | We could set up a play place in the backyard.

00:25:23.000 | We could actually walk to the grocery store, again, less than a mile, less than 15 minutes away.

00:25:27.000 | So, little need for a car.

00:25:29.000 | I could just hop on my bike if we needed eggs in the morning and run over and get some.

00:25:32.000 | Those amenities made a huge difference.

00:25:35.000 | Where we live here, Palm Beach County is actually a terrible place to try to live without a car or with one car.

00:25:40.000 | But because of the location there, frankly, with an occasional Uber ride and buying some stuff on Amazon, we could have actually lived in that house without cars if we'd been willing to give up some of the social activities that we're engaged in.

00:25:53.000 | Lifestyle-wise, I could walk home for lunch every day.

00:25:55.000 | I could easily slip into the office on the weekend without needing to drive and I could cut out a massive amount of commuting costs from my budget.

00:26:04.000 | Commuting costs are non-deductible commuting costs.

00:26:07.000 | And as I've mentioned in previous shows, by cutting out – by buying a house that was more expensive and closer to my job, I would get rid of non-deductible commuting expenses, which are substantial, and transition all of that over to deductible housing expenses in the form of taxes and mortgage interest.

00:26:24.000 | And because of the business use then, the ratio of business use to personal use on my vehicles went up substantially.

00:26:32.000 | So that was why.

00:26:35.000 | And also, in many ways, living in that house, which was under half a mile from my office and easily walkable, was cheaper than living in the $100,000 house that was about three or four miles away because I couldn't easily ride a bicycle three or four miles to the office in my suit and tie job in the Florida summertime.

00:26:52.000 | Especially given the fact that my job required office time but it also required me to leave the office quite a bit.

00:26:58.000 | Well, with a house four-tenths of a mile, I could leave the car with my wife so that she could use it during the day.

00:27:03.000 | And then if I had unexpected appointments, I could just take a quick walk, jump in the car, and use it.

00:27:08.000 | So it was very easy to coordinate with one car.

00:27:11.000 | Finally, number three – excuse me, number three of four.

00:27:15.000 | Number three, we decided to adjust our price because it was a good time to buy in the market cycle.

00:27:21.000 | This particular house had been on the market for a long time and multiple deals had fallen apart for various reasons.

00:27:28.000 | So they lowered the price a good bit and it was a good bit lower than comparable houses in the neighborhood.

00:27:32.000 | So I felt that the house had a nice floor underneath it in terms of market value, which would protect the money that we had spent on it.

00:27:39.000 | Also, interest rates at that time were still low and had been low for quite a while.

00:27:44.000 | My wife and I both had excellent credit ratings and so we were able to get a 3.5% 30-year loan.

00:27:50.000 | We ended up going with a 3.75% loan.

00:27:54.000 | We bought the upfront money a little bit once I ran the numbers on it.

00:27:59.000 | But that was – I mean it was a great value for a mortgage price.

00:28:04.000 | And I expected that rates would increase at some point and I felt that at the least, they weren't going to go much lower.

00:28:10.000 | Additionally, at the time we purchased, my wife was still employed with a W-2 salary, which is very helpful when applying for a mortgage.

00:28:16.000 | It's much more difficult for business owners to qualify for the same mortgage amount as compared to their income versus W-2 employees.

00:28:27.000 | And I had faced some challenges where I had made some big business mistakes over a couple of years before we married.

00:28:34.000 | And I had some not very profitable years, which had taken me a while to dig out of.

00:28:39.000 | So that affected even my personal ability to qualify for a very large mortgage based upon my tax returns.

00:28:48.000 | But with the W-2 income that she had, it was helpful and we knew that that wasn't going to be a permanent solution.

00:28:53.000 | And then also housing prices here in our local market.

00:28:56.000 | In 2012, they were still down quite a bit.

00:29:00.000 | They bottomed after the recession and they were slowly increasing.

00:29:03.000 | I wasn't making the decision completely focused on market timing.

00:29:06.000 | For example, I didn't rush out and buy a house in 2009 or 2010 because I was focused on applicability to my life and to my life plan.

00:29:15.000 | I didn't want to own a house as a single man.

00:29:17.000 | But I felt that at that time, there was room to run and it was unlikely for prices – there weren't any indicators that prices were going to decline in the short term.

00:29:27.000 | So when putting all those things together, it seemed like a good time to buy.

00:29:31.000 | And that's important because what it gave me is a margin of safety with decisions.

00:29:36.000 | Ultimately then, the last thing, number four, is we adjusted the plan after looking at the market and considering it.

00:29:42.000 | We adjusted the plan away from the idea of getting a starter home and then moving up to the idea of simply buying and living in a long-term home.

00:29:49.000 | The $100,000 houses were adequate.

00:29:52.000 | But they weren't where we would have wanted to be forever.

00:29:55.000 | They would have just been a stepping stone in a temporary situation.

00:29:57.000 | Whereas the $220,000 house was nice enough to be a forever home.

00:30:02.000 | And in that time, my business situation looked extremely stable.

00:30:06.000 | So we decided to go with the long-term play.

00:30:09.000 | The stability of my business, the office building that we were renting was on a ten-year lease that wouldn't expire until 2021.

00:30:15.000 | So I didn't have to worry about the office moving and at the very least, I could enjoy about nine years of a walkable commute.

00:30:22.000 | I was at a stable point in my financial planning practice where I was beginning to move into the profitable phase of the business.

00:30:29.000 | And so that you understand, let me explain the finances of financial planning as a business.

00:30:33.000 | In the short term, the business is horrible.

00:30:36.000 | It is a ton of work for not very much money at all.

00:30:39.000 | And the first few years are usually simply primarily about survival.

00:30:44.000 | All of the compensation in the financial planning business is deferred because you start with no clients and no income.

00:30:49.000 | And you have to start prospecting your way through prospective clients.

00:30:53.000 | And it takes a long time in general for you to get enough prospective clients who are interested through the stages of the sales cycle to where they're ready to go ahead and purchase either a financial product or a financial service from you.

00:31:07.000 | And worse, when you start in the business when you're young, your clients usually are young and aren't very rich as well.

00:31:13.000 | So they don't have as much money that they're putting with you.

00:31:15.000 | They don't have as much budget for your products and services, which means that your total possible compensation is much lower.

00:31:23.000 | So in the beginning, it's just all about survival.

00:31:26.000 | Well, once you get past survival, the only way to get past survival is to do a lot of work.

00:31:30.000 | And a lot of work creates a lot of work.

00:31:32.000 | Then you have to invest back into infrastructure.

00:31:34.000 | And infrastructure is expensive.

00:31:36.000 | Hiring staff costs a ton of money.

00:31:38.000 | Salaries, expanded office space, office rent, computer, equipment, etc.

00:31:42.000 | Also, staff in the short term is not very productive.

00:31:44.000 | You have to spend a lot of time training your staff, and then that inevitably cuts into your time and ability to produce.

00:31:50.000 | And the instant you hire, you have massive overcapacity until you get busy and fill it up.

00:31:56.000 | So once you get past survival, you're in that investment phase.

00:31:59.000 | And so in every way, the major financial compensation for a financial planning business is in the long-term back end.

00:32:07.000 | First five years are survival.

00:32:08.000 | Years five to ten are stable.

00:32:10.000 | And then years ten plus are profitable.

00:32:12.000 | And then the big profit comes on the back end.

00:32:14.000 | Your clients are growing up.

00:32:16.000 | You're getting the benefit of long, healthy relationships, big incomes, big accounts.

00:32:20.000 | You're getting the benefit of the compounding of their money in addition to the compounding of yours.

00:32:24.000 | You're getting the benefit of well-trained, stable staff.

00:32:27.000 | You're getting the benefit of all of these things in the back end.

00:32:30.000 | And so because I was in that stable phase, I decided, "Let me go ahead and buy some lifestyle luxury instead of staying exclusively focused on the cheapest option."

00:32:40.000 | There was enough potential and growth in the business to help me build plenty of wealth without having to eke every last dollar of profit out of every possible thing I could find.

00:32:50.000 | All of those reasons are important because all of those reasons help to establish a floor in a situation to where ultimately I've come out of it really, really well even though everything changed.

00:33:02.000 | And I'll cover those as I continue with my story.

00:33:06.000 | But all of those logical reasons are extremely important.

00:33:10.000 | I didn't overleverage. I didn't overextend.

00:33:12.000 | Even though I did extend beyond what I had planned, there was a background to it and it was carefully thought through.

00:33:18.000 | And those financial reasons are important.

00:33:20.000 | Now, if I wanted to impress you with my rationality and careful decision-making, then I would pretend that that was all.

00:33:27.000 | But obviously, it's not because let's be accurate.

00:33:32.000 | There's also an intense emotional desire to be a homeowner.

00:33:37.000 | And there's a deep-seated cultural ethic that you're successful when you own a house.

00:33:42.000 | It's that mark of – it's a rite of passage in many ways.

00:33:46.000 | And as much as I would like to pretend to be a coldly logical calculating person who's immune to the pressures of society and people around, I'm not.

00:33:54.000 | I'm actually pretty emotional.

00:33:56.000 | I'm very susceptible to external influences and peer pressure has a lot of influence on me.

00:34:00.000 | I have to work really hard to stand against it.

00:34:02.000 | And so in some ways, purchasing a house is kind of the consummation of a long lifetime of following the rules and checking the boxes.

00:34:13.000 | In many ways, I'm not really that radical of a guy.

00:34:16.000 | I'm just a successful dude in the sense of successful in the eyes of American society.

00:34:21.000 | I've followed the standard path of success.

00:34:23.000 | I've checked all the boxes that I really need to check.

00:34:26.000 | I graduated high school with a high GPA.

00:34:28.000 | I don't remember the exact number.

00:34:30.000 | I think it was top ten in my class.

00:34:31.000 | And the valedictorian and the salutatorian were really great people who worked really hard.

00:34:35.000 | But if I'd wanted to, I could have given them a run for their money.

00:34:38.000 | Incidentally, here's how deep the fear of public speaking goes.

00:34:41.000 | All my siblings were either valedictorian or salutatorian of their class.

00:34:44.000 | So I knew – I've been to a lot of public – to graduations.

00:34:48.000 | I knew that if I were valedictorian or salutatorian, I'd have to make a public speech at my graduation.

00:34:54.000 | But I was scared to speak in public.

00:34:56.000 | So I intentionally never wanted to be number one or number two.

00:34:59.000 | There's probably a useful lesson in there about the fear of success sometimes, the reasons people don't do things.

00:35:06.000 | So I did well.

00:35:07.000 | I didn't drop out of high school.

00:35:09.000 | I got a good SAT score so that I could go to a good school.

00:35:12.000 | And I went to a private, highly respected university.

00:35:15.000 | Now I had my challenges and problems in college.

00:35:18.000 | But the reality is I got a four-year degree in business in four years.

00:35:23.000 | It didn't take me five.

00:35:24.000 | I did it in four.

00:35:25.000 | I graduated debt-free.

00:35:26.000 | I studied abroad.

00:35:27.000 | I never did drugs.

00:35:28.000 | I never got drunk.

00:35:29.000 | I never got arrested.

00:35:30.000 | I never was suspended or disciplined in any way.

00:35:33.000 | I didn't run afoul of the law.

00:35:35.000 | I graduated from college before getting married because for some reason we've made this cultural decision that you've always got to go to school before you marry.

00:35:44.000 | My wife graduated from college before getting married.

00:35:46.000 | We were both virgins when we married.

00:35:48.000 | So I didn't have a litany of kids that I had to support and somehow rush into the workforce.

00:35:52.000 | We didn't have credit card debt.

00:35:54.000 | We went on a real honeymoon.

00:35:55.000 | We followed the path that is laid out by society.

00:35:59.000 | High school, check.

00:36:00.000 | College, check.

00:36:01.000 | Career, check.

00:36:02.000 | Wife, check.

00:36:03.000 | Next?

00:36:04.000 | Well, what's next?

00:36:05.000 | Get the house, right?

00:36:06.000 | Check.

00:36:07.000 | After the house, dogs and kids, check, check.

00:36:09.000 | My point is that when faced squarely, it's true that buying the house was to some degree a status symbol.

00:36:18.000 | It's a way for me to show the world that I'm a successful man and that I fit into a stable society.

00:36:23.000 | It's a way for me to show – I don't know – show my wife's parents that I'm a good catch.

00:36:26.000 | These things actually influence us.

00:36:29.000 | And I've watched so many of my friends buy houses because of that.

00:36:36.000 | They don't feel that they've made it until they've owned a house.

00:36:42.000 | Now, is that good or bad?

00:36:44.000 | I don't know.

00:36:45.000 | It just is and we got to be aware of it.

00:36:48.000 | And that's why I led with the logical side is we've got to control for it, but it is a factor.

00:36:53.000 | Now, the challenge is not only did I want to be a homeowner, of course, but I wanted to own an impressive home.

00:36:58.000 | I wanted people to be impressed when they came to see me.

00:37:01.000 | And there are the other benefits as well, the other things that we talk about in society.

00:37:08.000 | I wanted to be able to experience the peace and the security and the stability that come from owning my own home.

00:37:13.000 | I wanted to be able to do whatever I want with my property.

00:37:16.000 | This was important especially to my wife.

00:37:19.000 | She had been renting for many years and she wanted to be planted somewhere.

00:37:22.000 | She wanted to be able to have a dog.

00:37:23.000 | She wanted to be able to install the curtains the way she wanted them and paint.

00:37:27.000 | Of course, I wanted to not throw my money away by renting because, of course, it's important to buy a house.

00:37:31.000 | Now, I knew logically that that was a fallacy, but I also didn't quite know it emotionally.

00:37:37.000 | So we bought the house.

00:37:39.000 | And here's what I'll tell you about the actual experience.

00:37:44.000 | If you like to use the term "the American dream" to mean or to at least include meaning the idea of owning your own house, I'll give you a report on what it's like.

00:37:56.000 | It's not bad, but it's also not great.

00:38:02.000 | I thought about saying something really dramatic like, "The American dream stinks," but it doesn't.

00:38:07.000 | It doesn't really.

00:38:08.000 | It's not bad.

00:38:09.000 | But it does come with a whole host of problems that most people don't think about.

00:38:16.000 | And in retrospect of almost three years of home ownership with a generally positive experience, I'll tell you that it ain't all it's cracked up to be in the emotions of when you're trying to pursue and fulfill those dreams.

00:38:34.000 | It ain't all it's cracked up to be.

00:38:36.000 | Here's what actually happened with the purchase.

00:38:39.000 | On January 1, 2013, we moved all of our stuff into the house.

00:38:44.000 | We actually closed on December 31, 2012, and my wife and I took a mattress there and spent the night on a mattress in the empty bedroom so that we could homestead the property for the calendar year of 2013 and actually be there before the year began.

00:39:00.000 | It did save us some cash, and it was fun.

00:39:02.000 | And we did a lot of things right with the purchase.

00:39:05.000 | Being a financial advisor has its perks.

00:39:07.000 | One of the best of the perks is being able to learn from other people's mistakes.

00:39:12.000 | So, for example, we never actually bought a single piece of furniture for the house.

00:39:16.000 | And I've seen this happen so many times with other people.

00:39:21.000 | People buy a house and it immediately needs to be furnished, and $15,000 of rooms to go, debt later, then they're stuck with that debt for a long period of time.

00:39:29.000 | So we got all of our furniture for free and we're planning on phasing it in little by little to be careful.

00:39:35.000 | But fast forward and things changed that I never expected to change.

00:39:40.000 | We moved into the house again January 2013.

00:39:43.000 | In July of 2013, six months after moving in, I started Radical Personal Finance and found I loved it.

00:39:48.000 | Recorded the first ten episodes, found I loved it, and then had to shut it down.

00:39:52.000 | Then it took me six months to decide whether I was going to do the show and leave my financial planning practice.

00:39:58.000 | And then six months more to figure out how on earth I could afford to do the show and actually have it make any financial sense whatsoever.

00:40:05.000 | In July of 2014, a year and a half after moving in, I launched the show full time and that decision changed everything.

00:40:14.000 | The biggest problem was that we had stretched our cash reserves to buy the house and we'd put a lot of money down on the house.

00:40:20.000 | And in addition to that, there were a couple of other things that had basically evaporated the savings that we had managed to accumulate by then.

00:40:30.000 | One, obviously we bought the house, put 20 percent down.

00:40:33.000 | It needed some repairs that we had planned to do right off, so there was $50,000 gone.

00:40:37.000 | We took an expensive ski vacation to Whistler while making the offer on the house.

00:40:44.000 | And during the time of looking at houses, we had looked at the $100,000 houses. We had decided that we weren't going to buy one of them.

00:40:51.000 | And we just said, "Well, we'll just wait a year or two and then maybe save some more money and then look around."

00:40:56.000 | Well, we went ahead and scheduled something we'd wanted to do before having kids, which was take a nice fancy ski vacation.

00:41:01.000 | Did that, but then all of a sudden right before – after I booked the plane tickets and started booking accommodations and things like that, we made the offer on the house.

00:41:09.000 | So there was an extra $5,000 out the door that I hadn't really planned to spend.

00:41:13.000 | And then we had our first kid, and when you have a high deductible health plan, basically each kid costs about $5,000.

00:41:18.000 | And all those things really hurt and really hurt my saving situation.

00:41:25.000 | The other big challenge with the financial transition plan was how on earth do I fund an uncertain life and keep the cash reserves needed to start the financial planning firm?

00:41:36.000 | I think if memory is right, I had something like, I don't know, $10,000 or so in the bank when I left.

00:41:42.000 | But I needed that money to back the firm.

00:41:45.000 | When you start an RIA, you're required to keep a certain amount of cash reserves on hand, and if you go below that number, you immediately have to notify the state and basically shut your firm down.

00:41:54.000 | So I basically had almost no reserves because by the time you take all that liquid savings and set it aside to back the RIA, then I was sitting there figuring out what on earth am I going to do?

00:42:08.000 | Now, of course, I still had retirement accounts and life insurance policies and things like that I could have tapped if I needed to, but I was pretty annoyed at how I work really hard to be diligent and careful.

00:42:20.000 | And I go from sitting pretty and doing well and even recovering from some of my mistakes and then having plenty of cash, and all of a sudden, now I'm sitting here feeling broke, which is probably why the theme – those of you who listened to the show for a while, the theme of me constantly saying has been on the show.

00:42:37.000 | Man, I'm never putting that much money down on a house again because it just took away all my options.

00:42:43.000 | Well, after starting Radical Personal Finance, the biggest reason that we chose the house that we chose, its location, was gone.

00:42:51.000 | And I looked around and tried to figure out is there anything I can do that would be more intelligent to do because I am a firm subscriber to the concept of zero-based thinking, constantly asking yourself the question.

00:43:02.000 | Is there anything which, knowing what I now know, if I were to do it over again, would I do it differently?

00:43:07.000 | And I had to admit to myself that knowing what I now know after having left the firm, left that location, I would not buy that house again.

00:43:15.000 | But then the question is, okay, how do I get out? How fast and how do I do it?

00:43:20.000 | But I couldn't find a better option because I had some unique constraints.

00:43:23.000 | Two kids and a full-time stay-at-home mom.

00:43:26.000 | Now, if you pack kids up and they're gone during the day somewhere, then maybe you can get by with a smaller place and not need so much space to get through just an evening and a night.

00:43:36.000 | But when your wife's a stay-at-home mom and she's in the same place all day every day, she needs to be comfortable and she needs to be in an environment that's going to be conducive to a pleasant life if at all possible and if at all within your means of affordability.

00:43:49.000 | Also, add to that mix two dogs and a full-time stay-at-home mom with two kids.

00:43:55.000 | Caring for two dogs is challenging because walking the dogs isn't exactly easy for a mama to load up the kids in a double stroller and just go walk the dogs a couple times a day.

00:44:03.000 | So I needed a backyard.

00:44:05.000 | I work from home and when possible – if possible, I need a quiet office where I can focus and record the show with a minimum of background noise.

00:44:14.000 | That's been probably the biggest challenge.

00:44:16.000 | And there's other things.

00:44:18.000 | We do cloth diapers, so my wife needs a convenient washing machine and if possible, a clothesline.

00:44:23.000 | Living in an apartment with shared laundry facilities down the hall, down the stairs, and around the corner doesn't work when you do laundry every day and you're caring for, again, two little babies.

00:44:32.000 | So it needs to have a certain amenities.

00:44:35.000 | We looked around at rentals and I never found one that would work well or be any cheaper for us and meet our needs.

00:44:41.000 | But even with all that financial talk, the biggest factor for me in wanting to move and looking for something was not money but actually time.

00:44:51.000 | I had basically four categories of priorities, family, church, business, and my house.

00:44:58.000 | And I couldn't figure out how to handle all four of them well with the 168 hours that I have in a week.

00:45:04.000 | And I always prioritize the house last. And yet, house needs ongoing time and work in order to keep it up or it starts falling apart.

00:45:13.000 | And there's all kinds of family projects that I'm interested in doing, all kinds of church projects, all kinds of business projects.

00:45:19.000 | And it was so frustrating to me to be doing $20 an hour plumbing work when I've got undone $1,000 an hour work.

00:45:25.000 | I've got opportunities on the back end where if I wanted to do $500 an hour work or $1,000 an hour work, it's just sitting there and I'm not doing it.

00:45:34.000 | But the challenge is that all of that $1,000 an hour work was deferred income.

00:45:38.000 | So it's not like I could just say, "Well, today I'll start doing the $1,000 an hour work and then hire out the $20 an hour work."

00:45:44.000 | I was just stuck in a cash pinch.

00:45:46.000 | So looked and looked and looked, couldn't find anything.

00:45:49.000 | But in looking and thinking carefully about what I was looking for, when the opportunity came, I recognized it.

00:45:57.000 | Recorded a previous show called Think Slow, Move Fast.

00:46:00.000 | And the opportunity came in the form of a family connection, my brother.

00:46:05.000 | One of my brothers actually owns a duplex and he'd had some renters move out and I had actually never been in the unit.

00:46:11.000 | I thought it was too small to live in.

00:46:13.000 | I was calling him just to check on his neighborhood and see if there were some other houses in his neighborhood that might be available.

00:46:20.000 | And he told me, "Go by and look at his place."

00:46:22.000 | Well, I went by and looked at it and immediately I said, "This is perfect."

00:46:26.000 | It was big enough.

00:46:27.000 | It would fit all those needs, washer/dryer, small backyard for the dogs, all of those things.

00:46:31.000 | And also a blessing, I was able to talk with him and work out a deal.

00:46:36.000 | And I was able to negotiate a slightly discounted rent in order to be a stable tenant who pays on time in order for helping him to get the place ready.

00:46:45.000 | And I'll explain the deal because I think it's illustrative of how oftentimes if you look at a deal, you can figure out something that works for both parties that's not necessarily measured with money.

00:46:56.000 | Sometimes satisfaction comes with money, but sometimes it's not money.

00:47:00.000 | And in every deal, both parties have to be satisfied and both parties have to feel like they're getting the better end of the deal.

00:47:06.000 | Otherwise, you got no deal.

00:47:07.000 | So in terms of pure money transactions, I couldn't find the deal.

00:47:12.000 | But when I looked to see what else I brought to the table, and that's why this situation worked, I was able to find something interesting and good.

00:47:19.000 | When looking at my brother's interest, the deal works like this.

00:47:24.000 | Landlording is not his primary occupation.

00:47:26.000 | It's just a part-time thing on one rental house that he lives in.

00:47:30.000 | He also travels a lot.

00:47:32.000 | So finding tenants, managing tenants, managing property is not his specialty.

00:47:35.000 | He had gone through a raft of horrible renting situations, and I brought him something unique, steady pay, consistent pay, and no headaches of a tenant.

00:47:45.000 | And in exchange for my doing the work for him of getting the apartment ready to rent and in exchange for basically me managing the property for him, managing it for me to get into it, I was able to negotiate a slightly more reasonable rent.

00:47:58.000 | And it worked – and so far, it's worked really, really well.

00:48:02.000 | Moving into the rental brought basically three major benefits.

00:48:06.000 | Number one, it freed up my time and my life, and it cleared my calendar of so, so many little items and got us much closer back to the joy and freedom of that 234-square-foot apartment.

00:48:20.000 | Big things just allow me to plan without a major set of constraints.

00:48:24.000 | If I want to just go, I simply close the door and go.

00:48:27.000 | I can plan the little weekend trips and do all those little things that previously I needed to dedicate to keeping the house going.

00:48:33.000 | It freed up my monthly cash flow and brought a ton of certainty.

00:48:37.000 | Instead of having to always budget for, "Oh, there's a $3,000 AC repair, and here I want to buy – let's say I want to buy marketing work or I want to hire staff or things like that.

00:48:48.000 | Well, how much do I need budgeted for the AC repair or a $1,500 water softener?"

00:48:53.000 | Well, now I don't have to do that.

00:48:55.000 | It just brought certainty.

00:48:57.000 | Then most importantly, it freed up my equity to invest into more lucrative opportunities.

00:49:04.000 | A little bit more seasoned in the world of marriage, my wife and I have now understood that after experiencing the luxury lifestyle of fancy home ownership, we've realized that it simply doesn't do that much for us.

00:49:18.000 | We'd rather enjoy more financial freedom than look successful to other people.

00:49:22.000 | There were some other hard lessons that I learned from home ownership where I was disabused of some of the concepts that I previously held.

00:49:29.000 | I'll cover those more in the next episode when I go through myths of home ownership.

00:49:33.000 | But we moved fast.

00:49:35.000 | We decided fast and we moved fast.

00:49:37.000 | I spent a week at work on the apartment getting it ready to go.

00:49:39.000 | I spent a few weeks at work getting the house ready to list.

00:49:41.000 | It was important to me to move fast for a few major reasons.

00:49:44.000 | Just simply, once a decision is made, I think it's healthy to get things done.

00:49:49.000 | It's not very good to be stuck in limbo land, so take lots of time making a decision.

00:49:54.000 | Once a decision is made, move fast.

00:49:56.000 | If you're going to leave your job, leave your job.

00:49:58.000 | If you got engaged to somebody and decided to marry them, marry them.

00:50:02.000 | Make things happen.

00:50:04.000 | Number two, financially obviously it's important to move fast because in that kind of transition, I had signed up to pay rent and a mortgage at the same time.

00:50:12.000 | So you want to minimize that amount of time.

00:50:15.000 | But then also once deciding to sell, I wanted to pay a lot of attention to market timing.

00:50:20.000 | I really wanted to sell before my local real estate market happens to turn.

00:50:25.000 | Now, we owned the house for two years and 11 months.

00:50:28.000 | The two years is important so that we can enjoy all of the income, the gains from the house tax-free under the Section 121 exclusion for gain on a residence that you live in.

00:50:43.000 | But after that two-year period of time and once the time got short, I've started to get – I have been pretty concerned about forthcoming turns in the larger economy.

00:50:54.000 | Frankly, I think we'll be heading into recession in the next few years.

00:50:57.000 | Several of the early indicators have turned and I have no idea with any certainty, but my guess is that 2016, 2017, 2018 therein are going to be some challenging years.

00:51:10.000 | I don't know how to time the stock market, but I do think it's possible to pay attention in your local real estate market because you are your consumer.

00:51:19.000 | Here in my market, I just don't see a lot of room to run.

00:51:22.000 | Prices have increased substantially since I bought the house and I don't see a lot of things that would lead to major upside.

00:51:29.000 | There's no local forces that I can find that would lead to our market really massively growing.

00:51:38.000 | And so I decided it was time to go ahead and take our profits.

00:51:42.000 | Now, who knows if I timed the peak or if I'm on the shoulder, if I'm dead wrong and we've got years to go.

00:51:49.000 | I don't know. Time will tell.

00:51:51.000 | But I'm happy with the decision because I made it first for my personal reasons and then secondarily for financial reasons.

00:51:59.000 | And the sale of the property went well. It was a very – I wouldn't say very profitable. It was a profitable transaction.

00:52:07.000 | When doing my research thinking about selling, I came to the estimate that the current market value of the house is about $270,000.

00:52:14.000 | That's what I guessed it would sell for.

00:52:17.000 | It's a hard house to do comparables on because it's a unique house and a unique neighborhood and the neighborhood is very small.

00:52:24.000 | So there's just not a lot of comps, about 60 houses total that are truly comparable.

00:52:29.000 | Now – and there's really low turnover.

00:52:32.000 | A house a mile away in a different neighborhood is very different because it lacks the walkability of the house that we were living in.

00:52:38.000 | Unique can be good if you find the right buyer. It can be really bad if you don't.

00:52:44.000 | My house was a little bit challenging because it was a little bit small compared to what many families want today, some of the small bathrooms, small master bedroom suite, things like that.

00:52:54.000 | It was a little old-fashioned.

00:52:56.000 | My goal in the financial transaction was, if possible, to clear $250,000 after commissions and transaction costs.

00:53:03.000 | So I determined to take the first offer above $270,000 that came along.

00:53:08.000 | We listed for $300,000, got a few showings, waited a week and a half, and dropped to $290,000.

00:53:13.000 | Got good traffic but no offers.

00:53:15.000 | The feedback was generally what we expected.

00:53:18.000 | People really loved the location, loved the lot, but a few of the awkward features of the house kept them back.

00:53:24.000 | Then after 29 days on the market, we got an offer for $275,000, conventional financing.

00:53:31.000 | I accepted immediately. We went under contract.

00:53:33.000 | They did their inspection and we negotiated over a few items and ultimately offered them about $3,500 of concessions on the price.

00:53:41.000 | So everything was looking good until the appraisal came back with an appraised value of $233,000.

00:53:50.000 | That was stressful because if you've never been through real estate transactions – this was my first one – other than buying.

00:54:00.000 | But when a buyer is financing their property, everything is dependent on that appraisal because if the appraisal comes back low, the buyer has to front the difference.

00:54:07.000 | This type of property, the buyer – we're not dealing with a million-dollar home where the buyer is likely to be able to just put cash up to close the house.

00:54:17.000 | We're dealing with the type of price range where it's very dependent on their ability to get financing.

00:54:23.000 | So that was tough because $233,000 basically broke the deal.

00:54:29.000 | And then it was put back on the market, unique house, waited out a few months.

00:54:33.000 | Things might turn in the market in the coming months, things like that.

00:54:37.000 | It was a little bit stressful.

00:54:39.000 | Now, I think the first appraisal was a bad appraisal because of the uniqueness of the property.

00:54:43.000 | Again, it's really hard to get comps in the last six months, which is what the appraiser standards require.

00:54:48.000 | If we extended to beyond six months and remained looking at houses that are exclusively in that neighborhood, then the comparable prices were really helpful.

00:54:58.000 | But the appraiser chose houses that were outside of that neighborhood, and it just – well, I think it was a bad appraisal.

00:55:07.000 | The buyer's agent agreed.

00:55:08.000 | They contested at no avail.

00:55:09.000 | So it was nip and tuck, and it was tough to know exactly what to do.

00:55:14.000 | We wound up extending the contract to give the buyer time to get a new appraisal.

00:55:17.000 | They ordered another one, and there were a few things that changed which helped our price.

00:55:21.000 | And thankfully, that time, the house appraised at the contract price at $275,000.

00:55:28.000 | And I'll tell you what.

00:55:29.000 | I was sitting with a friend of mine when the text came in, and I checked the text message, and it was a message from my agent saying the house appraised.

00:55:36.000 | I turned to him and I said, "That was a $40,000 text message," because I – now, I did have some options that the house hadn't appraised.

00:55:46.000 | But knowing the range, again, knowing that that type of – this price range of house is very subjected to financing, it's going to be unusual that – to have a buyer who's not dealing with financing.

00:55:59.000 | So the appraisal would be kicking our butt if it did come back at $233,000.

00:56:02.000 | It was just a – it was tough to figure out what was the right option.

00:56:07.000 | I was considering holding a note for the buyer on the difference.

00:56:10.000 | I had a few other options, but nothing was as ideal as just having the contract close.

00:56:15.000 | Thankfully, though, that text message came in.

00:56:18.000 | The second appraisal came back.

00:56:19.000 | It was accurate.

00:56:20.000 | They used good comps.

00:56:21.000 | It was well done, and the house appraised.

00:56:25.000 | And that was a major, major blessing.

00:56:28.000 | We extended the contract a couple more times to give time to rework everything.

00:56:32.000 | We extended it again so that they could switch from conventional financing to FHA.

00:56:36.000 | But ultimately, this past Friday, the deal closed and we got the wire into the bank account early in the afternoon.

00:56:42.000 | It was super fun to see that much money clear your checking account.

00:56:46.000 | After closing costs and expenses, fixing the house up, we netted a bit over – and paying the mortgage off, we netted a bit over $85,000.

00:56:55.000 | Which represents a profit of – call it $30,000, $35,000, depending on how we run the calculations.

00:57:02.000 | And depending on what you compare that to, again, it's a positive rate of return, $30,000, three years of ownership, tax-free gains.

00:57:11.000 | It could be a good number, a bad number.

00:57:13.000 | Figuring out the rate of return is a little bit difficult because what factors do you include in it?

00:57:20.000 | It's easy to include the mortgage expenses, but what about the cost of fixing the lawnmower?

00:57:24.000 | Should I include that as a cost or do I include the electric bill?

00:57:27.000 | Do I include the additional amount of the electric bill that would be higher than a townhouse or that type of thing?

00:57:32.000 | So it's hard to know exactly what basis to compare.

00:57:37.000 | Do I include my code violation expenses?

00:57:40.000 | That story in the next show.

00:57:42.000 | Salt for my water, soft, and all that stuff.

00:57:45.000 | So frankly, I simply haven't finished the exact financial autopsy yet.

00:57:49.000 | I will finish it and publish it when I'm able and I'll share with you the exact rate of return once I decide which of those factors to calculate in.

00:57:57.000 | But it was definitely a learning experience.

00:57:59.000 | I'll tell you, at the end of the deal, I was pretty confident all the way through that I was making good decisions, that everything had worked out.

00:58:07.000 | I was pretty proud of myself until I got that $233,000 appraisal.

00:58:13.000 | That kind of shocked me a little bit just because I felt pretty confident in my estimate of the $270,000 market value.

00:58:22.000 | And so all the way along, everything was going according to plan.

00:58:26.000 | But it's a bit scary to have $40,000 basically just whistling in the wind, resting on the word of one person who's sitting down and making an educated guess as to the fair market value of your property.

00:58:38.000 | Certainly something to think about when people talk about housing being a safe investment.

00:58:43.000 | I don't think of investments that can have $40,000 of up and down resting on one person's word as safe investments.

00:58:52.000 | Now, it worked out, but it didn't feel really good at the time.

00:58:59.000 | At the end of the day though, it worked out and we are very, very thankful.

00:59:03.000 | It was just such a tremendous lifestyle and already I've experienced the joy of just not having to deal with it, which is the biggest thing.

00:59:11.000 | It frees me up mentally and I've got a ton of things that I'm going to be putting those hours and that time into.

00:59:17.000 | And we'll see. I've also got some plans for the money.

00:59:21.000 | At the moment, I don't intend to keep – I intend to keep the money segregated.

00:59:25.000 | I don't intend to invest it right off in anything right now.

00:59:28.000 | I'm just watching the market.

00:59:29.000 | If I'm right – if I'm right and we'll see if I am, then there should be some deals coming along in the next couple of years and that's kind of what I'm thinking is likely going to happen.

00:59:39.000 | So at the moment, I'm just sitting tight and watching for deals.

00:59:43.000 | Now, to sum up here, I'll just share – my philosophy personally regarding profiting from your transactions in your life is this.

00:59:51.000 | Arrange your lifestyle in the most ideal way possible and set up your lifestyle first.

00:59:56.000 | If you can make profit from your personal transactions, do it.

01:00:00.000 | But at the end of the day, the money simply funds life and money shouldn't be the central focus of something like the personal house that you live in.

01:00:08.000 | It's not an investment. It's a lifestyle choice.

01:00:11.000 | Now, if you can gain profit off of it, by all means, do it.

01:00:14.000 | And some people are very content and they can make the lifestyle work where they buy a house that needs fixing up.

01:00:19.000 | They're approaching it as an investment.

01:00:20.000 | They live there for three years while they're fixing it up on nights and on weekends.

01:00:24.000 | And that can be a very profitable thing for you to do if you've got those skills and interests.

01:00:28.000 | And you can flip the houses, take the money tax-free because it's your primary residence, move every three years.

01:00:33.000 | You could do very well that way.

01:00:35.000 | That's not my deal. I don't want to do that.

01:00:38.000 | I like to have something segregated a little bit more.

01:00:42.000 | But the reason I went into so many details in the beginning is just to share – well, to share it as a success story so that you guys can rejoice with me.

01:00:50.000 | But I think with all those safety valves that were there in the beginning really made a difference because people ask me, they say, "Joshua, how do you have the confidence to close a business and go into another one that's uncertain?"

01:01:12.000 | Well, because I had safety valves and I wasn't overleveraged.

01:01:16.000 | I had something I could work on.

01:01:18.000 | I had all kinds of backup plans, backup plans.

01:01:21.000 | And so always be thinking about that because that stuff makes a difference.

01:01:24.000 | I really thought – I really did when we bought the house.

01:01:27.000 | I was pretty sure – the biggest thing in my wife and my relationship was in deciding to move from the house was not whether we should live in a house or apartment.

01:01:41.000 | But it was the fact that I had told her that this was going to be a 40-year house.

01:01:46.000 | And her looking at it and saying, "Well, we're two years in and we're changing."

01:01:52.000 | That was the biggest challenge for her.

01:01:54.000 | And once we worked through that, then everything was good.

01:01:58.000 | But I really thought we were going to be in the house for 40 years.

01:02:02.000 | I thought that was going to be the place.

01:02:03.000 | I was going to raise my family.

01:02:04.000 | I thought I had my cute, tight little plan all figured out.

01:02:07.000 | And then circumstances change.

01:02:09.000 | So learn that lesson from my experience that always leave yourself back doors and safety valves and things like that because things will change.

01:02:21.000 | That's the story of the house.

01:02:23.000 | I hope you've enjoyed hearing that.

01:02:24.000 | It's obviously a very personal story.

01:02:26.000 | I shared with you lots of details.

01:02:27.000 | But hopefully you enjoyed hearing that.

01:02:29.000 | Some of you have asked who are listening to this, just as personal friends and whatnot.

01:02:35.000 | Some of you who are listening to the show probably wondered what's been going on.

01:02:39.000 | There's all the details.

01:02:40.000 | And it worked out really well.

01:02:41.000 | So we're very, very thankful.

01:02:43.000 | The next show I'll go in through just some of the myths versus facts as I perceive them, just some of the things that have changed from me in my perception over the last few years.

01:02:53.000 | And I'm still learning.

01:02:55.000 | And I hope that that is reflected clearly in this show.

01:02:59.000 | I'm an expert in some areas, but I don't claim to be an expert in many areas.

01:03:03.000 | And this was my first house that I bought.

01:03:05.000 | It was my first real estate transaction.

01:03:07.000 | I learned a lot through it.

01:03:08.000 | And I'm happy to share those lessons with you and hope that some of you can make smarter decisions than I did and profit more and well.

01:03:17.000 | So thank you for listening and thanks for being with me through this journey.

01:03:21.000 | It's been a fun and exciting journey so far, and it's only just getting started.

01:03:24.000 | So that's it for today's show.

01:03:26.000 | Thank you so much for listening.

01:03:27.000 | Thank you to each and every one of you who has written me encouraging notes.

01:03:31.000 | Thank you to those of you, especially I told all the irregulars in the Facebook forum all about this as we're going through and they were giving suggestions and ideas.

01:03:39.000 | So thank you to all of you who have contributed.

01:03:42.000 | Thank you.

01:03:43.000 | Oh, two quick announcements.

01:03:45.000 | Number one is if you are the one who looks for the shows to come out on the website, for the next few days, the shows will be delayed coming out on the website.

01:03:52.000 | They'll still be coming out in your podcast feed.

01:03:54.000 | And actually going forward, they'll be a little bit behind going to the website due to some technical stuff that I'm adjusting to remove a bottleneck from the business.

01:04:01.000 | And then number two, thank you to those of you who support the show on Patreon.

01:04:05.000 | If you are not supporting the show, then consider doing that.

01:04:09.000 | But it's all of you who support the show on Patreon who gave me the foundation to be able to do that stuff and go step by step through and have the confidence to build this as a business.

01:04:21.000 | So I'm just saying thank you.

01:04:23.000 | If you'd like to support the show, go to RadicalPersonalFinance.com/patreon and be back with me for the next show where we talk about myths and facts of some specific widely held misconceptions about real estate and how I learned that those things were pretty much wrong.

01:04:40.000 | [Spanish]

01:04:42.000 | [Spanish]

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