Avoid The Dream House Trap!

I love the Property Brothers, and a myriad of the other DIY shows on television.  However, there is a big problem.  It comes from the average homeowner not having Chip and Johana in their back pocket doing renovations at huge discounts and at the exact same time setting expectations of a home so high.  Every time I hear the words “Dream Home” I cringe, and it happens a lot.

 

There is a new infatuation with the perfect house, huge amounts of space and beautiful finishes.  I’m not sure if it is just because of too much HGTV, Flips, or just keeping up with the Jones, but we have a disconnect with wants and needs when it comes to a house in western culture.

 

 

 

When I see trends like this, it always makes me think.  I personally know plenty of people remodeling kitchens and homes with nothing wrong with them.  Yes, it is nice to have a nice home or that extra counter space, but people get used to whatever they have.  So I do what I always do, follow the money.

 

 

So many companies and people make money off of remodels, flipping homes, and people trying to have the shiniest new item.  There is a huge vested interest in this culture in getting you to want those fancy stainless steel appliances and perfectly decorated home.  Including Realtors, and all the companies feeding off of them.

 

But really? It is a want, not a need, and if you really weighed the cost, you might think that 80’s kitchen in good condition on a moderately priced home is the actual want.

 

How the Dream Home can become a trap:

 

The bigger the house you have the higher utility payments you have to make.  This over the lifetime you are in your home can really add up.  It might make it worth it to get a pull out couch instead of a spare guest room.

 

  • “Nationally, based on data from UtilityScore, people in single family homes spend a median of $2,715 annually ($226 monthly) on utilities, or $1.68 on a square foot basis, or 1.4% of the median single-family home value.”

https://www.trulia.com/blog/trends/covert-costs-utilities/

 

 

Not to mention the mortgage, maybe the flip in the area is only 20,000 more, and your thinking but I don’t want to pay for workers to upgrade it myself.

 

Let’s take a mortgage amount of 100k at a 4.5% interest, over 30 years that cost you  $182,407.  Yipes! That interest really sneaks up on you.  So what does that extra 20k cost you in the long run? A 120k mortgage at 4.5% interest over 30 years costs you  $218,888.  So that 20k extra asking prices actually is more like 36,481 and it can get a whole lot worse depending on your interest rate.

 

Did I forget to mention that property taxes and insurance are also strongly weighted off the price and size of your home.

 

And of course lets not forget your most precious asset, your time.  That is more time cleaning, landscaping, doing maintenance, or more money to pay someone else to do it for you.

 

 

Lets put it all together, I’m going to use the Tucson, AZ market because I know it well.  This is a nicer area of Tucson but by no means one of the high-end areas.

 

Note: Larger houses and more expensive homes go hand in hand when you are comparing directly in the same neighborhood.  However, when you start comparing different prices per square footage due to upgrades or different neighborhoods it can make things more complicated, older bigger homes have higher utilities and more repairs, however higher prices regardless of the condition increase price across the board with mortgages, insurance, and taxes.

 

Okay, so now can actually see the weight of this financial choice, it is time to talk about what you actually need.  That is a pretty huge amount of money for 500 sqft or a 75k difference in price.  That could be a modest retirement if it was put into the stock market or used to buy a rental property cash.

 

 

How to take charge of own decision:

 

Remember to stick to your needs.  There is a counter-culture movement going right now for tiny houses.  People are getting sick of working just so they can afford their house and cars.  While I’m not so extreme as to think that is the way to go, as I believe these homes offer very little flexibility and people burn out of them frequently.  I do have a family of five living in a 1400 sqft home, and frankly it feels spacious, we even rented a room out to a family member for a while and it still felt fine.  I do want to preface that by saying we really do enjoy each others company!

 

 

 

Minimize your losses by buying a forever home.  Ideally, financially, you will buy a home and keep it for the rest of your life.  Not too many people do this, but it is the wisest financial decision and gives you that paid off residence for retirement.  If you choose to part, like most people do at some point because you choose something that will not carry through your life, you will eat 10% of your total property price when you sell, and also lose 3% of purchase price and start the interest-heavy years of your mortgage all over again.

 

I like to look at houses in terms of flexibility.
  • Does it have rooms that could easily serve different purposes, depending on whats happening in your life?
  • If you were to move out could you rent it out and have it at least cover all costs?
  • How much of the home is rarely usable space?
  • Could I negotiate the cost of repairs at a lower price, then take my time getting to them?

 

Take your time, buying a home that is not right for will hurt you more financially than paying extra rent while searching for the one that works.  Remember choosing the wrong home can lead you to getting caught in a financial trap.

 

Find The Shoe That Fits!

 

I not saying don’t get the waterfall countertops or the huge backyard, just make sure you weigh the true value to you and know the difference between your needs and wants.  You can always upgrade when things wear out and pay cash for it so your not eating 30 years of interest on a renovation that will not last that long.

 

 

Have you ever had a dream turn in to a nightmare?

Early Retirement: is it all it’s cracked up to be?

Early Retirement Cons Downsides FIRE Financial Independence http://jessicacoaches.com/2017/08/early-retirement-downsides/
Early Retirement Cons Downsides FIRE Financial Independence http://jessicacoaches.com/2017/08/early-retirement-downsides/

Early Retirement.  No doubt, you’ve seen the pictures with people doing leisurely activities, kicking back their alcoholic beverage of choice,

a gorgeous view of a Caribbean beach,

or even more simplistic, a person looking like they don’t have a care in the world.  

Ahh retirement, I want that now!

Why yes, I’m tired of trading my time for money!

Of course! I do want to spend more time with my loved ones!

Less stress and more time to nurture myself? Sign me up!

 

You might be delving into this world on the internet.  Everyone is talking about this, it even has a catchy acronym!  FIRE! After a quick search, you find endless blogs.  So many people are doing this.  I can too.  I just have to put my nose to the grindstone for a few years, and it can happen.

Related:  What is Your Financial Mindset? Are you FIREd up?

The Reality of Working to Retire Early.

But what does that look like?  Everything has cons.  If it were easy everyone would be retired right?  Is everyone not doing this just because they do not have the information?

Not to mention that if you are motivated enough to bust hump to retire early, it is unlikely all your days will be spent relaxing sipping pina coladas post retirement.  Likely you will just work on a different passion project.

It can be a marriage/relationship ruiner:

So you talk to your significant other about early retirement, they could be instantly wanting to know more, or they might just think you’re crazy.

Let’s spend close to nothing, get rid of everything we do not need, invest over 50% of our income for a few years so we can have freedom then.

Who wouldn’t be on board?

In fact, plenty of people do not want the intensity of early retirement.

They might have no desire to scrimp and save.

Their desire for consumer goods may just be greater than their desire for freedom.

Or perhaps, they just like their job and have no problems with working that to 65 or beyond.  They worked for a long time to get their position and have no desire to give it up.

Money is the biggest area of discord in relationships.  At the same time, working towards early retirement can be one of the most drastic monetary changes you can make in your life.  Those two things can spell trouble.

 

How much it changes your life depends on what your mindset and situation were like before starting on the path.

 

Even in the better outcomes, when you are both on the same page, it can be stressful on your relationship.  You tend to work a great deal more to achieve these things, doing side hustles, overtime at work, and financial research.  This means less time for your partner, and if you do not take care of your relationship, it can fall apart.

See:  Six Rules for a Successful Relationship

You can end up living for TOMORROW instead of today.

You know the old saying “Take time to smell the roses!” people who are working on early retirement sometimes have a hard time achieving this.

Things you want to spend time doing will fall by the wayside to be filled with all things money, figuring out how to save more, make more, and get the best return on investment.  Side hustles can become huge time-consuming endeavors.

This is all time you will not be spending on other things.  Many people while striving for early retirement decide to put their health or other things on the backburner because they plan to focus on it fully as soon as they are free and without a job.

When you have this big goal line ahead of you, sometimes you can put all our focus into getting there.  With early retirement, there is this shiny opulent goal of doing whatever I want.  If I just forgo eating out today or going on a trip this weekend it will get me closer to where I want to be.

 

Getting to Retirement can take a lot longer than you expect.

Unfortunately, the path to financial freedom can be a longer path than some blogs are advertising.  I have seen some boasting it only took them 3 years or headlines on how to have enough income to quit your job in a year.  Which can be done if you already are in a great starting place or you take some huge risks.

If you already have a great deal of debt that is not solvable by selling an asset, or if you are starting off with a low income earning potential.   It could take a lot longer.

For me, this is the 6th year of stressing myself out for the cause.   While we have taken some time to smell the roses, it has been to far and few between.  These years have taken a toll on us, and we go through periods of being utterly wiped out.  I just recently had a three-month turtle shell regrouping.  We are however close to that finish line.

See: I never have to pay into my retirement again!

 

Are you working on early retirement?  What have you had the hardest time with?