Well, wasn't yesterday an adventure for us all? I have to say, I don't know what was worse, dealing with all the mean and vulgar comments or shoveling up the dead chickens. But it's a new day!
Thank you to everyone who took the time to comment and confirm what I said about bubble blogs. It was a bit disconcerting to field comments from people who, obviously, had not read my blog. I published them anyway. I try my best to be clear and concise when I write and speak. So, maybe I'm to blame that readers didn't understand my situation. To remedy this, Keith from HousingPANIC, suggested:
Carol - if people are confused with how you lost all that money then write more about it on this blog.
I know I'd have a tough time losing $70, let alone $700,000. Tell us how one goes about doing that.
I'm sorry if this is redundant to my loyal readers who have been with me since the beginning, or close to it, but there are thousands of others who seem to have some serious misconceptions about my investment strategies.
PLEASE NOTE: I don't, in any way, intend to try to "explain" or "defend" myself, as I don't feel that I have anything to explain or defend. Also, I have no interest, whatsoever, in "changing" people's minds, as I don't care what they think of me. However, if my goal is to make my personal experience an educational tool for others, then it's in the best interest of everyone to understand how I came to lose so much money.
Here's the Reader's Digest version:
In 2000, my husband (and high school sweetheart) and I decided to buy some rentals with a little of the equity from our primary residence in San Diego. He worked for a non-profit and had no retirement account, so we had to do something. We figured that having renters pay for our retirement account while we provided them with a nice place to live was a win-win situation (I know I'm going to catch heck for that statement). We intended to buy all the real estate we owned with 20% down and hold it until after it was paid off in 30 years--hence, retirement income.
It took us about two years to accumulate five homes. We refinanced the first two we bought in order to buy others, but still had plenty of equity in each one. (Later on, we did buy one house with nothing down, but refinanced it shortly after it closed--yes, with that bubble equity.) We noticed how much the homes were appreciating, so we bought more with 5-10% down. We couldn't rent them all in a timely manner because it seemed that A) Everyone was buying a house to live in and B) Rentals were cropping up everywhere. So we had to sell a few before we had a chance to rent them out. We lost money, broke even, or made a bit on those. We topped out at 12 houses, but sold many.
Our first five rentals were the core of our portfolio. They had more than doubled in value. We needed some cash flow, so we decided to trade (1031 in the tax code) four of them into commercial properties and chose apartments in other states because we were priced out of everything in California. We wanted to sell all five SFRs, but one long-term renter would cry every time I brought it up, so we let her stay and used our personal funds instead. She's still with us.
We sold the houses in 2005 and realized a gain of over $600,000, which we used to buy a well-operating (HA!) apartment building in OH and a rehab in KY. We had very poor management (over and over) and had to sink our own funds into floating the messes until we could sell them for a loss to us. My prior posts in September and the early part of October, especially this one and this one, provide all of the horrifying details, with settlement amounts.
WE DID NOT SELL THEM FOR A LOSS TO THE BANK. We paid off the loans. We were able to settle for enough cash to pay most of the debt that we incurred during the nightmare, but we sold the apartments for less than what we paid plus all the money that we put into them. Hence, we won't have the exact amount until tax time, but it will be more than $700,000 that we lost. We had the money in our hands (more technically, for a 1031, the intermediary's hands) when we sold our rentals, then we lost it and so much more.
We came very close to not being able to make a payment on the apartments and our primary residence, but closed right in the nick of time to save everything. We are not now, nor have we ever been, in foreclosure or near it. Our credit ratings are once again in the mid to high 700's. That was one reason why we could qualify (and I mean QUALIFY) for so many loans.
There. That should catch you up somewhat, but then you miss all the interesting (and sometimes funny) stuff I wrote in between. I would like to hear from other investors in the same boat. You can post anonymously, so you won't feel the heat.
Do you really think that average people like me bought investment properties in order to artificially inflate the value of real estate, intended not to make the payments, and then just easily walked away? Do you have any idea what those people and their families must be going through? But it's so easy to sit "anonymously" (I'm sure you all know that nothing is really anonymous on the Internet) behind your computer and attack them--and me. I would bet that, if any of you were face to face with someone in their position, you would probably show more compassion. Or, maybe it's the fact that I have seven children that makes me more empathetic to others.
My husband and I didn't realize until late 2004 that the market was too hot and on the cusp of cooling. That's why we listed our properties in 2005. We wanted to liquidate in the California market and move to investments that would probably never appreciate in order to glean a cash flow. But that's just our story. I'm sure there are many more interesting personal experiences out there.
I have to say that your comments have kept my husband and older sons very entertained here. I would like to respond to each and every one, but I have the feeling that you don't really care. You just needed to vent. My absolute favorite comments were the ones (some may be on HousinPANIC) that said that they would call the FBI and couldn't wait until I got hauled off to jail. Uh, OK. I'd be happy send the FBI my loan applications myself because I have nothing to hide. Maybe, if you call them, the conversation can go something like this:
Bubble Blog Reader: Hi, FBI? I want to report fraud in someone's investment practices.
FBI: Yes, thank you for calling. Can you give me the details of the fraud perpetrated?
FBI: Can you tell me what happened?
BBR: Well, this lady . . . it's all on her blog . . . she bought properties legally . . . never lied on a loan application . . . kept a refrigerator from a home that belonged to her (because you know how the buyer is supposed to keep everything they see in homes that they buy) . . . then she made a bad investment move and lost $700,000!
FBI: Oh my! Did she lose your money or that of other investors?
BBR: Uh, no, just hers and her husband's.
FBI: Well, then, I don't understand where the fraud comes in.
BBR: You must be an idiot then! Someone who doesn't deserve to live another minute! Please don't spawn any children because they will be a burden to this society. If you don't see things my way then @#%& &*$#@ *^$%&. And you're a $%&# *^#@. It's as plain as day. SHE drove up property values. SHE has caused the foreclosure fiasco. SHE has ruined the economic forecast of this country for the next decade or longer. SHE is greedy! SHE wants to buy more real estate! SHE must go to jail!
FBI: Well, how exactly were YOU harmed?
BBR: Me? Well, I don't intend to ever buy real estate. Actually I can't because my credit rating stinks and I'm in debt up to my eyeballs. But, if I could, I wouldn't because only idiots, miscreants of society, buy real estate. It says that on all the bubble blogs.
FBI: Bubba who?
BBR: Rrrgh! Never mind. Could you just go out and arrest her and throw her into debtor's prison. Plus isn't it illegal to have more than 2 children in this country? This lady is a loser in every sense of the word!
FBI: Okaaayy. Why don't you give me your address so we can send someone out to, uh, take a report?