We bought a money pit, and it’s great! Why did we buy a money pit and why is it great? Let’s dive into that in todays post.
The Money Pit
Before we dive into why we bought the money pit and why it’s great, let’s assess the money pit. Now, privacy is a bit of a concern here for us (as the property can still be found on Funda). So, I will not divulge all numbers here (size or value). But I will give some hints.
We bought a detached home with decent plot of land surrounding it. It’s located within the Randstad area of the Netherlands. The purchase price was well under €900.000. Now, it’s an older home and had renovations/extensions done to it. But this was already a while ago and even those renovations already needed upgrades and/or replacement. The energy label (an indication of how energy efficient the property is) was D (on a scale of G to A++++). Which all things considered was better than we expected. Based on the energy bill we got to see from the previous owners, they used approximately 2800-3000m3 of gas per year. This is a lot, but it is also heating about 250m2 of detached living space.
The items noted above are also the reason why we could afford the property. Heck, we even paid under asking in a time prices were still very much elevated. This also helped a bit too. But it also explains why it’s a money pit. It needs to be brought onto the 21st century.
Renovations = Money Pit
A rough list of items that need renovations or upgrades is as follows:
- Roof replacement + insulation + extra windows for more sunlight/free heat (~€65k – contractor)
- Insulation of the outside walls, stucco + paint (~€55k – contractor)
- New kitchen (already realized and operational – bought used for now to see if we like the style and location) (€1.5k – DIY + contactor)
- Balanced ventilation system (mold was literally found 2m up some walls due to insufficient ventilation over the years – we ripped apart most of the inside as you can imagine) (~€8k – DIY)
- Heat pump (hence insulation of the virtually the entire house) – (~€10k – DIY + contactor)
- Upgrade heating systems to fit with heat pump (~€3k – DIY + contactor)
- Replacement of two bathrooms (~€10k – DIY + contactor as required)
- Painting (~€1k – DIY)
- Glass replacements (to HR++ (Ug 1.0/1.1); triple glas would also require deplacement of window frames = cannot afford right now, difficult to install later once outside walls are insulated) (~€4k – DIY)
- Flooring (using used solid oak floorboards – so far was able to score 60m2 for €650) (~€3k – DIY + contactor)
- Miscellaneas items (which there are a lot! Including, but not limited to, new doors, lighting, electrics, framing wall construction, etc.) (€40k)
We use two different contractors for the major works on the roof and outside walls. We have a friend/contractor that we pay to help with the jobs that are difficult to do alone or more efficient to do with 2. Furthermore, we also have a plumber that is fairly affordable and want to train me on the job at getting more self-sufficient in plumbing matters. Pretty sweet deal.
In short, we are looking at around €200k for all the works, and a lot of that is done my yours truly. For that money I could buy two rental condos about 6 years ago the Netherland. It’s been quite a change when you think about it…
By the end we should have a A+ or even an A++ house with healthy living conditions (no mold, proper ventilation) and thus lower heating costs. As you can see, the majority of the expenses are to maintain the property (roof, improving outside walls, minor structural stuff, painting, etc.) and upgrade its energy efficiency and indoor air quality. We are actually not spending a lot of money to make it prettier (no money left…), other than lots of painting and new floors. It’s primarily functional, but really needed. Especially considering gas at €2.50/m3, it currently costs around €7.500/year to heat! So yes, the energy savings part of the renovations is expensive, but it should pay itself back in the next 10-15 years (depending on energy prices, heatpump efficiency, etc.).
Why we bought a money pit? Good question…
So why on earth did we buy this money pit. Well, we moved a lot closer to our families. Which was convenient as we were driving a lot every weekend + more daycare/after school care options. We got a lot more space (more the yard than the house, albeit both increased) and privacy, which makes this feel a very comfortable and secure place to live. We had been looking for a new place for about 3 years. It feels great to have this dream finally fulfilled. No more tenants living below us, so we have more freedom to make noise (this is especially great for our little “stuiterball”). No more city life for us, but more rural and quieter. When you come home, you feel more at peace. Less background noises, which is awesome! Overall, our way of life and happiness massively improved since we moved.
Now, there are a few downsides too. Stores are further away. Public transport takes more effort (primarily a longer bike ride to get to a train station). But these are minor in the grand scheme of things and able to be worked around.
Another thing that I personally like is taking an older building and improving it a bit. It is strangely satisfying, albeit quit tiring! Due to the way the property is setup, we have the luxury to renovate and live on the property without being in a mess all the time. The makes it a lot easier and less stressful to do the renovations (we have more time).
The above being said, living in a property that should be worth well over 7 figures when it’s finished feels extremely decadent. And totally unnecessary at that. It’s a real FIRE killer also, but it seems worth it for now. We can live here with just one income due to our real estate income (assuming it doesn’t all go to hell). That much we have been able to arrange thanks to our FIRE attitude and lifestyle. And since Mrs. CF really wants a job/”hobby” (for 3 days per week ideally), we should be fine for the coming 1 or 2 decades.
Now, as to the financing. The renovations are paid in cash from savings and some investments we sold/will sell. The property itself is financed about 100% (we are debt free on all our other real estate) using a bank mortgage (77.5%) and a family mortgage (22.5%). We have interest rates of 1.3% for 10 years fixed and 1.71% for 20 years fixed for the bank mortgage. As we didn’t know interest rates were going up so fast and so high, we have about 73% in the 10-year mortgage and 27% in the 20-year mortgage. In hindsight we should have done something like 50-50. But we will figure out how to deal with this in about 9.5 years’ time.
The family mortgage is currently 1.5% but is under review for the longer term (rate is not really fair right now, money could also have been invested elsewhere and taxation is going to hurt too). Currently our rental income is covering more than 100% of both mortgages (on cashflow basis – after taxes). We are technically living here for free.
Have you every bought a money pit? Why did you choose it? How did it end?