Inside the Loss

I don't know what it's like to foreclose on a property, and I hope that I never do. But the stress that we experienced this year over our finances and failed apartments was worse than anything that we had faced before.

One of our rules for investing, and that we taught others when giving presentations or personal counseling, was that you should never borrow more equity from your home to buy rental properties than you can afford with your current salary. So, if the market dropped or you had a vacancy, you wouldn't have a fear of losing your primary residence. We followed that rule, and, because of it, we didn't lose one night's sleep over our rental properties.

That is, until this year, anyway. The problem wasn't that we had borrowed too much from our home (that eventually became an undesirable consequence, though). It was that all of our money was used to pay for the overages on the apartments every month. In the beginning of 2007, we could see when our money would run out if things didn't change at the properties.

My husband would speak to the property managers and travel out (probably not often enough) to visit each apartment complex. He would detail for each manager what their expenses should be and review every tenant and their payment history--or, for us, the lack thereof. He would give the PM instructions for each tenant, the landscaping, the utilities, etc., and return home confident that the managers understood what they were to do and that the properties would be slowly turning around. We would have hope and excitement that all of our money and patience and risk would pay off. But, then the same old patterns would repeat themselves and we'd be asked for more money to cover the expenses. Every single month. Never fail.

By February, we had both properties on the market. We had had them for sale on and off for a year. Even then, we would question whether or not we should sell them and definitively lose all of our money, or if we should wait just a bit more to see if things would turn around and we could recoup a portion or all of our losses. One day we would be convinced to keep one complex, then the next day, it was the other. We just couldn't see letting go of both and forfeiting a majority of our down payments and operating expenses.

We started living as frugally as possible and changed many of our activities in order to save money. Sometimes the panic would envelope me to the point that I'd get dizzy, and only a prayer would serve to calm my nerves. As we would receive the monthly statements, we couldn't pay the managers what we owed. I would tell them that we were trying to sell the apartments and they would be made whole through title at the close. But we didn't have any buyers. Or, in the case of our OH property, we had too many buyers.

As we foresaw our finances shrinking, I would constantly ask my husband, "What are we going to do?" He was taking consulting jobs to try to get us through, but it just wasn't enough to float two apartment buildings. Our PITI payment alone on the OH one was $20,000/month. It seemed that there were unusual expenses every month, combined with the fact that our PM didn't collect all of the rent. He could explain to us in detail why each tenant hadn't paid, but he would give them ample opportunities to anty up.

For me the panic grew. My husband had a hard time accepting the fact that we would sell at a great loss. On and off for the previous year, he had refused offers for less than what we paid. I could understand his hesitancy. We put a lot of money into both properties and we thought that made them more valuable as an asset. I could see, though, that, if we kept holding out, we'd lose everything, even our CA rental that we used as collateral on the recourse loan and, possibly, our primary residence. So, I asked my husband if I could take over as liaison with the agents and PM's. That would afford him time to focus on our new business, too. He agreed.

For the first time since we started investing, I would wake up at night and wonder, "What are we going to do?" I'd sit at the edge of the bed with my head in my hands, rocking back and forth, heart pounding, unable to sleep. My husband and I had been making our own way since we were 19 years old, but this time, our challenges were out of our hands and it was frustrating not to see another option. This type of stress stayed with me all day. It seeped into the interaction with my children. I would look at other people and think, "At least they don't have to worry about paying for apartments they can't afford." I would wonder what we'd do when we ran out of toilet paper and diapers.

I'm not telling you this so that you'll feel sorry for me. I don't dig sympathy one bit, and I don't deserve it. My point is to show you that the suffering involved with financial desperation is extreme. It's all encompassing. I was so distracted with our financial problems that it was hard to mutter any intelligible prayer. All I could muster at times was a weak, "Help" and a few other words. This did give me comfort. I also held on to the thought that, no matter what happened financially, I still had my faith, and my family was healthy and intact, so we could survive anything. I also knew that there were great lessons to be learned and I was grateful for that. However, our circumstances were not ideal and it was not an experience to relish.

Although our friends knew that our apartments weren't performing and that our finances were very tight, they didn't know the extent of it until a few months before we closed on the first property. We finally sent around an e-mail asking for close friends and relatives to pray that the apartments sell. It wasn't until then that we were able to escape our financial mud slide by closing on the properties at the last conceivable minute and saving all of our other real estate.

Unfortunately, it's not a happy ending these days for many others who have had to foreclose on their own homes and/or their investment properties. The stress of being overwhelmed by your finances can be a very dangerous emotion. I'm surprised that the media hasn't worked the angle of more suicides or domestic violence as a result of the real estate down turn. Placing the facts about fraudulent lending or poorly thought out loans aside, these are people's lives. Children's lives. Stressful existences. Stress weighing so heavy that it's hard to walk upright. Can't hold up your head. Desperation. Panic. Dread. Anger. Resentment. Embarrassment. Humiliation. Resignation.

Yep, I'm glad that this year is almost over. We still carry the scars of our losses, but we have hope. The New Year promises many exciting possibilities for us and our family.

I wish that I could say the same for others.