16 May

The Day We Watched $270,000 Leave Our Bank Account

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!

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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.

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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!

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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.

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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.

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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.

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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!

  • Wow, this is an incredible story. Congrats on your purchase!

    And thanks for sharing the story – so inspiring. Thank you!

    • Amanda

      Thanks for reading, Harlan!

  • Freedom35

    Very exciting. Congratulations. You guys move fast. I like that you are not afraid to leverage the realtors conflict of interest. Bummer to hear about no loan without a job, I was wondering if that is a problem to look forward to..

    • Amanda

      It wasn’t what we were expecting, but at the same time it’s a nice feeling to own the home outright and not be indebted to any banks. Just need to calibrate our lives to the new budget numbers!

  • deanerick

    Why didn’t you just say you were self-employed to get a loan? Your tax returns should show income, no? Say you are a day trader. Bankers are not the brightest.

    • Travis

      With enough tap-dancing, I think this may have been possible… but I had the feeling it would be a tough sell. From my research online, apparently it’s even difficult for self-employed contractors to get mortgages. They really scrutinize your paperwork and since I’m really not a day trader and we don’t even have an s-corp, I wouldn’t have any documents to appease their requirements.

  • Congrats on the home purchase! Ironically, I just wrote an article about almost the same amount of money coming IN to our account. We just downsized our home, and the cash deposit was for the equity we’ve built up over decades. We’ve now paid off our (smaller) mountain cabin (N. Ga, on the NC border!), and are living DEBT FREE! Love your blog!!

    • Amanda

      Thank you, Fritz and congratulations to you on your debt-free life! It must have been thrilling to see your asset become a large cash deposit in your account 🙂 Hope you’re enjoying life in the mountains as much as we are.

  • Mr CrazyKicks

    You seem to love all the same places I do. Asheville is the top of our list for places to try and bed and breakfast, it is a hot AirBnb market!

    • Amanda

      No kidding! Asheville has so many things going for it. We’ve been here less than two months are there is still so much to explore and discover. We’ll experience the tourist influx first-hand this summer and fall, see how crazy it gets!

  • Ryan

    Welcome to the Southeast! The outdoor possibilities around Asheville are endless. Ease on over to the Smoky Mountains one of these days when you have nothing to do. Worth the trip.

    • Amanda

      Thanks Ryan! So far we’ve hiked a couple times in the Blue Ridge Mountains close to the city, but we’ll have to take the longer drive into the Smoky Mountains. We want to become “friends of the Smokies” like the license plates say! lol

  • Lena

    That’s a really interesting strategy you have using the seller’s agent. The agent we work with refuses to represent both parties because of a conflict of interest. Don’t you worry that you were not getting the best representing? Or why not ask for 3% off the asking price and not use an agent at all? I’m fascinated when people figure out a way to use a system to their advantage. Well done and congratulations on your new home!

    • Travis

      Hi Lena – thanks! If the selling agent refuses to be a dual-agent (which seems strange), then you could always do the next best thing: ask them to refer you to another agent that works at the same brokerage as them. They’ll still have incentive to make the deal work (to hook up their broker, and to also hook up their co-worker who may also pay a referral percentage back to them for the hookup).

      Yes, when doing a dual-agency you have to assume the agent does not represent your best interests. It’s a little strange, but because of this conflict we went out of our way to find our own lawyer as well as our own home inspector instead of just using the agent’s referrals.

      If real estate here was less hot and more of a buyers market, then maybe we could have somehow pressured the seller to change their contract with the selling agent to simply exclude the 3% buyer’s commission and then just reduce the price… but I would suspect most selling agents would strongly object to this, but it probably depends upon the market!

      • Freedom35

        Did you look at Redfin (if they are in your market) or another buyers agent that would have refunded the commission back to you after closing? I like your idea of approaching the sellers agent to make them consider your offer. Was wondering if you felt that was a better option instead of getting a commission rebate after the transaction.

        • Travis

          Yeah, we did actually look into using Redfin, but they have no agents in Asheville (yet)!

  • Well congrats I guess! The price seems high for North Carolina but location location location. And I suppose with the 2 BR basement you can rent out you’re sort of buying an income property slash primary residence or a duplex (depending on how you look at it). That’s a genius idea by the way. 🙂

    My quick calcs indicate if you can net $45 per night with 50% occupancy then you can make the whole $270,000 generate the same 3% that it would have generated using a 3% withdrawal rate (ie $8100/yr). And you get to live in the house rent free (other than utilities, taxes, insurance, maintenance).

    Enjoy the next six months of nice weather! And then back Bruno up for destinations south of here during Nov-Feb. 🙂

    • Travis

      Thanks Justin! Naww, we’re gonna stick it out and stay here for the whole winter! We’re not wimps (yet). Compared to winter in Canada it’s gonna be glorious here!

      • It’s really not bad compared to those ugly northern winters. Colder than Raleigh I’m sure but you’ll see the grass and pavement more than you see snow. The 3 months of “winter” is also nice if you’re into snowboarding or other winter sports.

        And “the south” being the beach or Florida isn’t far away if you need to defrost. 🙂 We try to get away for a week each winter just because.

      • ABC

        Where can I find that reading material?

  • For how long do you plan to stay in Asheville, North Carolina? Apologies if you have already shared this in some other post. I looked around but could not find it 🙁

    • Amanda

      Not sure at the moment, we’ve just arrived!

      • You don’t plan to stick in Asheville for very long? If no, will you rent out this place, when you decide to move on?

        • Amanda

          It will definitely be our home base for the foreseeable future. We’re planning on renting it out while we travel for a few months of every year.

  • Congrats! This was not a turn I expected to see you guys take. Are you going to look for other work besides the Airbnb option to build the portfolio back up? Interested in hearing more about this decision.

    • Amanda

      Thanks Fervent! After a year on the road, we’re excited to have a home base for a while. No plans for additional work at the moment. We’ve thrown around some loose budgets and we’re pretty certain we can stay between 3-4% of our new/lowered portfolio. Of course, we’ll continually re-assess and share how it’s going.

  • The Jolly Ledger

    Maybe you addressed this, but why not just rent and keep your money in the market? Turning the property into a part-time investment seems like a good idea though.

    • Amanda

      Hi JL, we’ve been renters for the past 7 years and genuinely missed being home-owners. Freedom to do what you like with the place, no fear of rent increases, etc. We bought in a price range that we were willing to dedicate to a single piece of real estate. We’ve budgeted living modestly off the rest of the portfolio, which will continue to grow.

  • Ginger Kowal

    welcome to the Avl! found you through MMM, happy to welcome you to my hometown 🙂

    • Amanda

      Thanks Ginger! Super excited to be here 🙂

  • Keith

    That looks like Shining Rock?

    • Travis

      Good sir, you have an excellent eye! The last picture above is indeed Shining Rock in the Pisgah National Forest. We want to someday hike Mt. Mitchel just north of Asheville, but it sounds pretty hardcore!

      • Keith

        There are many trails to Shining Rock. Try them all for a challenge.

  • Welcome to North Carolina and congratulations from fellow mustachians in Raleigh!

    • Amanda

      Thanks Finance Clever! Always a warm fuzzy feeling to be among like-minded people 🙂

  • Mark

    With how healthcare works (or doesn’t depending on who you ask) in the US, are you able to afford health insurance on your new budget? If so, what type of coverage do you have?

    • Travis

      Hi Mark, good question. I wrote a bit about our qualifying for ACA health care coverage in this post here: http://freedomwithbruno.com/early-retirement-with-zero-income-taxes/

      Basically, we’re aiming to have a MAGI of $31,460 for the year, which means we qualify for a subsidized health care plan with Anthem Blue Cross that costs us $177/mo. So far, we haven’t had to use it yet!

  • Craig Hewitt

    Love it! What made you choose Asheville over other similar cities in the area? We have it on our list, but along with Chattanooga, Greenville, and a few others in the area. Choosing is so tough! Congrats on the move and on the house. Great choice to invest I think.

    • Travis

      Thanks Craig! We developed a short-list of cities and then visited each one to make our decision. Choosing definitely is tough! We made another blog post about it here: http://freedomwithbruno.com/hunting-best-early-retirement-city/

      • Craig Hewitt

        Awesome. totally makes sense. our process hasn’t been quite so thorough but being from the SouthEast we kinda know a lot of those places already. If we end up back in the US we’ll probably settle in Chatty…great town, love the no income tax in TN, and the outdoors scene there is amazing (which is really important to us). congrats again, very cool to read about.

  • Welcome to NC (from Raleigh as well)! Asheville is one of our favorite places to visit, so I’m sure y’all will have a blast there! Be sure to hit the Outer Banks and Ocracoke if you haven’t already.

    • Amanda

      Thanks Doug! It’s been over a decade since we’ve lived on the East Coast and we have a ton of bucket list items that we’ll want to hit over our time here. Outer Banks and Ocracoke are on the list! Any and all recommendations are welcome!

  • David

    Asheville seems like an amazing city. I looked on Zillow and it is much pricier than I would have expected. I guess you have to pay a premium though to live in such a nice location.

  • Ben Hackney

    Are you craft beer drinkers? If so Asheville is the beer mecca of North Carolina. You can hardly throw a stone in the downtown area without hitting not 1 but 2 breweries. Enjoy!

    • Amanda

      Some new friends we’ve made have been introducing us to the local brews. Best part is picking up single bottles to try from the grocery store. If this habit keeps up, we’ll have to look into brewing our own to keep the costs down 🙂

  • Wow, congratulations, you two! I’m excited to hear how you like Asheville; I’ve been wanting to get there for a long time. I think we may swing through in November. How crazy is that about the banks’ mortgage ineptitude without an income? With interest rates so low, I’d be tempted to make a few phone calls to see if someone could give me a full-time job for a month just to get the approval!

    Are you planning to do any more traveling this year, or just staying settled in your new home for a while?

    • Amanda

      Let us know about November, Matt! We’d be happy to host The Resume Gap 🙂 We have a large bucket-list of DIY projects we want to accomplish here at home, but we’re throwing around the idea of driving back up North in the Fall. We’ll see where the list is at when the time comes! Happy travels.

  • Tiffany

    I’m curious, how did you save so much $, while spending $2200/mo on rent in SF and making $100k? Were you simply strict in every other aspect? Any REALLY valuable tricks?

    • Amanda

      On average excluding rent, we were spending about $21,000/year back in Oakland. With rent, it was more like $47,000. Anything leftover after taxes was invested and not touched.

      We were so focused on reaching our goal that we made changes to all aspects within our control: drive less/bike more, not using dryer, keeping heat low in winter, not using AC, making our own food, buying ingredients in bulk, clothing swaps and Craigslist everything. Biggest “trick” would be having all your savings invested, instead of sitting in a bank account. It’s really easy to open a Vanguard account online and move money over from your bank any chance you get.

      • Tiffany

        Amanda,

        Thank you for the quick response! Wonderful to know. Thank you thank you thank you. We aren’t looking to retire completely, but, instead make a living by doing things we love – so, living minimally. This blog is very inspirational and helpful! Thanks for paving the way.

        Tiffany

        • Amanda

          So glad to hear it! Spending time doing exactly what you want/love should be what life is all about 🙂

  • Ricky

    Good choice I’d say! I’m in Asheville too and decided on it after visiting San Francisco, Portland, and Seattle. Those areas are definitely nice, but Asheville is just as nice and is also much more tolerable in terms of both size AND people. It has all the big city amenities, plus easy access to outdoors/hikes. I see construction everywhere, so I think buying property here now is a good long-term play, even with all the appreciation in the past few years. Asheville can only fit so many people – the city limits are fairly small and lots have mostly been bought up. Sounds like you did OK @ $270k walkable to downtown.

    • Amanda

      Hi Ricky, I think it’ll be a good investment too! We’re happy to be here. There were certainly cheaper properties outside the city limits, but we’re hoping the location adds to the attractiveness when renting it out in the future.

  • Hannah Ray

    hey guys! Congrats on your new home 🙂 please share pictures when you move in!

    • Amanda

      Hannah!! Thank you 🙂 Also, thank Taylor for posting about the Habitat for Humanity Restore on your blog – we had never heard about it before and it’s been a gold mine 🙂 We’re just a short 1,000 mile road trip from each other! lol

  • LeRainDrop

    Congratulations, Amanda and Travis! You guys look right at home there 🙂 The last picture reminds me of when I lived in Charlottesville — ah, the Blue Ridge Mountains!

    • Amanda

      Thanks LeRainDrop! Between the Blue Ridge Mountains and the Smokies, there is so much to explore around here 🙂

  • Jody Whitehurst

    I just visited to see if you had an update about buying you new home. This is a fun read. Thanks for the link and respect. I look forward to treating you to a fine craft beer before too long!

    • Amanda

      Thanks for checking in, Jody! We’ll catch you for a beer or a coffee once we’re moved in and are walking distance from most things 🙂

  • K Mueller

    welcome to NC.. I had a similar home buying issue this year but luckily my boyfriend hadn’t quit his job yet,,,they really don’t like pensions or dividends or any income stream other than a job…makes no sense to me and I wouldn’t have bought had we not been able to swing a deal with the credit union.

    Can’t wait to read more, as we are in similar situations but due to my BFs monster appetite and deep love of craft beer, he’s still putting in a few hours to pay for his unlimited food and drink budget. .

    • Amanda

      Thanks K, am starting to learn about this WNC craft beer addiction! It may take hold before we know it 🙂

  • Stephen Thomas

    Financial troubles ahead. I’ll give you about 5 years before you are forced to return to work or deplete a substantial amount of your assets.

    • Travis

      Hi Steve, I accept your challenge – I’ll see you in 5 years! In the meantime, I’d encourage you to read more about the Trinity Study (https://en.wikipedia.org/wiki/Trinity_study ) and also take some time to play around with FIRECalc (http://firecalc.com ) Note that FIRECalc gives a 98.8% chance of success with a $1M portfolio and spending $35k per year (and this tool doesn’t even include the possibility of reducing spending during down-market periods).

      • Stephen Thomas

        I wish you all the luck in the world. But hopefully you are at least 65% equities.

        Are you going to cut your income in half over the duration of the next major market downturn?

      • Stephen Thomas

        I’d like to talk with. Are you available by phone?

        • Travis

          Hey Stephen, I’ve sent you an email.

  • Rob

    Apologies if you have addressed this already. What are some of the logistics of living/buying in the US given that you are Canadian?

    • Amanda

      Hi Rob! Anyone can buy a house in the US, but Canadian visitors are limited to a 6-month stay (think snowbirds with homes in Arizona or Florida). We have permanent residency (green card) status that was acquired back when we were employed. These can be renewed every 10 years indefinitely. We will likely apply for US (and thus have dual) citizenship in a few years.

      • Rob

        Ah, thanks. Interesting that you can renew your green card while being unemployed. As a fellow Canuck, I’m always intrigued by the endless opportunities (and climate) in the US, but assume that it’s mostly a non-option for us.

        • Amanda

          It is a great situation – permanent residency is not linked to any employment status. Canada and the US have a relatively straightforward process for cross-border employment visas if you’re in a technical field, which is what we did initially. Like you mentioned, we felt that the job opportunities with higher pay and warmer weather was worth the move.

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