You may remember I ran a series of failure stories earlier this year, after we announced our decision to come home. Making our failure public was scary, but ultimately an incredibly rewarding experience. I was overwhelmed by the support that came forward, but more than that, I was totally blown away by the stories people shared.
Emma was one of the people I met at a blogging workshop in Barcelona. I felt an immediate connection as soon as the native New Zealander shared the story of carrying her wedding dress at the bottom of her backpack for three months, until it was finally time to throw it on. My kinda girl–beautiful without a fuss!
When Diego and I decided to come home, buckle down and save the money required for our boat first, rather than finance it, Emma was a big supporter. She and her Irish husband are no strangers to financial risk. Emma’s site Money Can Buy Me Happiness, is a great resource for other families that want to travel and offers sound advice on making it happen with a baby and how to maximize a travel budget.
Today Emma shares a personal story of one of her real estate misfortunes. She’s proof the worst can happen, and though it may be a set back, it’s not the end of the game.
Here’s Emma’s story in her own words:
My failure story starts in mid 2010. I was sick of living the big city life in Sydney, Australia. I wanted to travel. But I also wanted to buy a house – the house that my husband and I would one day raise our babies in, have our own garden, make ours. Knowing we wanted to raise our future kids closer to family figured we would buy in my home city of Christchurch, New Zealand. We knew the bank wouldn’t give us a mortgage while we were travelling so we planned to complete the purchase before we left our full time jobs.
My strategy was a simple one that I still believe in (despite our nearly catastrophic failure). Buy the house you want to eventually live in, rent it to tenants who cover all of your expenses including the minimum mortgage payment, and then use the extra cash you save by renting somewhere cheaper to pay down the mortgage as quickly as possible. Once the mortgage is at a manageable level and you’ve built up equity—move in.
For most people that would have been enough of a project for a year, but I’ve always liked to have lots of different things on the go. With a planned departure to Chile in May 2011, we started looking for the house in late 2010. We had spent the previous 18 months sacrificing to get our deposit together. Now the deposit was saved and we had enough money on top to travel for 6 months. Besides, the rental income would cover costs until we were back at work and could begin our aggressive repayment plan.
We found the perfect house in late December while spending Christmas in New Zealand. It was a wooden bungalow with three bedrooms. It needed a little work but it was comfortable with a huge garden and in a great location. A major plus was the solid tenant who wanted to keep living in the house which suited our plan perfectly. We would backpack South America, the rent would be paid and everything would be dandy.
It was listed for $239,000. We made a couple of low-balls offers which were rejected. Eventually the sellers accepted our final offer of $225,000.
On Friday the 18th of February 2011 after the bank and lawyers were satisfied with the purchase we entered into an unconditional contract to purchase the property. Our deposit was now locked in. The only way out of the contract would be to walk away from $22,500 – nearly our entire life savings at that point.
That night my husband and I opened a bottle of wine to celebrate the imminent purchase. Our life was going exactly as planned.
Then February 22, 2011 happened. I was sitting in my office when I checked the news online. The breaking news headline read “6.3 Earthquake hits Christchurch, casualties expected”.
My first thoughts were for my parents, brother and extended family. Cell phone networks were down, I couldn’t get through to them. The next few hours were a terrified and panicked blur until I received a text message from my brother. They were safe. They were at home. My brother had to rescue my naked mother from the shower. My father was thrown from his chair across the kitchen floor from the force of the quake.
I watched the live feed on CNN. There were bodies and blood, dust and rubble. I had to do something so I jumped on a plane. I arrived to a house that had no electricity or running water. I would spend the days visiting neighbors who had set up hoses from their wells so we had fresh water. At night I would plough through a bottle of red wine by candlelight praying the aftershocks would stop. Without a flushing toilet we had to walk 500 metres to the portable toilet set up by authorities.
I was so incredibly grateful to be with my family, regardless of the circumstance. 185 people died that day. 185 families torn apart. I kept asking myself ‘What if it was my family?’.
After days of hunting for water and digging up liquefaction I decided to take a look at the house we had just poured our life savings into.
The street resembled a war zone, the road a maze of gaping potholes and liquefaction. The front garden was partially covered in liquefaction silt. Both of the brick chimneys had fallen through the concrete asbestos roof, presumably into the house. The front right corner of the house had slumped. My heart lurched.
I wasn’t sure if the tenant was home so I just looked from the boundary fence. I managed to check email a few days later and my worst fears were confirmed with a message from the real estate agent. The tenant had vacated immediately after the quake, understandably he was scared for his life. The house stood vacant and damaged.
The next few weeks after I returned to Sydney my husband and I had some heavy talks about what we would do. We had 12 weeks before we flew to South America. We knew we’d never again have the opportunity to save that amount of money. If we walked away from our deposit we would be giving up on ever buying a house again. We reluctantly decided to stick with the purchase, and accepted that a very uncertain path lay before us.
Doing what I do best, I went into fixer mode. Determined that we weren’t going to lose our deposit but unsure what the damage was and how the transfer of the insurance claim would work I got in contact with the bank and my lawyer to determine the next step. The bank required a geotechnical report to determine the strength of the land to support the house. That cost $2,000. The house needed a new roof immediately as asbestos fibres were exposed and could not be safely patched. The sellers agreed to meet us in the middle and we split the $12,000 replacement bill. We were hopeful the roof would be covered by insurance but we had to front the funds from our travel budget.
Next I had to guarantee we could pay the mortgage (if the bank approved the loan – still not a given). I had to find a tenant. There was a mass exodus of the city immediately after the quake. However after a few weeks people started to return to sort out their homes and lives. Many homes were completely unlivable and I knew that the rental market would eventually boom simply due to a lack of supply. If we could get through this tough time, we would be ok.
Luckily I had a good property manager who managed a small rental unit we had owned previously. They worked tirelessly to help me source a tenant who moved in three weeks before we were to settle on the property. After months of delays we finally took over title of the property three days before our planned departure to South America.
The fight still wasn’t over. The morning we were to depart for our Amazon ecolodge stay from Rurrenabaque, Bolivia I had to send through screeds of paperwork for the insurance claim to be transferred. Finding an internet cafe with a scanner took hours.
Hundreds of acres of city land was deemed uneconomic to repair. The day of the zoning decision I sat in the hostel in Cusco, Peru refreshing my web browser like a crazy woman. Eventually I connected to the database. Our land was green zoned – meaning our land was ok. My parents weren’t so lucky – they were red zoned and had to leave their home shortly afterward with a pathetic payout that hardly justified the decades of full replacement insurance premiums they had paid.
Nearly four years later we have fought substandard repair methodologies, inaccurate costings and illogical bureaucracy. We are hopeful we will have a repair strategy agreed in 2015 but even that is uncertain.
Our failure was that we were naive in our planning, and didn’t have a large enough slush fund. The reality was we simply could not afford to buy the house and travel. If we were not able to find a suitable tenant we would have cancelled our trip in order to pay the mortgage and property taxes on a vacant property.
Before that purchase I was bullish in my risk profile. I thought that being young and smart would always be enough to get me through a tough situation. Now I won’t consider a purchase unless I have enough cash in the bank to pay the mortgage for a year, because the worst can, and does, happen.
Emma is on a mission to achieve financial freedom by the time she’s fourty. She shares her passion for travel, financial planning, and living frugally so she can enjoy travel more, at Money Can Buy Me Happiness.
Thanks for sharing Emma! Your courage and refusal to let something so scary hold you back from taking risks in the future, gives me more hope than you can know.
I’m thrilled to share these stories of other traveling families, entrepreneurs and rule breakers that take risks and do whatever it takes to design their life on their own terms. Your life is your canvas, right?