Climbing the property ladder

We started small and then worked our way up the property ladder.
We started small and then worked our way up the property ladder.

20 years ago my friends and I had graduated university, were starting our careers and looking to set up house. The trend at the time was for first-time-buyers to max their budget when looking for a house. The reasoning was that they were buying a house that they wanted to live in for the rest of their lives, so it had to be big enough to accommodate their future family. So they all took out big loans and started paying off the bank.

I did not get it. I was single and had no kids, so what was the point of aiming for a house that was big enough for a brood of munchkins? Maybe they would come and maybe they would not, but it definitely did not make sense to take out a massive loan at that point in time to buy a big house for them. So instead I decided to go small and I started a hunt for a small apartment in a trendy area that was likely to go up in value over time.

After a few months searching I found the perfect place. It was a new build studio with a double bedroom, a bathroom and a combined kitchen/dining/sitting room. That was it and it was perfect. I did not need to take out a big loan and so was not burdened with hefty repayments – which left me free to risk a couple of years’ worth of salary and set up my business.

In the meantime I met my better half and he moved in with me. The studio was plenty big enough for the two of us and we started making accelerated payments on the mortgage now that we were a two-salary household (I made minimum wage but he earned a good salary).

Life moved on, the business became well-established so I started paying myself a decent salary and we got down to saving in earnest in order to be able to afford the deposit on a bigger place. 5 years after I bought the studio it was paid off in full, we had accumulated a small nest egg and we had some big news – a munchkin was on the way! What was cosy for two would be a bit of a squeeze for three, so we decided to look around for a bigger place.

We bought a small apartment in a very trendy area and then sold it 5 years later as a rental investment.
We bought a small apartment in a very trendy area, just 5 minutes’ walk away from some hip bars and restaurants, and then sold it 5 years later as a rental investment for double what we bought it for. This made it possible for us to go up a few rungs on the property ladder.

To our amazement the studio flat had doubled in value in the 5 years since I bought it. The money we made on the sale was enough to buy a three bedroom apartment with a nice yard in an area that was clearly on the up. It was not a prime address but it was very close to a property hotspot and a number of new builds were planned in the streets around us, so we gambled on it in the hope that it would go up in value over time.

It was a great flat and we were very happy living in it. Our first child was born and we settled into family life. The fact that we did not need to take out a mortgage to buy the place enabled us to save aggressively and 3 years later we decided that the time had come to move up the ladder again, this time for good.

We knew what we wanted and were aware that it would not come cheap. In fact the odds were that we would not be able to afford a house that met all our criteria, but we called several estate agents and started scouring the papers every Sunday for houses that fit the bill. We wanted a house with:

  1. 4 bedrooms
  2. A study (which could be used as another bedroom if necessary)
  3. 3 bathrooms
  4. A large, bright living space
  5. A large garden
  6. In a quiet, family-friendly area

The first few weeks of house-hunting were sufficient to show us that it would not be possible to find something that ticked all the boxes within our budget. However we were not willing to make do so we realised that the only way we could make it was to look for a house that needed a lot of work. That way we would buy the bones and slowly do it up over time as we saved more money.

The house was a wreck, complete with an old rusty van in the garage.
The house was totally derelict, complete with an old rusty van in the garage.

So we told the agents that we were willing to consider houses that were a wreck and needed lots of work, the kind of houses that most people were not interested in, and sure enough a month later we found a gem. We parked our car and looked around and were sold before we even entered the house, which was a good thing because the house itself was a tip, complete with a stinky cess pit and mounds of rubbish. There was even an old van rusting away in the garage.

My husband and I loved it. We loved the area, we loved the promise of a wonderful family home hidden underneath the muck and most of all we loved the price! We had already spoken to the bank and knew that the asking price was within our budget.

The conversion, on the other hand, was likely to cost a bomb. So we asked an architect to put together an estimate for us and started thinking about our options. Our original plan did not hold water. We could not continue living in our apartment while doing up the new house slowly. We needed to sell the flat and use the money to finance the redevelopment of the house.

We sold our second apartment three years after we bought it, and we doubled our money.
We sold our second apartment three years after we bought it, and we doubled our money.

So we put our apartment on the market and potential buyers started coming over. In the years since we moved in the area had improved greatly. What had been construction sites a few years prior were now smart apartment blocks and our street looked great. After a nail-biting couple of months we got a serious offer and once again we hit the jackpot. The offer was for exactly double what we had bought it for! We obviously jumped at the opportunity and signed a promise of sale immediately, at which point we started looking around for a place to rent.

This is where our frugal instincts took over. We knew that it would take years to finish off our new house project and we wanted to live somewhere decent. I was pregnant with my second child and had an active toddler so it had to be spacious. However all the apartments we initially saw cost much more than we were willing to spend. We could not skimp on space and amenities, but we could skimp on the location because this time we were renting not buying, so we chose an apartment in a locality that was OK but absolutely not “the place to be”. It cost 50% less than a similar apartment with a better address, so it ticked all the right boxes. We signed the lease and moved in pronto.

We learnt about dealing with contractors the hard way!
We learnt about dealing with contractors the hard way!

The next two years were tough. We went through hell to get the required planning permission and had to go through a steep learning curve with the contractors who were working on the house. Luckily for us the business was doing really well by then, which helped our cash flow – however the costs escalated as they always do.

There were times when we regretted taken on such a big project, but as the work progressed and our future home started to take shape we gained confidence that we were not insane. Friends and family who had been on the fence about the house slowly started to see what we were so excited about and became more supportive. We started to see light at the end of the tunnel.

Two and a half years after moving into the rented apartment we finally packed up and moved into our new home. It was not complete – we did not have any internal doors, there were no stairs to the master bedroom (we used a ladder), there was no kitchen and the boiler was still not commissioned. But the weather was warm and we did not need hot water and after 30 months of waiting we could not bear to wait any more, so we moved in and camped out in the new house. It was a great day – the 1st October 2007.

It is the perfect family home. Our son was born a year later and our family settled in and never looked back. 9 years on the house is worth a lot more than it cost us to buy the property and convert it, but we are not looking to climb the ladder any higher. We have no interest to upgrade because this is what we always dreamed of. It took us 10 and a half years to get here but it was worth it.

People starting off now face a very different property market. House values are rising, but not at the same rate as they did 19 years ago, so it will take longer to climb the ladder. However the principles remain the same:

  1. Do not try to get the house of your dreams from day 1. Start smaller and work your way up.
  2. Look for properties that are likely to go up in value. Our first home was in a rental hotspot close to a buzzing nightlife hub. Our second one was in an area that was getting a facelift, leading to a surge in property prices.
  3. Do not be afraid of putting in some hard work. You will always pay more for a house that has already been converted, so if you want to maximise your value for money buy the bare bones and then take care of the conversion yourself.

There is no doubt that we were lucky, but it is also true that we made our luck. We took calculated risks and worked hard to make it up the ladder, rung by rung. It was hard work but it was worth it.

 

Author: Mrs Smelling Freedom

After selling my business my priority is consolidating my family's financial independence. I blog about Entrepreneurship, Financial Independence and living life to the full!

10 thoughts on “Climbing the property ladder”

  1. This was a great read Mrs. SF, and made me think about buying real estate too. I never did buy my first apartment because I moved around a lot and couldn’t decide where I wanted to be. Still can’t! Real estate is not the right type of investment for me, but I revisit the possibilities as a thought experiment every now and again. I definitely know that I could not take on a big 2 year reno though. Glad it worked out for you, and it was fun living through it vicariously through your words.

  2. You made some really good points, I enjoyed reading this. At the moment we are renting and investing (and saving to do IVF treatments). We see how much property costs..and it’s hard to say that’s a good use of money.

    You could even buy your initial house, and when it’s time to upgrade, keep the current one and rent it out. Then buy the new one, so you have an investment and your home.

    Tristan

    1. That makes a lot of sense, particularly if rents are high where you come from. In my case unfortunately the rent to property value ratio is not great. The rent would not be enough to cover the mortgage repayments so I would be cash flow negative.

  3. Fully agree.
    I simply cannot believe how crazy do you have to be to take a loan that you have to pay off for the next 25-30 years. And believe me I know a number of people who did exactly that! Young people who saw their friends doing the same.
    Even worse: in Hungary, Romania it’s normal to have variable interest rates! Can you imagine that?
    Personal Financa should be thought in schools! And I’m making my first steps to do something like that…

  4. Great story on how you got to get your dream house. I like the old van that came with the house.

    Kudos for doing all that with kids. We bought our house before there were kids and had the opportunity to finish before the kids were born (not what we planned, just can not control the nature).

    In our house, we did what we could do ourselves. I know my handyman limitations and we took workers for that. We used references from people we trust and had no bad surprises. We did not take the cheapest either… I think that just increases the possibility of surprises.

  5. Great story to show how ur doesn’t all come at once. It takes years and lots of hard work. I encourage others not to aspire for the ‘perfect’ place, it will come over time. And I empathise with having 2 young kids and renovating – stressful!

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