A Homestead Cottage: An Asset for All Seasons
By: Tom Chatham
As economic conditions bottom bounce before their next downturn, many families find the prospect of future prosperity dimming. One of the largest investments a person makes during their lifetime is their home. A home should be looked at as a place to live and raise a family and nothing more but recent generations have looked at houses as more of an investment vehicle and have come to realize the risk associated with it. As with any investment, it can go up or down and many failed to realize this until too late. This left many homeowners under water and some losing thousands of dollars of earnings as they were foreclosed on.
Losing your home is bad enough but also losing years of earnings can be devastating, especially if you are older and nearing retirement. One of the mistakes people make when they look at the future is assuming what their future earnings will be and trying to live on potential earnings instead of actual earnings. As we now see that can change for the worse in very short order. Your earnings can be decimated as well as the retirement payments you expect to receive if inflation should get out of control. It is for these reasons that a person should do as our grandparents did and live within their means by living in a home that they can afford now not over a twenty year period.
Most people do not have the 10% – 20% down payment for a new home much less the full amount so what else can they do? Even with the recent drop in home prices they are still looking at about $150,000 for an average home in most places. That’s a lot of your future earnings not including interest. One thing people have bought into is that they must have a home as big or bigger than everyone else’s. That is something that everyone needs to think about very carefully. Do you really need all of that room or do you just like having a big house? Most people can honestly answer that they really don’t need it they just want it.
Even if you have a large house and it is paid for, will you be able to maintain it in the future if your income is decimated? This is a reason you need to consider building a small cottage. For someone just starting out or is about to retire that has limited income, it just makes sense. Even if you had to borrow the money, being in debt for $15,000 is much better than holding $150,000 in debt. Living in a small cottage while you save to build a larger home will also save you thousands of dollars in potential interest that you will ultimately be able to spend on other items that you need. Once you build your larger home you will still have your cottage for a weekend retreat, backup residence or to rent out to recoup your building cost and generate a small cash flow.
If you have a home in an urban or suburban area and it is not fully paid for, it might make sense to buy a few acres in a rural area and build a cottage on it. It can act as a vacation destination or as a place to go if it becomes untenable in the city for numerous reasons. If you lose your home due to financial difficulty, it will provide you with shelter until you can improve your situation. If this is a possibility you should take precautions to ensure you will not lose your cottage property along with everything else. Having a paid for home to live in if everything falls apart can help you sleep at night.
For those that have a stable living condition and may not face financial difficulties in the future, having a cottage in the country is still a great idea. If you have children, the financial prospects for the next generation are not looking very good. This rural property could be given to your kids to help them get ahead faster in a tough job market allowing them to save some of the meager wages they may be earning. It could even offer them the opportunity to start a business. For that matter if you should suddenly find yourself homeless due to a sudden disaster, it could allow you to house your family while building a new home or starting a new business. With a few acres you could even build more than one cottage and rent them out either for summer rentals or to people who need housing and cannot afford much rent. Even having a cottage behind your current home could be useful. With the many collage graduates moving back home because of the job market, a backyard cottage would be a good place for them to live while they wait for the employment situation to improve, leaving mom and dad more privacy at the same time. A cottage fitted with all propane appliances would also give you a retreat in the event of a prolonged power outage.
A rental cottage with a large garden area out back would be very appealing to many who want to reduce their expenses and live a more sustainable life. A small livable cottage can cost as little as $5,000 dollars making maintenance costs very small and property taxes very small as well allowing you to keep more of your hard earned money. A cottage can provide you with opportunity and ability by freeing up your financial resources for more productive use.
For those that say they don’t have the financial resources to buy a property and build an extra house it can be a difficult prospect but not impossible. The primary issue is not so much the money but how badly you want to do it. Most homeowners have lots of useless stuff sitting around they had to buy because it was on sale or it looked nice but serves no real purpose. That stuff can be sold. If you have a car that is paid for and worth several thousand dollars, you can sell it and find a cheaper car to drive to work. If you have jewelry you don’t wear any more you can sell it to generate money, just don’t sell your gold to one of those gold for cash schemes because you only get a small fraction of the real value. There are many ways to generate the extra funds you need to get a small piece of property. Keep in mind you don’t want to buy a $20,000 an acre property but a $2,000 or $3,000 an acre property in the country.
Once you have the property if you lack funds for a stick built home try an alternative method such as cob, adobe or cord wood as the primary building material. Scrounging for materials at building sites or from old buildings can save a great deal of money. It’s a lot of work but you won’t create any debt in doing it and that is the main goal. You need to take a good look at where you are financially and decide if having a small place is right for you. If your financial situation is tight now, what will you do if it gets worse? At what point will you decide to cut your losses and create a debt free zone that can keep you safe until things get better? These are questions you need to answer now while you have the time to think them through. For those that think smaller might be better, start pricing properties and looking at building methods that you can do yourself. Search for small home plans and find something that would work for you. These actions won’t cost you any money and you will be able to determine if it’s within your financial capability. Why wait? You can find links on our blogroll for free small home plans so why not look into it.