Location, Location, Location

You always hear people say they picked their house because of the school district, the lot size or the neighborhood but what about the FI Potential?

Financial Independence (FI) is as much about saving and investing as it is about reducing your expenses. A house is the single largest one time expense as well as one of the largest recurring expense that most people incur in their lifetime its worth considering the FI impacts. Like it or not, where you live and what you live in is either help you reach financial freedom or it will shackle you to the rat race for years or even decades to come.

Buying what you need and what you can (actually) afford

Earlier this year I was considering the idea of moving into a larger house. I started talking to a few different mortgage companies to get an idea on what the going mortgage rates were based on my situation. Just out of curiosity I asked them how large of a mortgage they would be willing to consider for our next house. A few moments later, he says $1.1Million! This may sound great to someone reading my blog for the first time but its actually crazy. That type of house isn't an asset, that would be like strapping cement shoes to yourself before you start a back-float. Spoiler Alert.. You won't make it!

Now we already had a house (shown below), it was 1658 sqft with a 2 car garage on .66acres. It didn't have a HOA to worry about and my neighbors were great down to earth people. So why did I want to move? Well mostly because I wanted my two kids to have a larger place to play and I want to start building out my Product Innovation Lab.

We ended up looking at new builds, fixer uppers, turn-key McMansions(just for fun), houses with tons of land, some with next to no land and nearly everything in-between. All told we looked for around 6 months but no matter what house we looked at it didn't have the most valuable things that our current house had. We really enjoyed the overall FI Potential, the great location and (later) the maker revolution potential hidden in my backyard.

But I want a McMansion

Something about a massive stately looking house sounded nice! The only issue is this tends to be at odds with your FI plan. How was I going to keep my savings rate up when I moved into a colossal house? Most people consider the larger mortgage expense in the FI factors but thats just one slice of the expense pie. It's also worth considering the increase in utilities from heating and cooling the house, the cost of replacing the roof down the road, the landscaping, irrigation, upkeep, any remodel jobs, taxes(based on what you paid!), and insurance. These additional factors are a key part of the equation. These monthly or periodic expenses are your carry costs. They are at odds with everything FI so minimize them as best you can!

The best way I've found to do this when house shopping is make a list of what you really need in a house. Once the list is established review each item and ask yourself how often will i actually use this space or feature of the property? If its' a few times a year maybe its not worth the premium price for it! Take for instance a spare bedroom. The cost of an extra bedroom is likely $18,000 (120 sqft x $150 per sqft) in the mid-west. In addition, you have higher taxes, more house to heat/cool and then you'll need an extra $2,000 to furnish it. It starting to sound a little less appealing to me... but wait where do I have friends sleep? If you only have friends over 5 times a year for 2 nights each time thats a total of 10 nights. Can you find a hotel for less than $1,800 a night ($18,000 / 10 days )? Sure you can! Why waist your money on a room that's going to set vacate more nights than it's ever going to be full?

By considering the actual day to day value of each room in the McMansion I was able to take my focus from a 3,500 sqft monster down to around 2,000 sqft with a basement. Anyone with Kids will understand why a basement is so important. If you don't have a dedicated place to run around life in the winter gets a little crazy. The only problem I had was every house we looked at in that size range was still 3x the price of the house we purchased just 7 years earlier. We wanted to move but was it worth it for a basement?

American Ingenuity

“If you commit to reaching your goals, you American Ingenuity will certainly kick into high gear.”

I knew my target, a 2,000 sqft house with a basement. As it turns out I found a lot of houses that could work pretty well if that was the only criteria. What I actually wanted was a place that also had key features of the house we currently lived in. I wanted to be in close proximity to a downtown with a great breakfast place, a pizza place, a pub, an ice-cream shop my son and I could walk to together! not to mention great walking/biking trails and just minutes from hundreds of employers. How could I move to just a house in a plain vanilla subdivision.. No thanks!

I decided that we should actually stay and to overcome the lack of a basement I decided to convert the garage into an awesome 500 sqft playroom fully equipped with two swings, rope to swing on, a rock climbing wall, 1 inch thick play mats all around along with a 100inch projector for movie night! I also added heat and storage for all of the projects the kids would get up to.

This is the first winter we've used it and as you can image the kids love it! We have to park out cars outside(remote starts help!) but thats a small price to pay if you're serious about early FI.

Now of course most people use at least part of their garage as storage and I was no different. I had to move my stuff out to the 140 sqft shed in the backyard. Of course I didn't stop there because I also wanted my own space to create! The only issue is I was out of space in the house, the garage was taken by my kids and my shed was full of stuff..

It was time to get creative. I had a well built shed with concrete floors that had potential to be a nice workshop. I purchased a used shipping container to move my stuff into that way I could free up my shed. Best part is my shipping container was behind my shed so you couldn't see it at all from looking out from the house windows(my wife's requirement).

Of course, every project you start is more complicated then you actual believe it to be at the beginning, but that's part of the fun! I had the opportunity to justify renting an excavator to trench in the power, and Ethernet cable from the house to the shed. My kids loved it and I did too. I've taken the shed walls down to studs to, install new windows and a door along with running new electrical and installing insulation, drywall and lights. At the time of this writing its not yet complete but I'm very happy with my decision. It was a fun way to expose my kids to real physical work and it allowed me to stay well below my mortgage budget.

Staying in my "starter house" and making a few tweaks has really felt liberating. I've created the space my family and I needed to make sure this house continued to work for us. This hasn't costed me $150 per sqft to complete nor is it raising my taxes, insurance, ballooning my mortgage or making me live in a lame subdivision. By turning down the McMansion and turning up my American Ingenuity I'm staying on track to reach my FI goals.