Condo Payoff

Privileged white guy gets incredibly luck and brags about it.*

While I haven’t paid it off yet, I know I’ll want to do a thorough write-up of it, so it seemed great to just get started on that now.

Motivation.  In some ways, paying off the mortgage is an arbitrary milestone.  It involves earning and not spending a sum of money equal to the loan amount.  I could have focused on a different milestone – for example, hitting $500k net worth.  The person who reads this as an Aesop’s fable w/ the moral of sacrifice-deeply-to-pay-off-a-home ASAP is missing the point.  Paying off my mortgage is perhaps a good milestone to writeup because it easily packaged.  We count down and there is a clear ending, a zero, a big fuck you to B of A.  The moral of the story is not about houses, it’s about the value of introspection, consistent planning, and constantly seeking opportunity over a long period of time.  Everybody has challenges and opportunities, and we can move ourselves in a good direction by recognizing the former but focusing on the latter, seeking out inspiration by understanding the successes of people before us.  I’ve listened to more debt free screams in the past 3 years than I can remember.  Everybody has a good next path that might seem a little too difficult without the right attitude.

I.  The Numbers

  • $153k.  Originally tried for an FHA loan (3.5% – $5,355 + other closing costs).  Complex wouldn’t qualify due to low reserves after repaving project.  Qualified the following year.  I needed 20% down payment.  I had the $6000 to close an FHA deal, and I tried my best to do the deal that way.
  • $40k from parents ($15k from stepdad, $20k from mom).  I offered my parents a proportional share of the increased value upon sale of the property.  As an investment, it has worked out very well.
  • $9,000 to pay off mortgage insurance company.  This was a shitty part of the deal I couldn’t avoid and significantly inflated closing costs.
  • $122k 30 year at 5.875%.  I didn’t have a great credit score, both because I was young and because I had simply forgotten to pay a medical bill from college (~$250?).  I don’t think I understood the bill when it came in the mail, and I never heard from collections.  I chose a 30 year because it would allow me to rent out the property and pay all the expenses from rent, so if I went back to school I wouldn’t have a big financial obligation.
  • Refinanced 5 years later to 10 year at 3.125% on $114k + $3k closing costs = $117k).  Five years later, I still owed 93.4% of the loan balance.  I wasn’t making any progress, and most of the money I paid every month was interest, not principal.  My income had increased, my credit score had increased, and mortgage interest rates were way down.  I could save several hundred a month in interest by refinancing, and the resulting minimum payment would still be a comfortable percentage of my take home pay.  This was primarily a function of choosing a smaller property in the first place.  I started with an income of $105k… a $250k property would have been in my reach if I’d been able to get an FHA on it.  That doesn’t mean it was a better idea.
  • Income from 2009 to present by year: $105, $85, $115k, $115k, $135k, $139k, $147k, $159k, $159k.  There are many people who say “do what you love.”  And I say, I would love to work for myself, and this is what I need to get out of the way to make that happen.

II.  The Reasons

  • family history.  mom’s father was a surgeon.  dad’s father was in prison.  desire to establish myself not just as the natural consequences of my mom’s family.  desire to establish myself so that I’m never sleeping in my car like my dad.
  • turning 29.  normal signs of aging – hair loss, weight gain.  realization I will actually turn 30 and be old.  $16k of CC debt and no clear path to self actualization.
  • health – Grandfather got alzheimers.  Need to build wealth to prepare for that possibility.
  • business.  Lower risk and fixed costs to increase runway.
  • investing in the market with borrowed money is a fake hedge.  The returns provided by the stock market from leverage money aren’t that great.  returns from starting a business are better, so decrease the business starting risk.
  • Paying it off is a relatively small part of my expected income

III. The Lessons

  • consistent, repetitive planning works, even with mistakes.  Consistently 20% off annual goals.  I could have done it earlier, but 32 w/ no debt and $500k net worth isn’t bad.  I overpaid for vacation, furniture, yo-yos.
  • relationships matter a lot.  money can’t buy happiness.  spending time with people is cheap and as good as it gets.  trying to do something like this completely alone will drive a person crazy.
  • behavioral planning matters a lot.  This POV is almost absent from most financial planning descriptions.  Getting down into the nitty gritty of my decision making has been more important than the numbers.
  • exercise is a great antidepressant.  It is a better alternative to alcohol.  Its impact on mood is predictable and free.
  • audio books are your friend.  Helps you maintain the brain washing and learn about boring investing details.
  • Lifestyle.  The level of sacrifice was never meant to be permanent.

IV. The future

  • networking.  spend more of my time in social situations.
  • helping others.  not necessarily charity, but needs to be planned and deliberate.
  • pleasure.  I like tacos.  I want to visit Thailand, the pacific northwest.
  • Investing.  Need to save up for runway or start buying rentals somewhere.
  • risk conditioning.  others have started businesses w/ much less than me, but I also need to balance that with having a sensible runway.  i still haven’t wrapped my brain around this yet.

V. The Bullshit

Having already read responses to Sean Cooper’s payoff, naturally I can expect more of the same.  Haters are gonna hate.  As a millennial (or any literate American in 2017), I am very familiar with the great and ever expanding peanut gallery of defeatist bullshit.  Rather than react to it when it comes up, I’d just like to address these perspectives ahead of time.

Let’s review some of the flavors of bullshit found in response to Sean Cooper’s story.

serial cynic

Well done, Mr. Cooper! However, very few people have the physical stamina to work that many hours for that long. Also, having skills that allow you to work from home shouldn’t be taken for granted as not many people have these either.

Just trying to inject a dose of reality for those who think anyone can do this.

The “you probably can’t do it” attitude.  This attitude presumes that a person cannot learn new skills.  It also presumes that a person must work very long hours (rather than smart hours in a particularly profitable area) to get the money to payoff the mortgage.

Jamie Robins

There is something missing in this story. Cooper would have to have applied a big lump sum or two above the salary. Even it he put 100,000, his full salary before taxes on the mortgage, the math does not work.

Robert Loblaw

Age 27 buys a $425K house with $170K down? Interesting back story I’m sure.

@Bare Facts

Absolutely. I don’t believe the story. Quick math confirms that at age 30 there is no way one can be debt free with $425k price tag on his house without help.

Hi

@Jambo

And that’s the true story the banks don’t want you to know. A helping hand is far better then hard work!

Dr. Philosophy

If you stop and think about it this is not shocking if it’s true. Cooper makes net 100K/yr. Anyone who makes that much money has a decent shot at paying off a mortgage early if they make it a priority. Nothing to see here, folks.

The more worrisome part of the article is that there have been questions about Sean Cooper’s honesty in reporting his financial progress before. See his updates on the Million Dollar Journey website for details. Some folks who have looked at Cooper’s progress have pointed out that at times the numbers don’t seem to add up.

I for one would like proof he actually paid taxes on that rental income and freelance work, some of which he claims (at least on the internet) he is paid extraordinary amounts of money for.

POST MY NAME and I’LL Sue for Endangering me and My kids!

Wow it must be hard when you only start out with $200 000 as a nest egg… [Sar] Did this include a nepotistic job as well? This is a misleading story at best, due to the massively downplayed DownPayment that most people will never have unless they rob a bank or three. Give me $200K and I bet I can buy a house as well…

The “he must be a fraud” attitude.  Any missing detail is evidence of lying and fraud.  People who succeed must have done it through deception.  This has kind of been a surprise for me in life.  The message I got growing up was that hard work and sacrifice lead to success.  But hard work and sacrifice also lead to people accusing you of being a fraud.

Iamhere

He fails to realize that there are still gas bills, hydro bills, maintenance bills, repair bills, water bills, property taxes, etc – it is still a life sentence to me. I prefer to rent – much easier. No one is truly debt free with bills and who cares.

The nihilist.  You will always be in debt and there is no point to trying.

Power Point

working three jobs, living in a basement apartment, spending every spare minute on a computer…the only wife I see in his future is a mail order rubber one

The “his life must be miserable.”  It is impossible to be happy while working hard and not spending money.  For sure, parts of sacrifice are not fun.  But they aren’t meant to be permanent, and they leave a person transformed in such a way that future expenditure is even more pleasurable.

CVS

My mortgages could be paid off if I sold my investments but why?

Mortgage rate = 2.25%

Average Investment return (stocks/rental properties)= 10%

Netback= 7.75%

da_guy2

Maybe he should have done the math and realized that in our current financial climate of low interest rates he’d have been better off investing all that money rather than putting it towards his mortgage.

Hotspur

He saved 2% interest on money borrowed. Meanwhile the TSX S&P returned 10% to investors during the same time frame.

Everyone should be aware that this is a psychological ‘debt-aversion’ move and not the way to maximize net worth.

The “he should have invested in something else instead.”  These people generally believe that the road to wealth is through investing in public equities.  They ignore that he might have moved out of his home and rented the whole thing out as an investment, or that leveraged investments (e.g. maintaining mortgage debt to invest more in the stock market) have increased risk.

musketeersplus2

Yet another privileged white man bragging about how he ‘did it on his own’. But did anyone notice how big his down payment was? Or the fact that he has a $75k+ full time job?

The average person in this country earns less than $50k/year. That means that there are a LOT of people earning less. His kind of down payment, never mind paydown is impossible for a regular person.

The “he paid for it with his skin color.”  These people believe that skin color determines a person’s outcome in life.  Like a nihilist but for brown people.

Sagewisdom

So this man was lucky to have a full-time well paying job, a large house with a basement that he could live in and rent out the upper side to gain a fat income, and have the luxury of being able to write comfortably.

Many, many millions and millions of people around the world are working 10 jobs, living frugally, making the utmost of sacrifices and are still not able to make ends meet. Firget about even having a dump to live.

Where are their stories?

Binder Dundaat

Although hard work may be the ticket to financial freedom in this case, luck has also a lot to do with it. Put down your ‘hard-work’ colored glasses for a sec and try looking at all the things that luckily fell into place for this guy. What if he was married? What if his wife was suddenly struck with a disability? What if he was? What if the degree he received wound up being for something that recent cutbacks just eliminated? What if he kept getting tenants from hell? What if the employment where he lived went down?

There are a lot of what-ifs. So it kind of makes me sick that these people keep bragging about their good fortune and then wave it around in front of the people who have had it a lot rougher. Kind of like making fun of a disabled person because you’re healthy, isn’t it?

The “he was just lucky.”  Luck determines everything about a person’s life.  Computer skills fall from the sky, as do job opportunities.  This attitude derives in part from human psychology – that our minds are not creative enough to imagine other possibilities.  For example, had my condo not been cheap, it presumes I simply would have done nothing rather than working a deal and investing money some other way.  It presumes that if both of my parents had been poor, I simply would have done nothing rather than focused harder on networking with people who have wealth I could leverage.

Wayfarer

This is an interesting “freak” story but is not representative of the great majority of people, especially if they have children. But if it were you may be sure the price of houses would go up because there is no way banks would take a loss on their outrageous profits in a system where debt is sold as goods – as in derivatives.

The “average determines your outcome.”  People keep citing average income as a given and that the average person cannot increase their income beyond the average by making different choices.  I.e. they can’t reduce the average levels of inefficiency in their life.

cods

The funny thing about this article is that it says nothing about if we all lived this way, with no vacations, no restaurants, no extras, or unnecessary expenses. The economy would implode. I’m on board with this guys frugal living and try my best, but it’s a funny thing as to how much of our economy is run on wants rather than needs.

The “if everybody did this, the world would end.”  This also comes from a lack of imagination.  It ignores the historical benefits of humans investing in the future.

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