How we live in the Seattle area for $500 a month in this beautiful eco-friendly backyard cottage
Our financial journey that brought this project to life.
Our home, dubbed the Wattage Cottage, was recently featured on Houzz TV as it became Seattle area’s first 5-star Built Green certified backyard cottage. If you haven’t seen the Houzz video yet, you may want to start there and catch up on our story to see the details of this 700sqft eco-friendly backyard cottage we now call home. You can also now buy the plans to build your own!
Understandably, a lot of the questions we received after this video released were about the project budget and how we were able to afford this as young millennials. This article will cover the financial journey that brought this project to life. While talking about money makes some people uncomfortable, I want to share our experience to educate others and make a project like this seem more approachable. Creating passive income (such as renting out a home and living in a secondary unit on the property, i.e. “house hacking”) is a resource that anyone (with the right mindset) can achieve! So, I want to share our story so that you can see just one example of a path toward financial freedom. This is our story. It may not work for everyone but it’s what worked for us.
First, I think some context is helpful into our background and how we got started on this journey. Some facts about us that are unique to our situation that helped get us to where we are today:
Fact #1: Time is on our side.
My husband, Donovan, and I have been together since we were 16 years old. We moved in together at the young, naive age of just 19 years old. (Sorry Mom!) What this means for us is that we have time on our side, not only as partners, but as financial supporters to each other. Having a partner is a huge benefit that propelled our financial stability. Together with our combined income and with only one rent to pay, we were able to start saving aggressively in a high-yield savings account (we switched from a traditional savings account with only .01% interest to a high-yield account at 2% interest) and the most important part: we started investing at just 20 years old.
The best thing with investing is that the longer you do it, the better it gets. It’s a compound effect. It’s like when you’re standing by the shower waiting for the water to get hot, and you think, “Ok this is really cold water…it’s never going to warm up. I’m just going to sit here forever while this cold water runs down the drain wasting away — oh ok it’s a little warm now I can get in. Oh shit, it’s really, really hot! That’s really hot scalding water now!” The slow cold to warm water transition takes way longer than the warm to really-hot-turn-your-bum-red hot water jump. Once things finally start heating up, it escalates quickly. Same, same with investing.
Here are some numbers, for example:
- If you can save $50 a month for 12 months, you’ll have $600 at the end of the year to start investing.
- Let’s say that investment grows by 7%, which is an average annual return in a stock portfolio.
- In 10 years (which is the amount of time Donovan and I have been investing now) you will have $9,470.16!
- That might not seem like a huge chunk of change, but that is $FREE.99 MONEY that just grows passively because of your smart decisions. It’s like watering a plant, slowly over time it grows as you carefully water it little by little. Imagine if you invested $100/month, you would have $17,760.03 in ten years.
- In our case we saved an average of $800-1000/month for five years and had about $75,000, enough for our first down payment on a home (which I talk more about later). Here’s a great compound interest investment calculator to play with the numbers yourself!
It doesn’t matter how much you have to start with, the important thing is that you JUST 👏 GET 👏 STARTED 👏 because you need time in order to make this strategy work. And don’t think just because you aren’t 20 years old, you can’t get started. You can start now, no matter your age! You just have to start.
Check out this series for shifting your mindset, setting goals, and getting started:
Fact #2: We did not have any student debt.
I was a full-time student at San Jose State University (SJSU) and I worked 2–3 jobs. Also going to college only an hour away from where I grew up proved to be a very affordable way to get my degree. I might not have had that typical college experience nor a social life, but I am grateful for the life and opportunities it has given me today.
Donovan worked full-time as an assistant editor for a television production company while studying online at an affordable trade school to become a video game animator. He paid off the tuition within his first year of working as an animator. Not having any student debt afforded us the opportunity to start saving and investing much sooner than most people our age. The best thing you can do for your financial future is pay down your debt as quickly as possible.
I also want to point out that I have a bachelor’s degree and Donovan has a certificate as he never went to a 4-year university. It does not take an advanced degree or expensive college education to learn how to start investing. It is easier than ever now as we live in a world with advanced finance technology, such as robo-advisors and other smart investing platforms, that do all of the work for you.
Fact #3: Privilege.
I want to acknowledge the privilege that we have both had as cis-, white-, middle-class people. We are not caretakers nor do we have to provide financial support to anyone else in our family. We are married and we do not have kids (can you say, DINKS?!) We have been able to live with our parents for short periods of time in between moves (like when we bought our first home and moved in with our parents for three months while we sorted through the loan process) that allowed us to save more money. Not everyone has these advantages at their disposal. I’m not saying that we didn’t work hard to amass our own wealth and make sacrifices along the way. We certainly did. But I am saying that we have lived a very privileged lifestyle and I feel it is important to acknowledge that has been a supportive part of our experience.
Our first home purchase.
At this point we’d been investing for almost five years. We knew that it was important to diversify our funds so we were not relying entirely on our stock portfolio to be successful for us. Another strategy was to start real estate investing. In 2014, with nearly our entire life savings for the down payment and freshly married at only 25 years old, we bought a 2 bedroom, 1 bathroom 900sqft condo in Redwood City for $498,000. We only had 15% for our down payment (remember the $75k from our stock portfolio earlier) so we had to pay for private mortgage insurance (PMI) as our debt to equity ratio was higher because we had to borrow more money (a traditional mortgage requires 20% down payment to avoid paying for a PMI). I’ll never forget the feeling of pure joy of owning our first home but also sheer terror that we just put everything we worked so hard to save into one property. It would turn out to be the best decision that launched us into financial success.
Two years later and under $20,000 in additional savings, we made some basic upgrades to the kitchen and bath, new carpet, and some fresh paint on the walls. We flipped our condo and sold it for $675,000 in January 2017.
Some of this was pure luck that we bought the right place and we sold it at the right time. But it was also about paying very close attention to the housing market trends and interest rates. As the federal government continued dropping interest rates in an effort to stimulate the economy post-2008 recession, we took advantage. We refinanced our mortgage on the condo and used the extra few hundred dollars a month in savings on our mortgage payment to re-invest (hence the ability to save up another $20k in just two years for the simple remodel project.) Then we made the very scary decision that it was time for us to move on and start looking outside of the Bay Area to buy a single-family home for less than the sale price of our condo so that we could use that extra profit to once again re-invest, but this time with more leverage.
Our second home purchase. Our first single-family home.
We settled on buying a home in the Seattle area because not only do we love the adventurous outdoor lifestyle here (we both love to hike, fish for salmon, and go crabbing) but we also have family and friends around the Puget Sound area and Donovan’s family is nearby in Vancouver & Vancouver Island in B.C., Canada.
With the goal of financial freedom in mind, we started looking at single-family home properties that would allow us to create rental income whether it was through renting out a mother-in-law suite in the basement (either long-term or short-term on Airbnb) or a lot that was large enough to build a detached accessory dwelling unit (DADU) aka a backyard cottage.
We ended up finding a place that can do both — it had both a basement suite and a .25 acre flat lot that we could build on just north of Seattle in Shoreline. This was a four bedroom two bathroom 1900sqft house for $550,000. It took us about 2.5 years to find a builder, design, build, and move in to our backyard cottage.
Ok, so how much money did you need to build your tiny home in your own backyard?
The Wattage Cottage cost roughly $230k to build with Targa Homes.
Finally! Drumroll please: The Wattage Cottage cost roughly $230k to build with Targa Homes. We did not have this much cash sitting around, so we paid for about half in cash (remember that profit from our condo sale — well it had been sitting in our high-yield savings account for 2.5 years) and the other half we paid for with a loan. We narrowed down two loan options: a home equity loan and a home equity line of credit (HELOC). Because our main home value had increased in the first two years of living here already, we were able to borrow money against the house at a fixed low interest rate with a home equity loan.
Note: there are also construction loans but they tend to have shorter terms (i.e. 5–7 years instead of 30 years like a traditional mortgage) and higher interest rates which equals higher monthly payments, so we ended up not considering this option.
Ok so how do you live here for only $500/month?!
We decided on a home equity loan over the HELOC because interest rates were, yet again, at an all time low so we could lock in a fixed rate on a 30-year loan which brought our total monthly payments on the cottage to $500/month with principal and interest. We also knew the exact amount we needed to borrow because it was a fixed bid project with Targa Homes so it made more sense to do the home equity loan as opposed to a HELOC which allows you to borrow money as you need it on a variable rate.
We have since rented out our main house which covers our primary mortgage. We also have listed the Wattage Cottage on Airbnb for holidays and some vacations we have planned later this summer to bring in some extra income while we travel.
By re-investing our savings to build this cottage, we have increased our property value by about 50%. So if/when the time comes to sell, we hope to see at least double our return on investment. Remember when I mentioned earlier that stock investing averages about 7% return over a period of 5–10 years? That’s the rate we started investing. Now we’ve reached the point where the scalding hot water is finally coming in and we’re seeing the hot, hot 50% returns on our investment in just 2–3 years time. 🔥
Last fall, I quit my stable tech job so that I could start property managing and focus on starting my own business. This is how we can afford this lifestyle. What looks like luck, overnight success, or inherited wealth from the outside, is actually a decade of self-made hard work in the making. I hope this story makes investing and passive income strategies seem more approachable. For me, it started with financial literacy and a shift in my mindset. Little by little. Day by day. The water gets warmer.
