Well, this is awkward. We just made a decision that is going to change our financial plan forever.
We feel like such hypocrites. For 6 years we’ve been slogging away at our student loans, throwing as much money at them as we can each month in order to become debt free. We’ve championed the virtues of frugal living to our friends and family, and in July 2016 we even started this blog to bring our views to the masses.
Our plan had been to live frugally, keep expenses small, keep loan payments big, and get out of the student loan vortex ASAP.
Did we just ruin it all?
First, the Good
As the title suggests, we just had a successful investment pay off. Four years ago, we put about $7,800 into this investment and recently we cashed out with $35k. Our investing strategy is squarely “buy-and-hold” and our intention had been to do just that with the investment in question here. Instead, we saw an opportunity to make money and we took it. All told, our profit was about $27k, give or a take a little, and all TAX FREE.
When I say we “saw an opportunity,” I mean exactly that: It was not on our radar – like, at all – to cash out of this particular investment when we did. A perfect storm of things happened that found us looking at selling as viable.
So what investment are we talking about that gave us this great return in four short years?
You guessed it: We sold our first house.
Thanks to home values really picking up steam in our particular market, we were able to make a sizable chunk of change on our primary residence. We happened to have the right size of house (small – 2 beds, 1 bath), in the right kind of neighborhood (good, not great) at the right time (not a lot of houses on the market). It also helped that we found the perfect buyers and had a handshake deal before they even finished their walk through.
I repeat: We made $27,000 on this deal! Depending on how you figure out our return on investment (and yes, we know it’s complicated with a primary residence, but let’s keep this simple) we made about 45% annualized return on our money! Everything’s gravy, right?!
Well… maybe not so much.
Now, the Bad
Unfortunately, with a kid and cat, being homeless or living with the in-laws long-term is not a realistic option. So all that profit we made? Instead of going towards the student loans and putting a big dent in them, it’s going towards a new house.
This was never part of the plan. We were going to pay off the student loans and keep living in our cozy little house (which we really loved) and have a small house payment until we were free and clear of our debt and really ready to go for that dream home.
Instead, all of a sudden we were running numbers that showed our mortgage was about to rise by $1,000 a month.
This hadn’t been in our plan.
The Dirty Truth
We wish we could say that a great opportunity to sell our house arose and we had no choice, which necessitated buying a new one. That would make our decision to do-so easy and largely defensible. Of course, that would be too clean.
The truth is, we had to sell our house because we bought a new one, not the other way around. Our purchase began with an innocent email from a realtor we know: “New house on the market; want to take a look?”
We are open-house people and enjoy seeing what’s out there all the time to get ideas for our future dream home, so we figured, why not? No harm in looking, we said to ourselves. It looks cool and we may get some ideas from it. Anyways, It’s too expensive, so no pressure!
You know the rest of the story. We looked. We liked. We offered (less than we thought they’d take). They… accepted?
Whoa. Stuff just got real. In the matter of a few days, we were suddenly making plans to put our house on the market and figure out how we were going to pay for the new one. Also, there were so many things that had to go right for the purchase to actually happen that in the back of our minds we thought it may fall through. As the weeks inched closer to closing, though, we realized that this was actually happening.
No, this hadn’t been in our plan at all.
So Did We Ruin Our Financial Plan?
Ruined may be a strong word, but we absolutely changed it forever. As we mentioned, our mortgage went up by about $1,000 a month. That’s to say nothing for the extra expenses in utilities and upkeep we have. Not to mention that we stopped paying extra on our student loans to save money over the three months or so it took to go from offer to closing.
If we’re going to have our loans paid off by August 1, 2020 we’re going to have to come up with the money somewhere to make up for these changes. That may or may not be possible, and we’ve resigned ourselves to the fact that our payoff date may have to be pushed back some. If we pay $1,000 less on our loans (due to the mortgage increases), that pushes our payoff date back by about 6 months.
Will that tradeoff be worth it? Time will tell.
We had always imagined that when it came time for us to purchase a new house it would be a largely stress-free endeavor. We’d be out of debt and money wouldn’t be a major factor. We would get to be picky about the small stuff. Of course, that’s not the way it’s worked out.
Still, let’s focus on the positives for a minute. We believe we bought a great house. It’s in a wonderful neighborhood, and in a great location in said neighborhood. It’s a house we can grow into. It may even be our “forever” home. Plus, even with the extra space we have (and the extra mortgage to go with it) we still kept the mortgage to just about 1X our annual income. In other words, we don’t feel like we went crazy.
We hope we made the right decision. There were some sleepless nights, and more stress than we wanted throughout this process. It was a perfect storm of finding a house we really liked and having one to sell that was in the right market.
Have you sold a primary residence for a profit? Purchased a bigger house than you needed before you were ready? Did we make a bad decision? Let us know in the comments!