*** This is post 2 of a 3 part series. The first post discussed the rise, this one the fall, and the third my recovery. I hope you’ll stick around to check them out and possibly learn from my mistakes. 😉 ***
The first post of this series spoke about my love affair with real estate. How I stumbled into buying my first condo at 24. How I quickly sold and bought a new one in the city at 25, and how I turned that one into 2 more before leaving the city for the burbs a few years later. This post will discuss the outcome of all those properties, specifically, when the real estate market took a dump. What happens when the world around you crashes? When your tenants stop paying their rents? When the husband you just married turns out not to be the husband you were hoping for? And when you quickly realize that you need to save yourself from the sinking world around you. This post is about survival.
In 2010, the results of the housing market decline finally took hold of my hem and the jumbled house of cards I had built swiftly fluttered to the floor leaving me naked and exposed to the elements of the “real” world. The properties that I had worked so hard to purchase (with 20% down) slowly began to take over my financial life. My tenants lost jobs and couldn’t pay rent. I had already been paying out-of-pocket for the amount that wasn’t being covered by rent (I hadn’t learned the 1% rule yet!) so any loss of income, especially vacancies, hit me twice as hard. Let’s not forget – we had just bought and rehabbed (with cash) our new house!!
I started to scramble – if I lowered the rents and paid even more out-of-pocket, could I keep my head afloat? What if I sold them…would I be able to cover the purchase prices? The answer to these questions was a resounding no. The lowering rents option would still leave me at a deficit…a large one. But that wasn’t the worst news…
When I left the first building (the one with the 2 studios) I was satisfied with the fact that both units were rented. I had no idea what was going on in my building or that market but when I was forced to check in, the numbers were astounding. To add insult to injury, each of my units was now facing a $5000 special assessment – 10k total! The building with the one bed looked just as bad. Units were selling for less than half of what I had bought mine for 3 years prior. Things did not look good – I felt like my walls were caving in. I contacted the bank about loan modifications but, being these were income properties, they were unable to help. I had to make a difficult choice. I had to let the properties go. It was time to short sell.
To say that coming to that conclusion was tragic is an understatement. I was the Girl that Could. I was the one who had scraped together all of this money for all of these down payments – remember? Over 130k in cash over 5 years! My family, particularly my mom and grandparents, were so proud of me and I was so happy to please them. I had put every cent I was making into these properties hoping they (and the rental rates) would rise to eventually cover all of the costs associated with them. Man, was I wrong. I was wrong to listen to the old adage that “housing prices always go up”. They don’t. Sometimes they fall…and they fall hard.
So here’s how it went down…
The last unit I bought went first. The 1 bed I just had to have to make room for my boyfriend? Yeah – that one. Again, I bought it for 159k in December 2007. In March 2011, 39 months later, it sold for 60k. WHAT?!!! I lost 30k in cash (20% down) plus closing costs on the purchase and sale sides. On top of that, the unit had been costing me $300 a month out-of-pocket since the beginning because the rent didn’t cover the mortgage/assessments/and taxes. I was happy to see it go but so so sad as I knew this was just the beginning.
Next, came studio #1. That one hurt. That was the property I thought I would ALWAYS keep. My first place in the city. My favorite of them all. The one I pictured using as a second home in the city for years to come. I LOVED this condo…it had once felt like home. And here I was watching as the market took her away. What I bought for 100k, sold for 40k. A loss of 60k or 60%. It was brutal to watch…especially thinking that had I just saved all my money I could have bought that unit in cash and never had to see it ripped away from me. Why hadn’t I focused on paying off one at a time? Why did I get so greedy? Again, why didn’t anyone stop me?
The last unit standing turned out to be a blessing in disguise. Around 2012, two years after our wedding, it was very clear that my husband and I were not going to work out. The stress of these properties was a big one for me, the stress of rehabbing the house was a big one for us, but overall, the difference in our backgrounds and cultures combined with our stubborn pride and steadfast independence is was what killed our marriage. I’ll be kind to us both and leave it at that. 🙂
In October, I left our house for good. I left under the guise of a trial separation, but when the back door closed behind me, I knew I would never be back. I unpacked what was left of my life in the only remaining rental unit that was still tethered to me by a very thin string. My blessing was having somewhere to go. With winter fast approaching, I took this opportunity to stick my head in the snow and settle in for a long hibernation. I needed a break. I did the only thing I could think to do – I pressed pause on my life. But it didn’t last long…
Shortly after surfacing for air, I quickly engaged in a full-on war with Bank of America. You see, I had never lived in this particular unit. The condo had been purchased as an investment unit and had now become my principle property. At that time the banks were not modifying rental properties and regardless of the many conversations and packets of information I filed, every avenue I turned down I slammed head first into a roadblock. No hardship letter in the world was going to modify this loan…I know, I tried. My option was to pay the back payments and keep the loan as is, or I had to let the property go.
Tell me…what would you have done? Would you keep a loan for 80k knowing that the unit is now only worth half of the cost? Knowing that you’ve already messed up your credit score? Knowing that you just walked away from your husband and the house you just sunk 45k+ into never to be seen again?? I don’t know…I suppose some would stay. Some might feel compelled to keep it. I suppose if it was the only property that I was dealing with, I would have stayed too. But I didn’t.
It was after this final conversation with BOA, the one that basically gave me the ultimatum to pay up or leave, that I really took some time to think. The past year began to wash over me. To say I was angry is an understatement. I was enraged!! I had put 20% down on all my properties. I paid every single month even though I knew I was operating at a loss – I felt that was the tax for owning properties and, eventually, one day it would flip and I would be making money instead. I felt like I had played the real estate game by all the rules and the banks had changed the rules. They offered no money down loans and subprime bullshit to every joker who could sign their name. I was bitter. I was sad. I wanted nothing to do with this place. Again, I made the difficult choice to let it go.
It took months to get an offer and every month I stayed, I paid only the taxes and assessments – I didn’t want to screw my neighbors any further by making them pay up for my deficit in association dues. It was bad enough I was contributing to the lower sales prices in the building, but to also stiff on dues seemed cruel. I saved the rest of my income for closing costs and whatever was to come next. I had no idea how long it would take for my unit to sell, I just knew that my next move would have to be strategic. I was in their crazy game now but I was going to play by my own rules.
Months went by and finally, we had an offer – 60k. The bank turned it down. Six months later, a different buyer offered 45k and they negotiated up to 47k. The bank took the offer and 30 days later I, again, packed up my stuff and moved out. It took 11 months. I had lived in that unit rent free for 11 months.** My savings account was showing signs of life again and, for the first time in months, I was finally able to exhale. I have no idea how long I had been holding my breath…
The chart below is a brief overview of all my properties. When I bought, how much I paid, when I sold, and the sale price of each:
|DATE BOUGHT||PRICE||DATE SOLD||PRICE|
To see it in black and white is still nauseating to me.
On the day of the closing of my last property, I went to the office of my attorney and signed all the papers. I am extremely grateful that I didn’t have to go to a closing and sit in front of the new owner of my unit (as I had to do with when the other studio had sold). With the last signature still wet with ink, I stood up, shook my attorney’s hand, took the 30-floor elevator ride back down to the lobby, and walked out the door of the building all while trying my best to hold back my tears. Two steps outside the door, the floodgates opened. Tears of relief, sadness, shame, and, joy commingled in a pool before racing down my face. People looked at me like I was crazy, but I didn’t care. It was over.
Everything that had led up to that point – buying the properties, meeting and marrying my husband, the market crashing, losing the tenants, losing my husband, losing my house with the kitchen and the garden that I loved so so much…
It was over.
It took 9 years total to buy and lose everything that was important to me (minus my family!). It took 6 years of buying and 3 years of selling to bring me to the exact same spot I was in 2003. I had done a complete circle and wound up right back home and, of course, mom was there with open arms to welcome me back. But this time was different. I was not afraid to be dependent anymore – to lean on those who love me. I was not afraid to feel weak – because I knew that I wasn’t.
When people have to fight to be heard, when strong people break, they never lose the fire inside. It just simmers waiting to reignite. This time, I was simmering. I knew there was a light at the end of this tunnel. I knew that I would survive all this loss and I knew that I could win this war and regain traction in my life. I now had the battle scars to prove it.
Stay tuned for the next and final post in this series – recovering financially and emotionally from my darkest point. There is so much that I am grateful for and so much I have learned. Not giving up even when you really want to has been one of my biggest lessons, but being kind to your self when you have made mistakes is what really carried me through.
Until next time…
**A message to the haters – I am sure there will be someone who wants to point out that having previously saved 130k over 5 years I should be able to pay my properties as well. And this might be true, had it only been one. The snowball that accumulates in wealth also, unfortunately, accumulates in debt. With my tenants paying I was still about $500 per month behind which I covered with my own money. Without them paying, I was about $2500 behind per month. I also had the new house payment and the construction costs that we had already signed up for before the ship went sideways. On top of that, a 10k special assessment that popped up on the two studios (5k each). Renting the units for less would have been a Band-Aid for the inevitable and a complete suck of my resources. I would have been renting with intent to sell – not many would sign a lease under those terms (I tried). For those who would, the credit scores were awful and I wasn’t willing to take the risk. I already had one tenant that had been squatting for 4 months without paying – the law works on behalf of the tenants, not the landlords. On top of that, I was emotionally juggling the loss of my marriage and the depression that came with it. If you have never been depressed, I am so happy for you that you have never had to feel the debilitating weight that depression can put on your life and your will to thrive. I’m pretty sure from Pt 1 of this series you can see I am an ambitious hard-working person. Having short sales was NOT the easy way out for a person like me. Please take that into account before commenting**