Pt 2 – The Fall of My Shortly Lived Empire

*** 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.

Image result
~via~


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.

There I am!  Buying at the top and selling at the bottom…~via~

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.  Ill 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 road block.  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.

Picture of a road with a brick wall running right across it.  In this picture the brick wall blocking the road is a symbol of adversity, challenge and obstacles.
~via~

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 sub prime 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
2004 107k 1/2005 115k
2005 100k 5/2012 40k
2006 100k 8/2013 47k
12/2007 159k 3/2011 60k
1/2010 204k E 5K

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 attorneys 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 flood gates 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 as well.  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.  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**

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34 thoughts on “Pt 2 – The Fall of My Shortly Lived Empire

  1. That sounds like a rough go of it. I agree with house prices don’t always go up. Just yesterday I heard a co-worker trying to talk another one into getting a house and “just paying the PMI” because while you’re renting you’re not building equity… I quickly pointed out what you experienced, and what we experienced – Home prices don’t always go up.

    Even in our current house, adding in the improvements that we’ve done, and the current increase in value, we’re just barely ahead of what we paid for it, and what we’ve put into it. And that’s not counting little maintenance things like maintaining the lawn, beyond mowing it needs fertilizer occasionally, weed killer (I skipped that this year and totally regret it) weed eater replacement, gardening and soil and even just the other costs associated with owning versus renting. It all adds up.

    I bet depression would be inevitable dealing with all of that AND a divorce. Good for you for not just succumbing and beating yourself up about it for too long. We’ve all done some dumb things and made bad money choices. It’s just part of life. 🙂

    I’m looking forward to part 3!

    Liked by 1 person

    1. Awww. Thanks, Mr. SSC!

      Believe me, it is much easier looking back than when I was neck deep in it. I understand why people should want to take advantage of low interest rates and PMI, particularly if they think they can earn more with their money in the market. But it’s risky business and one that I am not interested in subscribing to! I definitely chose not to factor in all the maintenance and other mo eu I put into these places. The number would be way to high!! 😩😉

      Thank you for your kind words. I came out of the fog a few years ago and a few months back I celebrated my financial recovery. Life is good and only getting better!

      Liked by 1 person

  2. Wow, I can’t even imagine what that must have felt like. Did you have to stop paying on each individual property in order for the bank to consider a short sale?

    And the craziest part is if your timeline was shifted either a few years earlier or a few years later,, it might be a completely different result.

    Like

    1. I know! Hindsight is 20/20. Yes, I had to let them all go but one at a time. Had the two studios done in reverse (the primary loan over the investment) i would have kept the primary. Because it went first, there was no point to me to save the investment. The interest rate was higher and o wouldn’t be able to modify with my shit credit score. Any money I through at it would have been a complete loss.

      I think about all the things that coulda woulda shoulda. And then I realized I was wasting my time. It happened as it did. Moving forward is the only way to get out. I am so grateful I could summon the strength!

      Thanks for stopping by!!

      Like

  3. FrugalFox

    Reading through your post was quite upsetting. I didn’t know anybody who suffered like this during the “financial crisis”. It kind of brought it home how much people lost.
    Hope everything remains great for you now.

    Liked by 1 person

    1. Aww, thanks Frugal Fox. Writing it was upsetting! A lot of tears shed but most of them were shed from writing the next post – my recovery. Picking up the pieces of a shattered life is the saddest thing I have ever gone through. It turns out taking accountability for your actions can be extremely gut wrecking…maybe that’s why people choose not to do it. My original post was twice as long but I went back and censored much of the emotional side. 😉

      Before this happened, I was VERY vocal with people about what they should and shouldn’t do with real estate and finance. Now I have a completely different voice. I learned a lot about compassion and judgement and try my best not to add to someone else’s shit storm. We all know what we should have done when we are facing reality. But knowing that doesn’t rewind the clock. I have had many conversations in the past few years when people bag on the unfortunate folks who lost everything in that market. I have defended the choices of people I have never met because I was one of them and I choose to give them the benefit of the doubt. Whether you bought with no money down or 50% down, the drop in value was brutal for everyone in the market. I consider myself one of the lucky ones that I at least had a “home” to go to…even if it was for a short time.

      Thanks for taking the time to comment. Pt 3 posts on Friday. 🙂

      Like

  4. Thanks for sharing your story with us, it’s quite interesting to hear a first-hand account of the GFC and how it affected you. I think cutting all those ties sound like it was the best decision, living rent free for that time during the final sale really would have helped you become ready to pounce into the next stage of your life.

    Jasmin

    Like

    1. Hey Jasmin!

      It absolutely helped to not be paying rent but the shame wasn’t worth the savings. I didn’t feel worthy of forgiving myself until I was standing on my own two feet again. Living rent free in the banks unit was a low time for me and I didn’t like the idea of profiting from the experience. Don’t get me wrong, I definitely saved, but the amount of work I was doing was less than half of my norm. The real savings began when I finally got into the rental unit and felt like I could start rebuilding. Until then, I was living in limbo waiting for the bank to take an offer.

      That being said, my new life made it easy to save. In the 4 years since I had left my neighborhood everyone I knew had moved. I had no one to go out with even if I wanted to! I was not only starting over financially, but I had to build a new community of friends. FYI – Making new friends in your mid 30s sucks!! Thankfully I had my dog which made me get out and eventually form relationships with the other dog owners at the dog park. To this day, that is my core group here. 🙂

      Thanks for stopping by – Friday’s post explains how I got my shit together. Well, I’m convinced I’ll always be working on that point! 😜

      Liked by 1 person

    1. Haha – I’ve decided there is no such thing as sanity!! 🙂 One slow foot in front of the other is the only way to go.

      And, yes, I am so much stronger!! I learned what I didn’t want in a partner, what I couldn’t afford in my finances, and really what I wanted out of life. Bigger and better does not make me happier. Simple and balanced is my new way of life…good friends help too! 🙂

      Like

  5. You are one tough cookie! Picking yourself up after such a great fall takes a lot of grit. I might have wallowed in misery another year or two before coming out the other side. Thanks for sharing your story. People need to get the message about real estate. It’s not the cash cow it’s made out to be. I mean – it can be, but it takes a lot of precision, time, and a little bit of luck to be successful.

    Liked by 1 person

    1. Hi Mrs Groovy!

      You know, it’s funny how strong I thought I was until I was in it. Believe me, I took my time crawling out. I was VERY hard on myself. I was ashamed and embarrassed…my pride was deeply hurt. And all of that was over the real estate! The divorce barely put a dent into my hurt – I valued my condos over my husband. Sounds awful to say but it’s true! The way some people say they love their dogs more than their kids…seriously (I won’t name names ;))… But really it’s because we value the things we think we can control. I thought I was in control of everything – I had no idea how wrong I was!!

      I agree that real estate is a finicky angle to wealth. I definitely got swept up into the hype!! And even after everything that went array, I STILL love looking at properties. Thankfully, I gave up my license a few years back so I no longer have access to the MLS. I also have a better understanding that taking on the debt of a mortgage is just as bad as taking on credit card debt, car loans, or any other thing you leverage your future earnings against your current financial state. If you have to borrow, you better be good and sure that you can pay it off. That lesson is burned on my brain.

      Like

  6. Julie @ Millennial Boss

    Where have you been all of my (FI) life?! LOVED the realness in this post. Will be stopping by your blog often! Thanks for sharing your story with us. It especially resonates with me because I’m about to purchase my first rental property.

    Like

    1. Oh girl…you have no idea how REAL this post was before I edited it!! 😉

      Congrats on your first rental!! I can tell you all the things NOT to do but I am guessing you have more sense than I did when I jumped in head first. 🙂

      Thanks for taking the time to come by and leave comment – it means a lot! Tomorrows post is how I recovered from all this crap. Also highly edited! 🙂

      Like

  7. Internet hugs! I’ve never met you, we’ve only known each other via these little comment boxes on your blog and on mine, but I had a picture of you in my head based on our little interactions. And the picture was that of a happy-go-lucky person. Reading about your past and these tough times make me admire the fact that you now seem so happy and _light_ (if that makes sense). It must have taken tremendous strength to pull through and not just curl up on the floor and cry. I need to read part 3 to feel better, so don’t leave us hanging too long.

    Like

    1. Awww – Thanks Mrs. BITA! 🙂

      I love to hear the picture in your head is a happy-go-lucky person! I think for the most part I am…and, don’t get me wrong, I curled up and cried a few times.

      Tomorrow the last “episode” will post. By far, it was the hardest to write so I’m a little nervous being so out there. I was so concerned this whole time that people were going to hate on me for walking away from my properties. Going back through it I realized that I didn’t have many options. I am so happy to have learned this lesson as early as I did and on my own. I can only imagine how it must have been during that crash to go through that with kids or medical issues. It sounds cliche to say but I am so lucky to have my health and my family. The rest I can rebuild – and did.

      Thank you for being a friend…even though we have never met! 🙂

      Like

  8. prudencedebtfree

    Your darkest hour certainly was dark. SO glad your mom was there for you. Big indication of growing wisdom: Your pride didn’t get in the way of staying at your mom’s. Being humble is a sign of good things to come. On to part 3!

    Like

    1. Yes, my mom was a big help. Just knowing I had somewhere to go. I remember when I bought my first place – I had this vision of being completely broke and skinny begging for food so I could pay for my house. I told my mom and she said not to worry – she would always feed me and I would always have a place to stay. It took such a burden off my mind that, despite my wanting to be independent, I wasn’t completely turned out. 🙂

      Like

  9. Our Dime Our Time

    My wife and I were right there with you on the bad timing part. After getting out of the Navy in late 2005 we moved to Atlanta and rented an apartment for a year. We thought we were to good to be renters and deserved our own place. We got caught up in buying a new construction 2 bed townhouse for about 180k in 2007 (great timing).

    Fortunately, I was left off of the loan because I was in school at the time and was not working (smart right) but this left me not tied to the property when in 2011 it was worth about 80k and we had a baby on the way. We did not want to raise a child in that area so we made the very weird and difficult decision to let it go. Thankfully I was now working and still had use of my VA home loan which we used to purchase the short sale that we live in now.

    What a weird time that was, thanks for sharing.

    Like

    1. Smart way to turn it around! 100k drop is brutal!! It is never easy to make that decision. Lucky for you guys only one was on the bad loan which gave you a chance to take advantage of the market at a great time. I bought all mine on my own except the house I bought with my ex. He was the one who told me it was best to let them go. I was still trying to cover everything myself and was using all of my savings to do it! It was a relief when the decision was made, but that feeling was soon replaced by the most frustrating 3 years of my life! Weird is another way to put it. 😉

      Thank goodness we are in better places now…and you with a little one in tow! That makes all the difference in location. Thanks for taking the time to comment. 🙂

      Like

  10. Eek! An extremely expensive lesson, but a lesson nonetheless.

    Just remember how this felt, and use that to fuel your next rise! I have no doubt that you’ll be able to build something up again–and, due to this hard-earned lesson, THIS empire will surely be built in a more sustainable fashion! 🙂

    Like

    1. Hey Froogal!

      For some reason your comment went to spam and I just found it so I apologize for the late response. Yes, I learned a huge lesson…and thankfully I have already begun to rebuild. It’s funny, it never occurred to me I was doing anything wrong until I was neck deep in debt! I’m so happy I was able to turn it around.

      Thank you for taking the time to comment and I apologize again for the late response!! 🙂

      Like

  11. Tough journey. I’m sorry to hear about the losses. When you put the chart up there it really puts things clearly.

    I also lobbied for a loan modification Bank of America many times. They rejected me every single time so I gave up. Curiously enough, I think in 2012 January Bank of America reached out to me for a free loan modification. They lowered my 30 year fixed rate from 5.875% down to 4.25% for free.

    The reason is because Bank of America was find over $10 billion by the government and part of the settlement was for them to offer loan modifications to those people who actually paid on time, which I did.

    Do you know what the value of your properties are now based on Zillow or whatever real estate estimate tool? Or perhaps that is too painful to look at now. Hopefully things are much simpler now in your bank count is really back to accumulating a nice amount.

    Sam

    Like

    1. B of A was the worst! Chase was no picnic but at least they got it done quickly and reported it to my credit report properly. B of A still shows me owing 156k even though the account is closed and was charged off. Despite that, my credit score is recovering.

      I was never offered a loan modification once I was in the short sale process even though it was my primary account. In fact, I when I told them I would pay in full the balance that was behind if they would modify they still said no. The interest rate on my loan (I forget now) was at least 1 full point or more higher because it had been bought as an investment. No point trying to save that ship.

      I haven’t checked on Zillow (I find their numbers to be skewed up anyway) but I live in the same building now and the prices are still not where they were at the peak. The unit I am in now sold at it’s highest for 120k, I bought it in Oct 2014 for 65K, ad currently they are selling around 75k. I think next year we will see a big rebound in my building specifically because it is the only one in our neighborhood under 100K…only time will tell though!!

      Like

    1. Thanks and thanks! You know I read and reread it a thousand times and still didn’t catch it. 🙂

      Glad you liked it and thank you for taking the time to comment. 🙂

      Like

  12. Pingback: When $6,000 Turns Into $111,000 In Five Years. - TJ Pridonoff

  13. Taemoo

    Oh, boy, this is a big fall. I went through a similar thing and reading this post made me laugh a little about my own experience, didn’t think that would ever happen. I bough a 2br new construction condo in river north in 2006. Wife wanted to a trial separation and kicked me out. I moved to 270 sq ft studio apartment while still paying for the condo. Trial separation turned into a divorce and the 9 year marriage was over. This lead to a short. Losing the home and money was a loss I could live with, losing the marriage was difficult to swallow. I’m happy to read that you were able to regain your independence and turn the corner.

    Like

    1. Right?! It’s nice to look back and see the flowers from the weeds. What feels like a personal and scary experience is easier to digest when you know someone has been there too! As for the “trial” separation – obviously, as you read, I have been there. Our marriage was much shorter and there were a lot of big cultural differences that couldn’t be looked past. It sounds like yours was a bit more intense and I am sorry for the loss of your marriage. You’re right – all things can be replaced…a broken heart is a little bit harder to mend. I hope you have been able to turn the corner as well. 🙂

      Like

  14. First of all, I commend for being so open about such hardships. There were many financial casualties during those times. Many of those were some of my friends. I saw what they went through. One lost about 5 rental properties including their homestead. Now he is struggling to get back on his feet but at the same time I see him in a different light. He is calmer, has more perspective on life, and appreciates the smaller things. There is almost like a meditative aura about him now. Like–what can hurt me now?

    Like

    1. So true!! I have the same calmness when it comes to finances. I have seen the financial worst and survived. I know how little I can live on which also helps to give perspective. The word you used, casualties, describes it best. A bunch of people financially broken by the bank system. Sure, we played our roles, but the system was broken. I’m glad to hear your friend is doing well mentally and I hope the rest turns around for him soon.

      Thanks for stopping by to comment!! 🙂

      Like

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