I alluded to some budget surprises in our June 2025 Family Budget Update, but I wasn’t quite ready to talk about how our finances would be changing yet. I was still alternating between shock, fear, excitement, and dread.
Frankly, I wasn’t sure how to tell you all that we chose to take on new debt. We’re calling it an investment, and in the long run it will be, but right now it just looks like debt.
I know enough to be scared of debt.
After four years of my husband’s JD/MBA program we had six figures of student loan debt. While in law school, we lived simply and frugally and tried to make prudent financial choices. During that time there wasn’t much we could do about the debt since Mike was going to school full time and working part-time, and I stayed at home with our young children. I didn’t look at the debt numbers, but focused on what I could control by spending as little as possible. After law school when I finally looked at total of more than $144,000 in debt I was absolutely sick to my stomach. I felt the crushing weight of that debt and determined to get rid of it as soon as possible.
I also know that we can triumph over debt again.
And I know it will be a lot of work.
We went to some extreme measures to pay off our student loans over a decade ago (which is how this whole website got started!). Our situation is completely different this time around, but I’m willing to take you along for the ride.
I’ll start by filling you in on all of the details.
Finding an investment property
We weren’t in the market for property at all, at least I wasn’t. I was totally caught off guard when Mike asked me, “Wanna buy some beautiful land with a dumpy house that just went on the market?” I hesitantly questioned what he had in mind and where he got this random idea. He told me where the property was and told me that he has always admired that property and would love to own it, build on it, and possibly retire there someday.
The acreage had a mobile home that we hoped was in better condition than the online pictures showed. Sadly it wasn’t. It was actually worse! The listing conveyed the place as a mobile home in need of repair, but what we found was a mobile home in need of demolition. Shockingly there was someone living there (for free). To us it was uninhabitable, definitely not rentable. Instead of an asset, this home would end up being a liabilty that would cost us additional money beyond the purchase price.
To further complicate things, there is an issue with the zoning that makes it impossible to do anything but replace the home with something of the same footprint and square footage, at least for the time being. Mike, who loves to dig into issues like this, is pretty hopeful the zoning issue will be ironed out in less than a year.
Between the house which would need to be demolished, the tricky zoning issues, and the sale requiring a cash payment, Mike felt that the buyer’s market would be pretty small and we could get a good deal for some beautiful land.
When I talk about “deals” it’s usually not in the hundreds of thousands of dollars, so to me it still feels like a lot of money.
Funding the property
The property cost us $210,000.
In addition to the purchase price of the property, we would need additional cash to demolish the old mobile home and more again to buy a new mobile home or build something that we could rent out on the property to help it pay for itself. We didn’t have $210,000 cash on hand, let alone $210,000 plus demolition costs plus buy/build costs. If we were going to do it, we would need a loan.
Now, if we had to borrow money on two separate occasions (first to buy the land, then within the next 12 months to buy/build a house) we would have been given a really terrible interest rate the second time. Lenders need a lot more interest to feel comfortable being a lower priority loan, so we opted to take out all the borrowed cash at once. That probably saves us something on interest, but more important than that, it allows us to act fast if we find a good deal on a replacement mobile home.
We decided to take out $300,000 home equity loan, with our own home as collateral, to pay for the property and have $90,000 to work with as a our initial buy/build fund. The first priority with that extra cash is to set up something to generate rental income and help with the hefty monthly payment while we wait for the zoning issues to be resolved.
In the meantime, the “extra” money is sitting in a high yield savings account earning about 4% interest. That doesn’t cover the 6.65% interest we’re paying on the borrowed funds, but it’s certainly better than leaving it in a checking account or a normal savings account!
Our plan with the property
We aren’t sure what our long term plan is, but we’re pretty confident it’s not a long term money loser. If everything else went wrong, we could even just hold it and resell later after the rezoning is complete. The property, which already has a well, septic tank, electricity, and permitted residential footage, will be much more desireable than when we purchased, even without a house.
But right now our plan is to hold onto the property for the long haul, as a long-term rental, and possibly our own retirement home.
Our initial idea is to find a used manufactured home on Facebook marketplace and pay to have it moved to the property. That’s not our only idea, but we have some time while we wait for the zoning to get figured out.
While we are figuring out the permanent house situation, we will be renting the space as an RV pad. We found a renter through a friend who will pay monthly rent and live on the property temporarily in her RV. It seems to be a win/win situation. She has a place to live and reasonable rent. We have someone on the property so it’s not vacant. We still retain our access to the property so we can work on improvements while we wait.
Our plan to *pay for* the property
I told you how much we borrowed, but you probably want to know what that looks like as a monthly payment.
Our current payment for our regular house (where we live) is $2,453.
Our monthly payment for the new property is $2,339.
So essentially we just doubled what we’re paying for our mortgage. Yikes!
We went through the budget to see what funds could go toward paying a second mortgage until we had renters to offset or cover the mortgage. Here’s what we came up with:
- We used to just round our mortage payment up to $3,000 every month so we could put roughly $500 extra toward the principal to shave years off of our mortgage. When we bought the new property, we switched our home mortgage back to the regular payment. Because they payment was adjusted a little to manage escrow, it freed up $550 each month.
- Mike changed his retirement withholding at work. He still pays $950 into the defined benefit pension fund, but stopped contributions to his 457 plan, which freed up $400.
- The Ukrainian family that we sponsor (who has lived for free in the apartment on our property for two years) started paying $500 per month in rent.
- The Ukrainian family started paying for their own cell phones which saved us $75 each month.
That only adds up to $1,525, but that’s more than I initially thought we could pull together. We will need to find money from other places in our budget to fully cover the second mortgage each month. Using the “extra” that we had borrowed will be a possibility if absolutely necessary, but it will leave us less for finding a rentable place, so we will try to avoid it.
Our first mortgage payment was September 1st. We came up with $2,000 in our budget, so we only had to use $339 from the “extra” cash we had borrowed.
We plan to get the existing mobile home torn down and hauled away, and get the RV pad set up so we can have an initial rental space ready in October. That will help a lot too.
I am really looking forward to having this property generate enough income to cover its own cost!
Join us on this adventure
Whether you’re looking for motivation, accountability, or ideas for smashing your own debt, you’re interested in the financial details of our investment property, or you’re just plain curious (or maybe you even think we’re absolutely nuts), join us on this new financial adventure.
In my next update, I’ll share the process and cost of demolishing a double wide mobile home, how we saved money in the process, and what we learned.
