The Marine Corps and Housing

Finance is simple.  Maddeningly so.  So is the Marine Corps.  I read that the Marine Corps does everything in threes; three marines to a squad, three squads to a company, three companies to a ... and so on.  I may have that all wrong but it makes sense.

And most financial problems, or opportunities if you are a Pollyanna, come down to three variables.  And no more so than in housing.  If you look over at the categories on the right you will see one about buying a house for something like 30% off.  And here is a summary of how we did it 30 years ago and then how it is happening again, I hope.

Back then we had salaries of x, a desire to live in a particular area that just happened to be and still is, the most expensive part of Chicago and the house we were looking at was way too much money.  There are the three variables.  Oh, there are tons of others like the number of bedrooms, baths, condition but if you can't get the decision making down to three variables you, in 99 out of 100 times, do not have the issue in focus.

So here is what we did about the variables.  The first variable-nothing.  Our salaries would go up, we hoped, but not in a month and not by enough to close the gap so the first variable was actually a fixed variable.  The second variable was location.  We looked at other areas but kept coming back to this area so another fixed variable.  The only variable variable was price.  The one variable that most people think is the fixed variable.  This was back when dinosaurs roamed the earth but the actual price is not the important thing, the bargaining is.  The owner wanted $124,000 and the house sat.  Finally she lowered it to $110,000.  I figured we could afford $90,000 max.  In bargaining most deals are struck in the middle so I had to figure out how to come in around $90,000.  Added $70,000 and $110,000 together, divided by 2 and got an average of $91,000.  So told our realtor to offer $70,000.  She howled and we went up to $72,000.

Howls from the owner.  But not silence or flat no.  Finally got the house for $88,500.  Sold it six years later for $156,000.

Fast forward 28 years to last Sunday.  As Yogi Berra said, deja vu all over again.  We are in the process of designing a new house and the three variables popped up again.  First, we have made the decision to build a new house.  We have a beautiful lot and a primal urge says new house or you will stay in the old one and grow old.  Makes no sense but there it is.  So the first variable is fixed. 

Then came the plan which no matter how we drew it ended up eight hundred square feet bigger than our present house.  Huh?  Sue tried to nickle and dime it and get a few square feet here and there.  My point was we didn't need a dining room, a living room, kid's rooms (there are plenty of hotels nearby) or three baths or a guest bedroom.  I could live in a trailer with no problem.  BUT we ended up with all those things and to just cut room sizes made no sense so the plan was fixed.  Variable number two now is a fixed variable.

Variable number three is cost.  The one variable most people think is fixed.  Not to me.  I fixed up that house in Chicago and I renovated three othe houses so here I go again.  And the challenge is huge because the cost of building here is $110 a square foot.  And to get the house built for what I think we can sell the existing house for is $60 a square foot.  And I think I can do it.

This exercise is not about building a house for $60 a square foot.  It is about finding the one variable that you have control over and is the key to financial success.  If you can't find the variable you will not make the project work.  See, finance is simple.   Now I have to figure out how to build a house for $60 a square foot.