Hardway Finance Part 1
Recently, I started listening to a finance-themed podcast that basically stole people’s finance blogs and read them out loud. It’s kind of what motivated me to write this short series of blogs on my own history and experience with personal finance. The reason I am calling this “hardway” is its use as a slang term in pro wrestling. Doing something hardway basically means hurting yourself legitimately. For instance, getting a black eye from a punch in the face, or breaking one’s nose from a big fall or kick in the face would be getting those injuries “hardway.” Ideally, they intend not to get hurt. I’m not a pro wrestler or in the industry at all, but as a hardcore fan, the term has been introduced to me that way. As you will see, it’s a fairly descriptive way to name my blog.
Around the end of 2008 and beginning of 2009, I was starting to get serious about making the big jump from renting to owning. The problem was, I had too much personal debt to make it work with the income I had. At that point, I was in school (again) for engineering and spent my weekends going to independent professional wrestling shows. To give you some idea of my situation, I had a brand new car that I had leased, substantial student loans from my business school education, and easily spent over $100 every weekend on wrestling. At least once, I had attended three shows in three different states in one weekend. Wrestlers actually recognized me. I’ve met at least a couple guys who ended up being a champion in WWE, but before they were even on the WWE’s radar. To me, that’s cool.
What getting a house meant, though, was that I needed to get rid of my debts and get money at the very least for the fees and down payment required to get a mortgage. In order to do that in a reasonable amount of time meant raising my income. To raise my income, I started doing overtime at work. So, in 2009, with the exception of the very last week of the year and one other day, I was in the factory every day for 10 hours. Conveniently for me, they were quite busy, but not busy enough to pay extra for me to work on holidays. So, I worked every day, and I poured the vast majority of that money into three places. I paid off my car lease early, I paid down $20,000 of my student loans, and I put the rest into savings bonds and a Scottrade account with stocks that I chose myself.
Every Friday, I would go to a restaurant in town and have a steak dinner after work. I had made it to first shift just the year before, and felt as though I should do something on Friday nights since the option was now available. Reading that last paragraph, it seems inconceivable that I was able to do as much as I did with what I had. The car lease was at least $14,000 plus interest. $20,000 towards my student loans, and I think that my Scottrade balance was roughly $10,000. Much of that was gains, though. If a stock didn’t double while I owned it, it tripled. Not everything, but much of it. I didn’t lose on anything.
That’s what I was able to accomplish in one year. Every day, I would get up early and start work at 5am and work until 3pm, or a little later in order to do a report. Given a few more months, I was able to save up the payoff for my car and buy it outright. From this excellent position, I was to make some decisions that you will learn about in part two.
Sunday, July 23, 2017
Hardway Finance Part 2
Hardway Finance Part 2
In part one of Hardway Finance, I explained the amazing year of 2009 where I was able to make significant headway towards my goal of getting a house. By the end of the year, I was on a split course, considering either having a house built, or buying one.
I was interested in energy efficiency, and found a local builder who specialized in building energy efficient homes. I spoke to him and took a tour of one of the houses that he built. I was also speaking to a man who was making blueprints for the house of my dreams, which was actually quite small, and would fit on some land that my grandfather was going to give me as a gift to get things rolling. I had also signed up to be on the list for having a house built by the high school building trades class. All of those options would spin wildly until one day when I would make a very important and expensive decision. A decision that would destroy all of the hard work that I had done the previous year and put me into a wildly unreasonable amount of debt.
Remember the builder I mentioned in the previous paragraph? Well, he was hot to sell the house that he showed me because he had put a substantial amount of money into building it. Because of the financial crisis which was centered in housing, his income had dried up. Long story short, I had the option of buying the house he showed me, fully furnished, or have my house built by building trades, but not furnished, for roughly the same price per square foot. I chose the former, since it was quicker and I got a fully furnished house (furniture and high end appliances) thrown in for free. I also got a $30,000 theater room for only $6,000.
I remember the day that the builder and I negotiated for the house. I think the asking price for the house on realty websites at the time had been around $375,000 but we settled for $225,000 plus $6,000 for the theater room, and he was taking the TV in the living room for his kid. I remember thinking that it was a lot of money, but also an amazing deal. I set up meetings with a couple of mortgage companies that had been referred to me, one of which was interested in the deal.
This is where it starts to get insane. This is where logic and reason started going out the window. The mortgage broker set up a meeting at her office with the both of us. She explained it this way; I only qualified for a $206,000 mortgage. In order for things to move forward, the seller would have to bend even further.
(Insert dramatic pause here)
Quickly, yet at the same time with great hesitation, the builder agreed to the banker’s terms. The bank had just negotiated the price down for me. I took this as a good sign. I was not being represented by a realtor, which thinking back, was absolutely insane. It ended up working out for me. The seller’s business partner was a realtor, and he did all of the paperwork at no charge to me. I also took this as a good sign, thinking that I had saved the common 7% sales commission. My understanding is that the builder took out a substantial portion of his 401k to pay off the difference between what I was paying and what he owed on the house. I also had to take out a 401k loan in order to get the last bit of money to make the deal happen. I took that to mean that I was getting the house for a substantial discount and an amazing value. What I got was taken to school.
In part one of Hardway Finance, I explained the amazing year of 2009 where I was able to make significant headway towards my goal of getting a house. By the end of the year, I was on a split course, considering either having a house built, or buying one.
I was interested in energy efficiency, and found a local builder who specialized in building energy efficient homes. I spoke to him and took a tour of one of the houses that he built. I was also speaking to a man who was making blueprints for the house of my dreams, which was actually quite small, and would fit on some land that my grandfather was going to give me as a gift to get things rolling. I had also signed up to be on the list for having a house built by the high school building trades class. All of those options would spin wildly until one day when I would make a very important and expensive decision. A decision that would destroy all of the hard work that I had done the previous year and put me into a wildly unreasonable amount of debt.
Remember the builder I mentioned in the previous paragraph? Well, he was hot to sell the house that he showed me because he had put a substantial amount of money into building it. Because of the financial crisis which was centered in housing, his income had dried up. Long story short, I had the option of buying the house he showed me, fully furnished, or have my house built by building trades, but not furnished, for roughly the same price per square foot. I chose the former, since it was quicker and I got a fully furnished house (furniture and high end appliances) thrown in for free. I also got a $30,000 theater room for only $6,000.
I remember the day that the builder and I negotiated for the house. I think the asking price for the house on realty websites at the time had been around $375,000 but we settled for $225,000 plus $6,000 for the theater room, and he was taking the TV in the living room for his kid. I remember thinking that it was a lot of money, but also an amazing deal. I set up meetings with a couple of mortgage companies that had been referred to me, one of which was interested in the deal.
This is where it starts to get insane. This is where logic and reason started going out the window. The mortgage broker set up a meeting at her office with the both of us. She explained it this way; I only qualified for a $206,000 mortgage. In order for things to move forward, the seller would have to bend even further.
(Insert dramatic pause here)
Quickly, yet at the same time with great hesitation, the builder agreed to the banker’s terms. The bank had just negotiated the price down for me. I took this as a good sign. I was not being represented by a realtor, which thinking back, was absolutely insane. It ended up working out for me. The seller’s business partner was a realtor, and he did all of the paperwork at no charge to me. I also took this as a good sign, thinking that I had saved the common 7% sales commission. My understanding is that the builder took out a substantial portion of his 401k to pay off the difference between what I was paying and what he owed on the house. I also had to take out a 401k loan in order to get the last bit of money to make the deal happen. I took that to mean that I was getting the house for a substantial discount and an amazing value. What I got was taken to school.
Hardway Finance Part 3
Hardway Finance Part 3
In the first two parts of this series, I described the process where I had buckled down to do what it took to get a mortgage for a house, then went out and did it.
The good parts-
No realtor fees.
Bank negotiated the price down for me.
It was $64/sq.ft. For a brand new, fully furnished house.
But wait a second. If you recall from part two, and just above, the bank negotiated the price down to the maximum amount that they felt that I could afford. They based that on my 2009 income, which was nearly the maximum it could possibly be. I remember this being a bit of a red flag for me, but that the broker assured me that it wouldn’t be a problem long-term because my salary would go up every year. I’d grow into it. At one point I remember joking with my friends at work that I had more overtime hours than I had regular time hours. They used to post everyone’s numbers, and if a certain amount of overtime participation was required but not fulfilled, they started at the bottom of that list mandating people. I was at the top.
From my understanding, the maximum amount allowed is 25% of your average monthly gross for the mortgage itself. Tacked onto that would be the monthly pull for taxes and insurance. In my case, I also had mortgage insurance since I put the least amount possible down. I had more money, but they refused to take it.
What it meant was that if I didn’t do any overtime, my monthly payment all in was roughly 75% of my take home pay without overtime. Add on top of that monthly utilities which were thankfully extremely low for a house that size. So, if there was no overtime, I was cool as long as I didn’t have to buy any food or gas that month.
Of course, now I was all in on overtime, with no real choice in the matter. I figured out that I needed at the very least to work every Saturday in order to make everything work. I had to make it work.
In the first two parts of this series, I described the process where I had buckled down to do what it took to get a mortgage for a house, then went out and did it.
The good parts-
No realtor fees.
Bank negotiated the price down for me.
It was $64/sq.ft. For a brand new, fully furnished house.
But wait a second. If you recall from part two, and just above, the bank negotiated the price down to the maximum amount that they felt that I could afford. They based that on my 2009 income, which was nearly the maximum it could possibly be. I remember this being a bit of a red flag for me, but that the broker assured me that it wouldn’t be a problem long-term because my salary would go up every year. I’d grow into it. At one point I remember joking with my friends at work that I had more overtime hours than I had regular time hours. They used to post everyone’s numbers, and if a certain amount of overtime participation was required but not fulfilled, they started at the bottom of that list mandating people. I was at the top.
From my understanding, the maximum amount allowed is 25% of your average monthly gross for the mortgage itself. Tacked onto that would be the monthly pull for taxes and insurance. In my case, I also had mortgage insurance since I put the least amount possible down. I had more money, but they refused to take it.
What it meant was that if I didn’t do any overtime, my monthly payment all in was roughly 75% of my take home pay without overtime. Add on top of that monthly utilities which were thankfully extremely low for a house that size. So, if there was no overtime, I was cool as long as I didn’t have to buy any food or gas that month.
Of course, now I was all in on overtime, with no real choice in the matter. I figured out that I needed at the very least to work every Saturday in order to make everything work. I had to make it work.
Hardway Finance Part 4
Hardway Finance Part 4
Credit where credit is due. In the six years I “owned” the house, I never, ever made a late payment. Ever. I always rounded up on the payment, too, bringing it up to the next hundred dollar level. I would designate it towards principle reduction, but they just ignored that and sent it all back once every year or so. I’d cash the check and blow the money on something stupid. I’d look forward to it.
Things went wrong with the house pretty much immediately. Water had gotten into the furnace exhaust and made a gurgling sound once I kicked it on. That was fixed for free, as were most of the furnace issues. Despite never being used before, the central air went out, requiring a $4,000 replacement. The elaborate stonework for the shower cracked at a corner, and the mortar on the floor started cracking, too. The shingles were of a poor design, and placed on the roof in a lazy way, which meant that if it rained from a certain direction, there was a leak in the roof that would come down from the hanging light in the dining room.
Brand new house.
Meanwhile, I got used to the payment, and all of the overtime, to the point that I would save up money and go on absolutely insane vacations. I’ve been in deserts, jungles, mountain tops, pyramids (plural!) And more ancient cities than you could shake a stick at. I’ve seen buildings that the Apostles also saw. I’ve been to the Great Wall of China. One year, with two vacations, I stepped foot in 12 countries on five continents. I’ve spent more time on layovers in German airports than most of my friends have spent outside of the US full stop. I’ve been through the Panama canal on a cruise ship. I bought an emerald in Columbia and jade in China. I’ve had a dinner of alpaca steak. I’ve had a main course that stared back at me. In all of my travels, I have visited 20 countries. I estimate that I spent at least $1,000 per country visited in travel expenses. On top of that, I had a mortgage that took up 75% of my base pay for a house that had things going wrong.
The house has an amazing home theater. For 2006, when the house was built, it was state of the art. It was still pretty good when I had it. Well, except that I could never use it, because I was always working to pay for it. It had a room that would protect me from tornadoes. It had one and a half kitchens. It was too much.
Credit where credit is due. In the six years I “owned” the house, I never, ever made a late payment. Ever. I always rounded up on the payment, too, bringing it up to the next hundred dollar level. I would designate it towards principle reduction, but they just ignored that and sent it all back once every year or so. I’d cash the check and blow the money on something stupid. I’d look forward to it.
Things went wrong with the house pretty much immediately. Water had gotten into the furnace exhaust and made a gurgling sound once I kicked it on. That was fixed for free, as were most of the furnace issues. Despite never being used before, the central air went out, requiring a $4,000 replacement. The elaborate stonework for the shower cracked at a corner, and the mortar on the floor started cracking, too. The shingles were of a poor design, and placed on the roof in a lazy way, which meant that if it rained from a certain direction, there was a leak in the roof that would come down from the hanging light in the dining room.
Brand new house.
Meanwhile, I got used to the payment, and all of the overtime, to the point that I would save up money and go on absolutely insane vacations. I’ve been in deserts, jungles, mountain tops, pyramids (plural!) And more ancient cities than you could shake a stick at. I’ve seen buildings that the Apostles also saw. I’ve been to the Great Wall of China. One year, with two vacations, I stepped foot in 12 countries on five continents. I’ve spent more time on layovers in German airports than most of my friends have spent outside of the US full stop. I’ve been through the Panama canal on a cruise ship. I bought an emerald in Columbia and jade in China. I’ve had a dinner of alpaca steak. I’ve had a main course that stared back at me. In all of my travels, I have visited 20 countries. I estimate that I spent at least $1,000 per country visited in travel expenses. On top of that, I had a mortgage that took up 75% of my base pay for a house that had things going wrong.
The house has an amazing home theater. For 2006, when the house was built, it was state of the art. It was still pretty good when I had it. Well, except that I could never use it, because I was always working to pay for it. It had a room that would protect me from tornadoes. It had one and a half kitchens. It was too much.
Hardway Finance Part 5
Hardway Finance Part 5
The end finally came in May of 2016. I had put the house up for sale in September of the prior year, but the realtor stretched things out to see where my divorce was going. Almost as soon as she had proof that there was no chance of anything going sideways with claims towards the house, it was sold.
I have no idea how to communicate the stress I was under trying to unload that house. Like I’ve mentioned before, I was never late on a payment, and if you’ve seen me, I clearly haven’t missed a meal, but by the end, the house was all bad memories, stress, and heartbreak. I spent roughly $115,000 in monthly payments in six years, plus at least another $8-10,000 in repairs, and when I sold it, after commissions I received a check for less than $2,000.
I once again cleared out almost every bit of my savings in anticipation for purchasing my new house. I bought all new furniture, replaced the stove, and got a dish washer and microwave (all cash/ layaway purchases.) I also purchased a central air unit, also a cash purchase. Once again, the year I bought a house was the year of a record income. This time, however, I didn’t max out on my mortgage. I maxed out on making it reasonably comfortable. The main bathroom is smaller than one of my closets at the old house. The ceilings are lower. There’s only one level, and the windows are older than I am. I got a 20 year mortgage, which I figure is a safe middle between making sure I pay it off “early” and also making sure that I had a small enough payment in case of a drop off in overtime.
Coincidentally, within five months of buying my cheaper home, work cut off all overtime for three months. Even with a car payment, for a car with a V8 that requires premium, I was able to make three trips to Chicago just to try new steakhouses. That car? I paid it off in 9 months (with some help from my tax refund and the sale of some stock.)
I’m also saving a lot more money. With my new lower budget, I am taking sometimes up to $500 per check and stashing it in long term savings, just in case things go really bad. It comes right off the top, before anything else. I’ve also started putting 15% of my income into my 401k, and have switched it to the more expensive (in effect not tax sheltered) Roth 401k which will be better for me in retirement. I went from a negative $50,000 net worth owning my old house to over a $100,000 net worth one year into having my new home. That net worth is going up fast, too.
One day, I did a search on what I paid for the stocks I sold to purchase that house in 2010. Had I kept them, I’d nearly have been able to pay for my current house. It reinforces everything I’ve heard about long term investing and “buy and hold” strategies. I’ve started again.
The end finally came in May of 2016. I had put the house up for sale in September of the prior year, but the realtor stretched things out to see where my divorce was going. Almost as soon as she had proof that there was no chance of anything going sideways with claims towards the house, it was sold.
I have no idea how to communicate the stress I was under trying to unload that house. Like I’ve mentioned before, I was never late on a payment, and if you’ve seen me, I clearly haven’t missed a meal, but by the end, the house was all bad memories, stress, and heartbreak. I spent roughly $115,000 in monthly payments in six years, plus at least another $8-10,000 in repairs, and when I sold it, after commissions I received a check for less than $2,000.
I once again cleared out almost every bit of my savings in anticipation for purchasing my new house. I bought all new furniture, replaced the stove, and got a dish washer and microwave (all cash/ layaway purchases.) I also purchased a central air unit, also a cash purchase. Once again, the year I bought a house was the year of a record income. This time, however, I didn’t max out on my mortgage. I maxed out on making it reasonably comfortable. The main bathroom is smaller than one of my closets at the old house. The ceilings are lower. There’s only one level, and the windows are older than I am. I got a 20 year mortgage, which I figure is a safe middle between making sure I pay it off “early” and also making sure that I had a small enough payment in case of a drop off in overtime.
Coincidentally, within five months of buying my cheaper home, work cut off all overtime for three months. Even with a car payment, for a car with a V8 that requires premium, I was able to make three trips to Chicago just to try new steakhouses. That car? I paid it off in 9 months (with some help from my tax refund and the sale of some stock.)
I’m also saving a lot more money. With my new lower budget, I am taking sometimes up to $500 per check and stashing it in long term savings, just in case things go really bad. It comes right off the top, before anything else. I’ve also started putting 15% of my income into my 401k, and have switched it to the more expensive (in effect not tax sheltered) Roth 401k which will be better for me in retirement. I went from a negative $50,000 net worth owning my old house to over a $100,000 net worth one year into having my new home. That net worth is going up fast, too.
One day, I did a search on what I paid for the stocks I sold to purchase that house in 2010. Had I kept them, I’d nearly have been able to pay for my current house. It reinforces everything I’ve heard about long term investing and “buy and hold” strategies. I’ve started again.
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