As early as 2007 I can remember Travis saying he wanted to live somewhere with more trees. We were living in Calgary, Alberta at the time, where the Great Plains of North America meet the foothills of the Rocky Mountains. We set our sights on Northern California and thoroughly enjoyed our time there until just last year. 10 months of traveling southbound into the jungle climates of Central America taught us that we longed for cooler temperatures – but not long winters. Say hello to our newest friends: the trees of the Appalachian Mountains of Eastern North America!
Bruno’s last long drive for a while; it took precisely 24 hours to drive from Pictou, Nova Scotia back down to Asheville, North Carolina. We split this into 3 driving days with stops in Augusta, Maine and Harrisburg, Pennsylvania. There is a lot of civil war history around these parts and we vow to return for an in-depth analysis to supplement our Canadiana upbringing.
Bruno seems ready to have a driveway to call his own, and with interest rates still hovering near 30-year lows (currently ~3.6%), leveraging our money to buy an affordable home in North Carolina sounds like a good idea. Acknowledging all the risks of borrowing money, we felt it still made sense to try and get a mortgage, while keeping our money in the markets providing us with a long-term hypothetical 7% return.
Upon attempting to execute this fabulous plan, we immediately hit road blocks. To secure a conventional mortgage at the low rates mentioned above, apparently one needs to have a “real job” – a permanent, stable source of income – regardless of what your net worth is. There is something called a Portfolio Loan, but it’s not very common and the interest rates seem to be higher making the whole thing less attractive.
After discussions with several mortgage brokers and a discussion on whether we should try to smudge our year-old final paystubs, we gave up. Whatever happened to the glorious pre-2008 housing crash days when NINJA loans (no income, no job, no assets) were free for the taking!? Ah well, thanks to the new (inflexible) banking rules, the decision was made for us: we’re buying a home with cash!
Emotionally, watching our nest egg shrink by a quarter-million dollars in a single day evokes a certain amount of distress and nausea. The motto of our budget, to limit annual spending around “3-4% of the portfolio” will now go from 3-4% of $950,000 to 3-4% of $680,000, which is $20,400-$27,200/year. A guaranteed roof over our heads means rent payments go away, although of course there are still property taxes, utility bills, and maintenance, on top of all our usual expenses.
As preachers of a diversified portfolio, having almost one third of our net worth invested in a single piece of real estate is also slightly unnerving. We previously had 6% of our portfolio dedicated to REITs (Real Estate Investment Trusts), which gave us exposure to both residential and commercial real estate all over the country, but now we’re going to swap these investments for our new home in Asheville.
Ready to start house-hunting and with lots of time on our hands, we made the decision to not to use a Buyers Agent. Each home we were interested in was thoroughly researched online. Tools like the Bird’s Eye View from Bing Maps and Street View from Google Maps were helpful to get a feel of the street and neighborhood, and once we were sure we wanted to see a property, we’d call the listing agent and say something like: “Hi there, we’d like to see this property, we’re cash buyers and if we buy this property we’d like to use you as our buying agent.”
This creates a wonderful conflict of interest for the real estate agent, since it means they would not only get the normal 2.5-3% selling commission, but they would also get the 2.5-3% buying commission as well – double their money for almost zero additional effort! No matter how honorable and ethical this person is, it would be difficult to ignore their natural preference to want to close the deal with us instead of with a different buyer. In our case, we ended up working with a fabulous agent who in the end actually took a reduction in his commission in order to close the deal.
Weighing how much we felt we could handle in terms of renovations, we wimped out and chose a home that was relatively new. Constructed in 2002 without a single upgrade since, it’s in pretty good shape. The inspection revealed, as they often do, an endless list of minor repairs, optional fixes and cosmetic defects that we can space out over our time there.
We chose the home for the location and the layout. It is walking distance to downtown, the streets are bike-friendly, and the area is lively city-living. The layout is what pushed us to pay a little more than we budgeted. Two bedrooms and a full bath in the basement have a separate outdoor entrance that is optimal for accommodating guests. With that we’ll try our hand at being Airbnb hosts and have an occasional income stream.
Although we closed the deal on our new home, the property still has existing tenants in it until July. Their rental income will help us pay for the short-term rental we’re currently living in, so even though we have to wait there are some benefits. What to do in the meantime? Explore the city’s farmers markets, garage sales, and endless national parks, start reading up on local volunteer opportunities and sports leagues. In other words, fill each day with anything we want!