Mixing Maroons - Spend Less, Save More … Get Marooned!

Mr. Maroon

January 11, 2014

Equity as an Equalizer – Part 2

Tags: , , ,

If you’re following along at home, you’re probably wondering how in the hell we have $554,645 worth of Property Assets.  The answer, simply, is a mixture of good common sense, a little bit of education, and luck.  Oh, and a nice little thing called Equity!  Without that, our net worth drops to a very RED -$104,055.  But, as we revealed in Part 1, equity doesn’t help our financial power if it lies dormant.  The goal of wealth accumulation is to put everything of value to work so you receive some benefit from it in the form of income or cost reduction.

Putting Earning Debt and Equity to Work

Our Property Assets consist of a farm valued at approximately $150,000 (based on market analysis), two houses valued at $286,645 (based on zillow.com, which I know is a big damn approximation, but that’s the number Mint uses and I actually believe it to be accurate based on recent appraisals of both properties), three vehicles valued at approximately $43,000 (based on NADA), and some personal items valued at approximately $75,000 (based on appraisals and market analysis).  The real estate properties are of greatest concern to us from the stand point of net worth and wealth accumulation because of their significant value.  The vehicles are depreciable, so they actually work against our net worth.  The personal items consist mostly of jewelry and firearms and are appreciable in today’s market, however, they most likely will never be sold as we are already the second generation to own many of them.  Let’s dissect the real estate properties a little bit more to see if they’re working in favor of our financial power.

Property #1 – The Farm

Back in 2002, my father and I were really desperate to own land.  After shopping and sharing our desires with family and friends, a relative also developed an interest and soon became the sole owner of a small farm, of which Dad and I were the designated managers.  We had freedom to enjoy the property and an agreement that if and when the relative had a desire to sell, I would have right of first refusal at the 2002 price.  In 2008, that opportunity arose and, thanks to increased property values, I had no issue obtaining a ten-year, zero-down note in the amount of $57,927.81.  Five payments later, I still owe $33,486.03 on the property we affectionately call our “Farm”, despite the fact that we currently do not engage in farming activities.  Current market value is approximately $150,000.  Equity:  $116,514 (77.7%).

That’s all great, but how does this farm earn money for us?  Currently, it doesn’t – exactly.  In the past, we owned a small cattle operation that actually ended up being profitable, if just barely.  Three years of drought quickly ended that run.  We currently use the farm to hunt, annually harvesting deer, dove, and feral hogs, which greatly reduce our grocery store spending for meat products.  In 2014, we hope to better utilize the land to supplement some of the additional groceries we regularly consume.

Property #2 – Our Home

Moving on, in 2009, the Mrs. and I purchased our first home.  Unlike many, we approached home ownership with a sense of frugality.  We were preapproved for a $300,000 mortgage, but since we had absolutely no desire to be “house poor”, we set our house budget at half of that.  Being the nerdy engineers that we are, we performed feasibility studies for each financing scenario we could imagine, settling on an 80/15/5 option – 80% of the purchase price financed as a conventional thirty year mortgage at 4.75% interest, 15% financed as an unsecured fifteen year loan at 8.5% interest, and 5% plus closing costs paid out of pocket.  Aggressive repayment of the loans coupled with refinancing efforts in Summer 2013 leave us now with a conventional fifteen year mortgage at 2.875% and currently owing $127,375 on a home valued at approximately $168,000.  Equity:  $40,625 (24.2%).

The home doesn’t generate much realized income, other than appreciating in value, but it satisfies our NEED for shelter, so it gets a pass.  Something could be said, however, for our desire to relocate to a smaller town with a reduced cost of living once we are more financially independent (i.e. once we no longer have to commute to our pesky jobs!).

Property #3 – The Rental

Finally, in 2012, just days before Mini Maroon was born, the Mrs. and I purchased a home for my elderly parents.  For a variety of reasons, my parents were unable to qualify for a mortgage on their own, so we took advantage of the Family Opportunity Mortgage program which allowed us to obtain a conventional thirty year mortgage at 4% interest on 95% of the purchase price.  (Note:  Payment of this mortgage is not reflected in our expenses because my father reimburses us for the mortgage cost each month.)  We currently owe $104,919 on a home valued at approximately $117,000.  Equity:  $12,081 (10.3%).

While we are not making any profit, this home represents a potential monthly stipend as a rental property once my father decides he’d like to live elsewhere.  Until then, it’s a free house and we continue building equity, so we don’t complain!

So, there you have it!  Stay tuned and we’ll go into great detail how we’re going to aggressively pay down our debt to meet our total debt elimination goal before 2030 and continue to build our financial power while putting our liquid and non-liquid investments to work for us.

Until next time – Spend Less, Save More … Get Marooned!

~ Mr. Maroon

Friday's Frugalities #2 - Scatter-Brained
Equity as an Equalizer – Part 1

Leave a comment

RSS feed for comments on this post.

CommentLuv badge