In 2010 I had it all. I was newly married and settling into the house I had I always wanted, with the garden I had always wanted, and the kitchen I had always wanted (apparently I wanted a lot). I had a great job, a home improvement blog that I loved to write, and 3 rental properties fully occupied. From the outside looking in, life was good….but from the inside looking out I was suffering a debilitating financial tragedy wondering how had I gotten here? To figure it out, I had to go back to the start of my love affair with real estate…
I have always prided myself on being financially responsible. I was financially independent from my parents at 18, I never used credit cards (unless they were paid off each month), I never skipped a bill, and my FICO score regularly hovered around 820. I loved me some Suze Orman and read everything I could about personal finance. I was 24, living with my boyfriend in a two flat that his brothers Realtor girlfriend owned (she lived on the first floor and us on the second). After a year or so, my boyfriend and I decided to part ways (something about him wanting to throw all of my belongings on the front yard may have been the catalyst), so I packed up and moved out.
That break up was a sad one for me and, for the first time in my life, I started to feel dependent. What was happening? Me?? The girl who couldn’t wait to get out from under the parental thumb so badly that she moved all the way to Oregon at 18 just to be free! And now she was back in her mother’s home searching for solace. Though my mom was welcoming (and super excited to have me there) I hated that feeling and I did the worst thing I could do at that stage – I started to make decisions out of desperation.
It was about this time that the Realtor girlfriend of my now ex boyfriends brother decided to sink her teeth into me. We had become friends over the past year of being neighbors and I was in awe of her tenacity. She was good at what she did and had something tangible to show for it – the two flat. Then there was me…I was essentially homeless (staying at my moms until I could find a place), the housing market was booming, and I had a new career with a decent paycheck. I was a Realtors dream. She praised the benefits of owning a home instead of renting one. I had never even thought of owning a property! It wasn’t even on my radar. But that didn’t matter. I was seeking shelter both physically and emotionally. She brought me to her boyfriends mortgage office (yes, the brother of my ex) and had him run my numbers to see what I could afford. The number? $150k.
Though I don’t remember my exact income in early 2004, I can tell you without a doubt that I could not afford whatever payment 150k loan would strap me with. I didn’t want to be house poor. When we began to look at places I told her I wanted to look at condos around 100k so I could maintain a buffer in my expenses. And, like all good Realtors, she instead showed me condos in the 150+ range. After showing me 5 properties she demanded that I pick one and, when I refused, she became annoyed. I was a first time home buyer! I knew nothing about interest rates, assessments, property taxes. All I knew was 150k was a lot of money. She gave me her login info to the MLS and let me do my own searching. It was then that I found the condo I had been looking for. It was a one bedroom one bath property in a working class area near the forest preserve with the price tag of 107k. We put in an offer and soon I was signing a billion papers that would tie me to this property for the next 30 years…or not.Soon after I looked back on my experience and decided that perhaps my realtor wasn’t the best at what she did. Maybe, as a first time buyer, I needed more hand holding than she intended to give. Maybe I could do a better job for future buyers. With that in mind, I signed up for classes and became a Realtor myself. Here begins the addiction…
6 months after getting my real estate license, I made my first sale – my own condo. I had only lived there a year but already I was itching to move on. My feet were wet in the real estate game and the city was calling. I purchased a new-to-me condo in Chicago and a few months later, I purchased another in the same building. I figured if I was buying a studio, buying a second would be like buying a 2 bedroom unit and having a roommate but this way I didn’t have to actually live with the roommate. Logical, right? I put 20% down on each and immediately found a tenant for the investment unit. I was officially a landlord.
A year later, December 2007, I decided the studio I was living in was too small for me, my dog, and the boyfriend that had moved in a few months earlier. It was time for an upgrade. I bought a newly converted 1 bedroom condo in a different (worse) part of the city and off we went while a new tenant moved into my studio. Now I had 2 rental units!!! Yippee!!!
Again, this was December of 2007…see where this is going?
Yeah – I should have seen the writing on the wall at this point. That last condo had been very difficult to purchase. Proof of employment. Letters to lenders. Income reports on the other two properties (rent was not covering the mortgages). But even with all of that, I forged on. I put 20% down on the new place even though my lender was telling me not to. He also told me my interest rate would be lower than the interest rate that greeted me at the table on the day I signed the mortgage…a whole point difference. When I asked about the good faith estimate he babbled and blubbered some explanation and, being I was already there, I signed the papers anyway.
A few months into living in the new place, I met my soon to be husband, E. I was working from home and making great money but I needed some adult interaction. A restaurant was opening across the street so I decided to get a job waiting tables. E turned out to be one of the owners and a few months later the boyfriend and I split making room for my future husband to occupy his space. A few months after that, I packed up, once again, and moved to E’s townhouse. It was now winter of 2008 and the 1 bedroom condo became another rental bringing the total number of investment properties to three. Three properties purchased within three years in the soon to be worst market crash that my generation had ever seen. But I still didn’t get it…Living in the burbs with E was refreshing. There was always parking, the dog could hang outside, and there were a ton of grocery stores and shopping nearby…not that I shopped (unless it was for properties!) but it was nice to know I could if I wanted to. The only thing that wasn’t so nice, was sharing the 2 bedroom/1 bath townhouse with E’s mom and uncle. Though they weren’t full-time residents, when they came to visit from overseas they tended to stay for months. 1 bathroom was not enough for 4 adults. I began to get the itch again. We started looking for houses.
In January 2010, E and I bought our lovely 3 bed/1.5 bath house. We had looked and looked and saw that the market was beginning to turn. We knew that prices were dropping and we were trying to time it just right so we could get in at the bottom. I was completely oblivious to what the upside of buying during the market crash meant for my own depreciating rentals. The hard downside was soon to come.
Let’s pause here to go back over the dates and numbers of these properties:
|DATE BOUGHT||PRICE||DATE SOLD||PRICE|
Just to reiterate – I put 20% down on each of these properties (for the house I put the money down and E paid me back over a year) plus closing costs and all the money that goes along with moving. Over 130K in down payments alone. But why stop there?
The new house was a fixer upper. We tore out a wall, completely rehabbed the kitchen and bathroom, built an office in the basement, got all new appliances for the laundry room and kitchen, had a front porch built, added drainage tile to the entire outside of the house, and, of course, custom-built all my square foot gardening boxes for my 18 x 24 foot organic vegetable garden…with custom organic soil that mixed myself ($1500 for soil alone). All in all, I would guess we put 40-50k into the house after we purchased it. Half of which was mine.
Totally worth it!! But seriously, to put it simply…
WE WERE HEMORRHAGING CASH.
Before we get to the fall of this cautionary tale, l ask you, why didn’t anyone slap me??? Why didn’t anyone tell me to slow down?? Why didn’t anyone cauterize the bleed of cash that was flowing from our bank accounts directly into the house (and garden)?? Well…I know why. Because my family was proud of me. They were excited for me. They thought I was being smart with my money…and so did I.
Next up in the series…What happens when you are mortgaged out the hoo-ha, your tenants bail, and a divorce is brewing? Shit’s about to get real…
Until next time…