I bought my first very similar house in 2005 and experienced this exact thing. Fresh out of college, moved to South for a promising job, and bought something small I could easily afford. I even wrote about the potential of a housing crash in Oct 2005 ( http://chir.ag/200510301225 ). I lived there through the housing bubble, saw my 145k house go up to 200k and then down to 75k, rented it out after I got married and moved away, and kept losing thousands each year for 5-6 years.
Last week someone offered to buy it for just a bit over my mortgage pay off balance. I will lose a few thousand but at least I will be out of the landlording business. I have my fingers crossed that the inspection goes well but I'm not holding my breath.
> From the original purchase in 2005 to last year’s sale, I lost $25,500. My losses as a landlord? At least $35,000. Whatever the sum, it no longer mattered. I was free.
It's scary how similar even his figures are to mine. I bought a much more modest house than I could have bought in a prime location, I fought hard to get a great deal on my mortgage, I paid bills on time and kept up with maintenance, and I've kept up with the market trends so as not to miss my chance to refinance/sell.
Time and again I asked myself what I did wrong to lose 60k+ of my hard earned money over a decade. But after an investor friend of mine discussed his plans to buy numerous distressed properties to fix and rent them, I realized what had happened. The Great Recession had turned affordable residential real-estate into a zero sum game. I, along with millions of others had to lose 10k each per year to make it worth it for him to be a residential real-estate investor. My piggy bank investment was competing in the same arena has his tooth-and-nails livelihood.
The big lesson is that market manipulation can convert a non-zero sum activity into a zero-sum activity. It used to be that your small family home was a safe, gradually appreciating asset. Most everyone won, few lost.
> In 1944, John von Neumann and Oskar Morgenstern proved that any non-zero-sum game for n players is equivalent to a zero-sum game with n + 1 players; the (n + 1)th player representing the global profit or loss. https://en.wikipedia.org/wiki/Zero-sum_game#Extensions
Just need one new player to turn the game around. Enter my friend and a few thousand others like him with resources to buy out every third upside-down house in the neighborhood with cash, upgrade bath and kitchen, and then rent them out long-term with a team of property managers. It's a sellers market but very few homeowners are bidding up sub-200k houses. Instead it's the cash investors low-balling the price until owners such as myself and the author just break down and say 'Screw it! At least the 60k loss will save me some taxes next year.'
I have lived in the Bay Area for 6+ years. Could have bought a house, but the prices seemed crazy in 2014 and look a lot more crazier now. And the prices keep on creeping up higher!
All my friends have bought houses. Some of them have bought houses worth 2.4M in Cupertino. Most of them are Indians on H1B visa and not Green Card in sight!
Are Bay Area prices sustainable? Am I being unnecessarily paranoid?
Bought a house in 2007 in Colorado Springs and had to move out of state in 2012 for work - the crash meant I was underwater on my mortgage, but not by much.
So, I decided to hire a property manager (Lesson 1: Never be a landlord if you're not going to be present to manage the property yourself - PMs take their 10% cut of the rent and do absolutely nothing in return) to rent the place out and sell in a few years after the market had recovered - which didn't happen in Colorado Springs until recently.
Last summer I gave my tenant her 60 day notice, found a listing agent, and my wife flew out to Colorado Springs to help prep the house for sale...
Turns out the tenant had totally trashed the place. In fact, she had been operating a rabbit breeding operation in the house (there were rabbit cages stacked floor-to-ceiling in some places, and a large outdoor hutch had been constructed in the back yard). Carpets ruined, feces smeared on walls, and a general unholy smell throughout the entire house. Hell, large amounts of rabbit bedding and feces had been dumped into the crawlspace.
This is the tenant I had cut a lot of slack to over the years with late payments, etc (Lesson 2: Never cut a tenant any slack - if you do they'll walk all over you).
What should have easily been a $40k profit (had the house sold at market rate) turned into a $5k loss (at least I didn't end up owing any capital gain tax, pfft). I will burn a house to the ground before I become a landlord ever again.
Also, Zillow keeps sending me updates on the property value (which magically keeps going up), despite my attempts to make it stop (I don't want to know, really) :(
it's sad, how much the author suffered for bad behavior on behalf of the banks.
They got bailed out, the author didn't. He should have foreclosed.
The banks lent money they didn't have. I don't see why the author paid it off. I respect his integrity, but he should have declared bankruptcy.
What I don’t see anybody talking about what’s going on with car loans. The next time we have a recession it’s going to be a lot worse as people will lose both their houses and their cars. I know a waitress who can barely afford an apartment, with no family support or co-signer, who financed a brand new Jeep. This is not sustainable.
Why don't more people just live in RVs/vans? Taking out a mortgage is a huge risk over 30 years - what happens if you lose your job and cannot find another one at the same pay? Or you get sick and cannot work?
I guess you could sell and take the equity out of the house but you lose so much money and time to the banks.
My god, the author of this story made all the wrong choices. Wouldn’t walk away from the property, liquidated his 401k to obtain sole possession of the dwelling from his ex, wouldn’t commit to missing payments to get a workout commitment from his lender.
Had he walked away from the property, he’d still have his 401k (protected from creditors by federal law; he could’ve lived in the house for years while it went through foreclosure and put his mortgage payments in his 401k) and if the lender absolutely decided to pursue the deficiency judgment (rare), he could’ve settled for pennies on the dollar or declared bankruptcy and still been hundreds of thousands of dollars ahead.
Just sad. My advice to those who read this: never get emotionally invested. It’s just business. Look at the numbers, and throw out any sense of morality of the debt repayment. That is how the system is built; act like a rational actor within it (losses are built into the mortgage interest rate). Your future self will thank you.
Any link to this article without paywall?
No mention of Feinstein, who voted for bailout, despite 90 percent of voters against.