Our Story // Renovating Old Houses and Early Retirement

The other day I was explaining what it is that Garrett and I do to a total stranger, and it got me thinking, have I ever really explained it here on the blog?  Sure I share all about the houses and our family and the before and after photos of our renovations (and I’ll get back to it next week), but there’s a whole other story in the background.  The tale of why and how we do what we do.  Why we buy old houses.  Why we spend so much time renovating them.  Why we lease them out as rentals.  And why we’ve been working so hard for the better part of a decade.

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family photos by Ryan Flynn

To answer that, let’s rewind to 2008 when our renovation journey began, long before our band of renovation gypsies numbered four.  It was just Garrett and I back when we bought our first house, a 1916 craftsman “fixer” with an unfinished basement, a unique detached cottage/workspace in the backyard, and tons of potential.  In a desirable Seattle neighborhood back then, old and in-need-of-work cost you a whopping $445,000 (that number is now substantially higher…eeech!).

At the time, I had just started my engineering career and Garrett had returned to school to pursue his PhD (which he completed in 2015…biochemistry, the smart guy!) so we planned to live in that house pretty much forever, while we slowly fixed it up, had a couple kids, and worked away at our careers.  But you know what they say about best laid plans…

Well just 8 months after buying our first house, I got laid off from my oh-so-short engineering career, and life went into a tailspin.  With a big mortgage to pay and no job in sight (there weren’t a lot of jobs for newbie structural engineers in the building downturn of 2008 and 2009), I suggested we finish out the basement, rent the main house, and move into our 400sf backyard cottage, which at the time was lacking a kitchen and even a bathroom sink.

I told myself that small-space-living would be an adventure, and Garrett went along with it because he’s a real trooper.  So we rolled up our sleeves and got to work. The only problem was that we didn’t really know that much about renovating.  So we learned as we went and asked for help from pretty much everyone we knew (especially our folks).  Sure, we made some mistakes – like that pink tub…oh goodness why did we buy that pink tub?! – but three months later, we had turned our 2-bedroom, 1-bathroom house into a 4-bedroom, 2-bathroom house.  We got renters in the main house then moved out to the cottage to start that renovation.

Essentially, we were house hacking, before the term actually existed. If you’ve never heard of house-hacking, I like to explain it as getting-someone-else-to-pay-your-mortgage-so-you-can-do-what-you-want-with-your-life.  But more on that in a minute.

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We spent three years in that cottage. During that time I got a job, we cut expenses, we lowered our mortgage payment by refinancing, and we raised the rent in the house. Suddenly we weren’t just living rent free, we were actually making money on the house. Our house-hacking endeavor had turned into actual income and it felt good. We saw this whole other path open up before us and although the destination was a little fuzzy, we called it financial independence.  Our goal became to make it there – to financial independence – by the age of 35.

After those three years in the cottage, we used the money we had saved up and bought a second “fixer” house. And shortly thereafter, a third. We moved into each renovation project and loosely followed the BRRRR model (which is apparently a thing although we had no idea at the time): Buy, Renovate, Rent, Refinance, Repeat.  And although we were saving all along, we had to get creative to find enough cash for down payments and renovations (this is Seattle after all and houses don’t come cheap).  Over the years we’ve utilized traditional financing, a FHA loan refinanced into an 80/20 loan, cash-out refinance, HELOC, personal loans from family, and cash-purchase-turned-delayed-financing. Finding time to renovate our properties was tricky. Garrett was in school and I was working full-time, so we had to renovate on nights and weekends, often turning down social plans to get dusty and bang on walls. Of course, we love old houses and renovating, but we love our friends too.  While the sacrifice has been well worth it, these choices were often hard ones to make.  Once the boys came along, our renovation pace slowed down, but we kept at it. By then, our goal was crystal clear: make enough income from our rentals so that we could “retire” and spend more time with our family and working on our own projects.

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By the time we rang in 2016, we had four houses plus the cottage in Seattle, and we projected enough income from the rentals to bankroll our life (granted, not a lavish life, but a modest, happy life for our family). So when we found our dream home, a farmhouse on 3 acres in our hometown, I quit my 9-to-5 and we moved to the country. Garrett and I were both 34.

Our “retirement” is in it’s infancy, but we are excited for what we have planned. We will still spend a lot of time as landlords and of course as parents, but also plan to dedicate time to outdoor activities, fresh-food cooking, country-dwelling, and renovating any old house we can get our hands on.

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So that’s the story of how this little family house-hacked our way from first-time home buyers to full-time renovators and landlords. How we turned our love of old houses and renovating into income and retirement plans.

I should note that being a landlord is not really retiring.  Nor is being a parent of young children.  These things can be hard with a capital H.  But the first affords us the luxury of having more time to do the second and provides us the lifestyle we want without having to work more than a few hours a week, hence we call it “retirement”.

One other note, I’ve hesitated for a long time on whether or not to get so personal on the blog, especially about a topic as touchy as personal finances.  This is, afterall, a renovation/home blog.  But ultimately I thought about our younger selves, that 27-year-old couple who had just moved into a cramped cottage without a bathroom or kitchen, who had no real income and struggled with the weight of their debt. Those two would have been really excited to hear a story like this. So I hit publish.

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We are really excited for what comes next in our story! Thanks for being a part of it.

Also thanks to Ryan Flynn for these family photos!  He had the patience of a saint and a shutter speed fast enough to catch even the wildest of toddlers 😉

xoxo

-Cathy

p.s. Love all the feedback on the interior of our farmhouse from you guys and over on Instagram. Sounds like there’s plenty of folks out there who wouldn’t paint their millwork, either 😉

p.p.s. I’m absolutely in love with this vintage London apartment.  It’s ethereal and beautiful and so well styled.  Kudos Ms. McAlpine!

p.p.p.s. This kitchen. I loved it when I saw it a year ago, and somehow it’s gotten even better.

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The Farmhouse | How Someday became Today

THE FARMHOUSE

Thanks for all the sweet comments about our new home!  I promise to share more photos soon!  But let me just say that we are thrilled with this glorious old place and still can’t quite believe it’s ours. So far, Wilder is enamored with the frogs in the pond (he named them Toadie and Tattie) and his 35sf, window-less bedroom closet, which he refers to as “his space”. Brooks on the other hand has been happily bear-crawling around and around in the grass. Oh to be a kid again!

Finding an old house in the country has been a long-time dream of ours, or as I like to call it, our “someday” dream.

The Grit and Polish - The Farmhouse Staircase 07-2016

We all have “someday” dreams, right?  Like “someday” you’re going to take a cruise. Or “someday” you’re going to run a marathon. Well our someday dream (okay, maybe more my dream than Garrett’s, but still…) has been to fall head over heels for a house, hopefully one on a little land and one that needs a little work, and then raise our kids there.

So you can imagine how excited I was when our “someday” came a-knockin’ – or I should say, came a-emailing – this Spring.

See we had planned to head over to Nana and Papa’s farm in Ellensburg to butcher 22 chickens one Friday (hopefully you guys aren’t vegetarians…), when a Redfin alert popped up in my inbox.  An old farmhouse had just gone on the market not ten miles from Nana and Papa’s farm that very day.  I’ve looked at realestate in Ellensburg for years (remember this house?  We put two offers on it), which isn’t exactly saying much since I look at real estate everywhere in Washington (okay and sometimes Oregon too).  But Ellensburg has always been special for us.  As I mentioned last week, it’s where Garrett and I grew up.  Where we fell in love. Where our parents still live. And where we’ve talked about raising our kids.  So when this glorious old farmhouse popped up, I said, “we have to see it.” It didn’t matter that we didn’t have financing lined up.  And it didn’t matter that we had the Dexter House basement renovation to start.  I simply had to see it.

We got a tour lined up the very next day (before the chicken butchering commenced).  And Oh. My. Lord! It was so much better than I imagined. Original windows. check. Unpainted millwork. check. Older than dirt. check. The perfect country setting. Check, check, check!  When we walked in the front door, I almost cried.  This was it.  I just knew.  It was the house I’d been dreaming about in my “someday” plan.  I was standing in it.  And I didn’t just want to live there, I wanted to die there. And here we were completely unprepared to make an offer on a house.

Our agents warned us that there was already a lot of interest in the house and we needed to have a financing pre-approval letter accompany any offer.  So Garrett called our broker on the way back to Nana and Papa’s farm.  We have an awesome broker who has done a lot of loans for us, and he promised to run the numbers on Sunday morning. Like I said, he’s awesome. So we spent Saturday afternoon butchering chickens and I tried not to think about the house.  On Sunday morning, I woke up before dawn, too excited to sleep. I got up, opened my laptop, and started typing a heart-felt letter to the owner (a technique we’ve successfully used before to win a house). I laid it on thick because it was all true. This was the house of our dreams.  By the time Garrett woke up, I had a two-page love letter for him to read.

Farmhouse Offer Letter 2016 copy

I had a nervous stomach all morning until Garrett finally got the call from our broker, who thankfully said we could move forward with an offer. And we didn’t waste a minute to call our agent and start an offer. Now I should mention that Ellensburg is a “kindler, gentler” real-estate market than what we’re used to in Seattle (our agent’s words).  So we were encouraged NOT to use an escalation offer and NOT waive inspection (which we did anyway) and NOT up our earnest money. And since that environment is something we love about our home town, we put a kindler, gentler offer in: 1% earnest money, no escalation clause, waived inspection, and the love letter attached.  Then it was time to wait.

It only took one night of no sleep to find out that the owner had 6 offers to review.  Yes, six! (And in this small town with a kindler-gentler real-estate market. Sheesh!) One offer was all cash. One was higher than ours.  But none of them had a letter like ours. And because the world is good and the old-house-gods were shinning on us, the owner picked us.  He picked our letter and our offer and our family.

So we bought another home. Our fifth home. Our someday home. And my heart is full and my head is spinning and my hands are itching to get to work.

xoxo

-Cathy

p.s. Wondering how packing at the Dexter House is going? Well this photo about sums it up 😉

p.p.s. I loved this story of finding the creaky cottage! Sometimes old and imperfect is actually quite perfect.

p.p.p.s. Okay this happy and bright interior had me at the front door! I definitely need to make a trip to Bar Melusine, especially since it’s in Seattle!

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We Bought a House!

THE DEXTER HOUSE

Guys, we bought another house!  This deal has been in the works for a good six months, so I’m beyond excited to finally show you guys the property!

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Fixer #4, aka The Dexter House, is a 1905 Spanish style house with 3 bedrooms and 1 bathroom on the main floor and another 2 bedrooms (non-conforming) and 1 bathroom in the super-super-super-short basement.  The house is generally in original condition with the exception of the basement, which is in a half-finished/poorly-finished state.  And, as usual, the whole house is a fixer.  What I’m most excited about in this little house is how light-filled and quaint it is.  Oh and the overgrown, Jumanji-inspired, secret-garden-leaning backyard complete with a bird bath!!!

Today I’m going to show you guys the main floor.  I took these pics on my phone a few days before we closed on the property, so please excuse the photo quality.  But at least the low-definition photos hide some of the grime, so I should say, thank you iPhone!

photo 17photo 14photo 15 photo 11photo 12photo 8 photo 9photo 10 photo 7 photo 6If you can look past the dirt and grime (yes, I’m talking about you, bathroom!!!), it really is a cute house…right?  My mind is reeling with possibilities!

We’ve been wrapping up some lingering projects at the Ravenna House (mostly in preparation for some really exciting guests we had over the weekend), so demolition at the Dexter House won’t begin for a couple weeks – except that wall Garrett and I couldn’t help but take down when we finally got the keys – which leaves us time to come up with a renovation plan, pull the necessary permits and iron out the property’s zoning with the city.  More on all that, as well as much much more, later.

What do you guys think?  Did we just buy a lemon or is this another diamond-in-the-rough?  I hope you guys are as excited as we are to watch the transformation!

xoxo

-Cathy

p.s. Speaking of Seattle real estate, the close in neighborhoods grew 18.9% over the past year. How insane is that?!

p.p.p.s. Also, this 2 bed/1 bath house was so cute and SOOOOOO expensive.  Have you ever heard of a 2 bed/1 bath house with only 1060 finished square feet and in need of a new kitchen selling for over $800k?  What is Seattle coming to? (See p.s. above)

p.p.p.s. How fun is this eclectic house?  I mean how could you not have fun living there?!  And the best part is that it’s 160 years old!!!

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How to Find a Killer-Steal-of-a-Deal-Old-Fixer-House

We’ve been looking at a lot of houses lately. I know, house shopping is totally naughty when we still have that giant backyard project to finish start at the Ravenna House.  Not to mention we’ve hardly even owned this house for nine months, and lord knows we don’t feel moved in yet.  But I just can’t help myself.  Old houses are always on my mind.

Somethings wrong with me…right?!

Well I thought I’d put my obsession to good use and show you guys what we look for in a house.

The Grit and Polish - How to find a House Collage Exteriors Labeled.jpg.jpg

Beauties, right?!  These are a few of the houses we’ve looked at lately.  House number 1 was a cash-only gut-job that had the scariest bathroom I’ve ever seen. At $399,950, we seriously considered making an offer, but this one was a little too much work for us considering said projects at the Ravenna House.  Door number two was an impeccably-finished house in a prime location just blocks from one of the best elementary schools in town.  At $875,000, it was just a look-e-loo for us – but lots of good ideas.  Number three was a bankruptcy-settlement that was really poorly marketed and priced at $489,000.  Three bedrooms up, totally livable, and just a couple blocks from the lake.  We made two low-ball offers on that one but no luck.  The fourth house was a a huge fixer, ripe with potential, listed for the rock-bottom price of $350,000.  There were 13 offers on the house before we could even get one in – it sold to someone else for $408,000.  

Sadly, we don’t own any of those houses, but each of them had elements that we look for.  So let’s talk about that. Exactly what we’re looking for in a house.  I’m going to lay it out in a list, because lists are good (and make me feel organized, even when I’m not).  We’ll call this the Grit and Polish’s Guide to Finding a Killer-Steal-of-a-Deal-Old-Fixer-House

A Deal.  I’m a girl that loves to find a deal.  I plan major purchases around holiday sales, always ask about student discounts, – hey Garrett’s still a student and I’m taking full advantage of that (what up West Elm!!) – and stalk sale racks like nobody’s business.  And when it comes to houses, finding a deal is the most important factor for us.  We look for properties where we can earn at least 10% equity on the day we close. Our houses are our retirement plan, so each house needs to be a cash-positive rental or lucrative future sale.  Having 10% in the bank, helps us get there.  So how do you buy a house below market value?  Sure there’s a lot of luck involved (timing, seller, force majeure) but we have found success with some more predictable methods:

    • Buy with cash – if at all possible, buy with cash.  Sellers are usually willing to take less if you offer cash because all-cash deals close quicker and present less risk of a buyer backing out (here is a refresher on how we bought the Ravenna House for cash without the bank account to pull it off, and how we turned around and financed it).
    • Buy off season – thunder storms help keep the buyers at bay.
    • Buy something that needs a lot of work – I look for listings with phrases like “extreme fixer,” “possible tear-down”, and “not for the weary of heart”.  I’ve often found that someone else’s tear-down is my idea of a beautiful old fixer.
    • Waive contingencies – waive inspections, financing, and anything else you feel comfortable with.  The less contingencies you include in an offer, the less risk to the seller that you will back out.  But make sure you know what you’re getting yourself into – schedule a pre-inspection and sewer scope before waiving an inspection and get pre-approved for a loan or have the cash in the bank before waiving financing.
    • Be personal – submit a letter with your offer.  Include family photos, or better yet, a photo of your family on the front steps of the house you’re trying to buy (that worked for us on the Ravenna House).

Location, location, location.  Location and getting a deal are the only criteria that are nonnegotiable for us.  We do the would-we-want-to-live-here sniff test.  Can we walk to a restaurant, a grocery store, or a park?  How bad is the commute to downtown?  Is there a view?  What’s the vibe of the neighborhood?  We figure that if we would want to live there, potential renters or buyers would like to live there too.

Oldie. They don’t make them like they used to.  Really!  I set my search criteria to pre-1940 but as far as I’m concerned, the older, the better.  The lumber, the tile, the fixtures that were used back then were built to last.  Sure you may need to do an earthquake retrofit (not as scary as it sounds) or upgrade the plumbing and electrical, but that’s a small price to pay for something sound and beautiful.

Potential/Value Add.  We look for properties that are easy to add value to.  Is there unfinished square footage in the basement?  How tall is the attic?  What’s the zoning?  Can you split the lot into two?  Can you add another bedroom?  How about another unit?

School District.  Even though Wilder is years away from elementary school (years and years and years as far as this mama is concerned), we try to buy houses in good school districts.  Usually this correlates with prime locations, but not always.  A good school district, keeps home values high and ensures a supply of eager parents wanting to move into the neighborhood.

Neighboring Home Value.  This one’s probably pretty self explanatory.  I always scout the values of the neighboring properties before making an offer on a house.  You can find all that information on Zillow.  I put a lot of stock in the old adage: buy the worst house on the best block.  If the neighboring houses are worth way more then yours’, you can feel confident putting your hard-earned cash into the house. 

Interiors Pics Collage - the Grit and Polish

Those beautiful pictures are from houses we’ve seen lately.  The kitchen on the left is from a ginormous project that required more cash then we could scrounge up (but oh how I love that original kitchen!).  The four shots on the right are from that lovely white tudor above (house #4). How about that natural light?!

Anyway, back to the topic at hand.  My house hunting antics (read: Redfin addiction) often leads to frustration.  We look.  We like.  But unless it meets our criteria (or at least most of it), then we have to say goodbye.  Sometimes a teary goodbye.  It’s a heart-wrenching process that occasionally – every wee once in a while – is very rewarding.

That’s everything we look for in a killer-steal-of-a-deal-fixer-house.  What did I miss?  Do you guys have any steadfast criteria you use to buy a house?  Or tales of amazing deals?  I’d love to hear it!

xoxo

p.s. Check out this stunning attic renovation over at West Elm’s blog Front + Main…seriously beautiful!

p.p.s. Why can’t I find a house with wood paneling like this one?  The only wood panelling I see is faux and from the 1960’s and smells like stale cigarettes or cat pee.

p.p.p.s.  It’s official, New Orleans is amazing!

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Delayed Financing: How it All Worked Out

THE RAVENNA HOUSE

Back in October we bought the Ravenna House for cash.  You can read more about it here but basically we coupled our own savings with family loans to come up with an offer for $270,000.  There were 10 other cash offers submitted in one week, but by some miracle, the owner selected ours.  A couple weeks later, we owned the house.

It had been our intent all along to take out a mortgage on the property within the first six months.  A process our mortgage broker called delayed financing.   We’d apply for a traditional 30-year loan and when we closed, the bank would essentially cut us a check for $270,000.  At that point we could repay the family loans and still have a little left over to cover some of the extensive renovations.  We planned on finishing the basement, redoing the kitchen and bathroom, updating the electrical and plumbing, adding a furnace, and the list goes on.

So here we are, just about six months later.  How did it all turn out?

Well let’s start with the renovations.  They aren’t done.  Not even close.  But we’ve made a ton of progress.  Do you even remember what this place used to look like?  Well here are some before and after photos to help jog your memory…

Living Room Before and After 4-18-14Kitchen Before and After 4-18-14Wilder's Bedroom Before and After 4-18-14Bathroom Before and After 4-18-14Basement Before and After 4-18-14Looking a lot better, right?  I can hardly even remember the cat pee smell or those carpets or the pink bathroom.   Or even a time when Wilder didn’t sleep in that bedroom.  It’s come that far.  The kitchen and upstairs bath are pretty much done (I think that’s your first glimpse of the renovated bathroom – I’ll share more on that space soon, I promise!), the hardwood floors are refinished, the electrical and plumbing are updated, and the basement is drywalled.  All in all, I’d say we’re about 70% done with this house renovation.  Maybe more if you ask me on a sunny day.  

So I better warn you that the rest of this post is kind of technical.  But I think it’s important to give you a pretty clear understanding of the financing process and explain how everything worked out for us.  If you make it to the end, I promise you’ll know a whole lot more about delayed financing then I did six months ago!

So what about delayed financing?  Well it has been a real learning experience for us.  It wasn’t something we were familiar with nor was our mortgage broker.  We found that delayed financing has more limitations than a traditional mortgage.  Like a timeline and value limits and documentation.  Here’s a list of the basic delayed financing rules (more info here and here):

  1. Loan value must not exceed property’s original purchase price
  2. Loan must be secured within 6 months of original purchase date
  3. Original purchase funds must be documented to bank -we needed copies of the checks or deposits showing where our family funds came from and personal loan documents showing interest rates and other loan terms.
  4. No liens can exist on the property
  5. Original transaction must be arms-length – i.e. no relationship between the buyer and seller
  6. Loan to value must be greater than 80% and some times as much as 70% – for us it was only 80%

None of these rules turned out to be a major issue for us.  We had always planned to finance within 6 months and were happy to keep our loan at $270,000.  Our original funds were well documented in the form of personal loan papers drawn up by yours truly and formalized with signatures.  No liens existed on the property so no problem there and we had never met the seller until the day we first toured the house.

Sounds simply, right?

Well it wasn’t all sunny skies and clear roads.  We ran up against a few hurdles in seeking bank financing.  Chief among them, we had to get the property value up.  But let me lay the hurtles out in a list.  Here it is, our obstacles in obtaining delayed financing:

  • Our appraisal value needed to come in at $337,500.  The delayed financing rules stipulate that you can only mortgage the amount you initially paid for the property.  For us, that was $270,000.  But to get a loan for $270,000, that amount had to be 80% of the property value.  Meaning our property needed to be appraised at $337,500.  We decided to delay the appraisal until the end of March to give us as much time as possible to work on the property.  As I showed you earlier, we were 95% done with the upstairs and the basement was drywalled but unfortunately no paint, flooring, or plumbing fixtures were installed downstairs, nor were the exterior improvements (fence, patio, rebuild garage) even started.  Still the appraisal value came in above $337,500.  Phew!  Actually it came in well above that.  $420,000.  Meaning our loan to value was more like 65%.  That also meant that we had increased the value of the Ravenna House $150,000 in six months of working nights and weekends.
  • A heating system needed to be installed and working – We needed a working heat source in order for the property to be considered habitable and thus bank-loan-able.  we went back and forth on how to heat the house, but ended up just hiring out a furnace install.  They had it installed and the ducting run within a week.  Cost us about $5,500.
  • The loan had to be secured within 6 months – this meant we had to get enough work done to reach our necessary appraisal value  within 5 months.  That gave us 1 extra month to get the loan processed.  As I mentioned above this wasn’t a problem (the value came in well above where it needed to be), but it definitely kept us motivated.  And according to our broker, if we didn’t close on the loan within 6 months, then we’d have to wait until 1 year to seek financing.

With the appraisal value in and our 6 month window nearing an end, it was time to get the broker all of our documents.  I’m sure this part of the process is different for every delayed financing deal, but for us, this meant standard loan documentation such as tax documents, bank statements, and pay stubs but also the personal financing documentation, copies of checks and deposits of personal loans, a year worth of investment account balances showing no other private financing was given to us, and notarized personal guarantees of primary residence.  The broker also required us to write an addendum to our personal loan documents showing each lender agreed to the amount of interest we owed.  And we would have to wire the loan repayment to each of our family lenders at the time of closing.

Our quest to secure a delayed financing mortgage actually stretched out over a couple months as we worked with our broker.  But the majority of those documents were required near the end of the process.  As the broker delved further into the loan and then involved the underwriter, more documents were requested.  Our closing date was pushed. And then pushed again.  It was finally scheduled for last week.

After the delays and the extra documents, I was half expecting for a major setback at closing.  More documents needed?  Collateral in the form of our first born son?  A wildebeest invasion?  Well obviously not the third, but I wasn’t going to rule out anything else.

But it turned out that closing really was sunny skies and clear roads.  Our loan closed without a hitch last week.  Forty-five minutes of signing every single letter in my name approximately one billion times and the house was ours.  Again.  

We’ve repaid all of the personal loans with interest.  Now we just need to finish the renovations.  On our schedule.  

And that’s it.  Our whole experience seeking delayed financing on the Ravenna House.  You made it.  Phew!

xoxo

p.s. Thinking these need to make a regular rotation in our Sunday morning brunches.  Garrett, are you reading this?

p.p.s. I’m a little obsessed – okay a lot – with these tiles!

p.p.p.s. This house puts a whole new meaning in the term “small footprint”.  It’s just 84 square feet!

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