I Was Stupid (And Lucky)

Today I’m going to write about the sub prime mortgage crisis in specific, personal terms. You see, I had a couple of sub prime loans (Thank God that “had” is the operative word there.) Here’s my story.

My mom died several years ago, and I received a small inheritance. Since the amount was enough for a down payment on an inexpensive condo, and I’d always been interested in investment property, I used the money to finance a nearby condo.

This was before real estate skyrocketed into the stratosphere, so I got a good deal. Except that since I was unemployed (did I mention that?) and getting the loan on my own (since my husband and I keep separate finances), the only type of loan I qualified for was a no-doc loan.

You know, a liar’s loan.

Now I did NOT lie.

I told them what my income was (reaaaallly low, from odd jobs) and described my financial situation accurately, which was actually pretty good from a bank’s perspective. I had practically no expenses, almost no debt, and a positive net worth.

So no problem on getting the loan. The only downside (I thought) was that it had an interest rate than that was 1% higher normal.

And no problem on renting out the condo, which completely covered the condo payments, insurance, and association fees. I was thrilled to be having someone else essentially buying me a condo.

A couple of years went by, and BAM! Real estate, especially in the Phoenix area, went through the roof.

“Hello,” I thought, “Time to sell!”

So less than an hour after putting my condo on the market, before it even made it onto the MLS, I had it sold at a full price cash offer, sight unseen, with no inspection or contingencies, at what turned out to be the peak of the market.

(In retrospect I should have let it hit the MLS, and taken bids to get a more than full price offer, like many people were doing. But that didn’t even occur to me. I was just happy to cash in. And I’d priced it high.)

So I congratulated myself on my smart thinking. I made this great investment, and I’m good at real estate! Woohoo!

(Translation: I made a decent investment in a decent location, and got lucky that I was able to rent it out AND that the market happened to peak right when my renter’s lease was up. I would have been in deep financial trouble if I hadn’t been able to rent it out. Hello, I had NO JOB.)

So of course I wanted to do this “smart” thing again. I had visions of building a real estate empire. The only catch was, I couldn’t afford anything in Arizona. Everything was now waaaaay too expensive. I couldn’t have afforded to buy our own house OR the (formerly inexpensive) condo that I’d just sold.

So I looked in Texas, and found a duplex that looked good. I bought it, hoping to hang onto it for a year or two and cash out again.

But because the duplex was a stretch, that time I got a no doc, interest-only loan. (Again at a higher-than-normal-interest rate.) I wasn’t worried about it though, because I didn’t expect to own it terribly long.

Shortly afterward, I got a temporary job and started the previous incarnation of this blog. I also had less-than-stellar tenants, and repairs that I had to pay someone else to do because I didn’t live nearby. I was just never really sure what was going on.

I very quickly got frustrated, and very stressed. I realized what a colossally stupid idea buying that duplex was, and how quickly it might eat through my savings. I put it on the market. It took a month or so to sell, and I sold at a slight loss after Realtor’s fees, but it was gone!

It was such a weight off my shoulders.

And then the market collapsed.

I got lucky SO MANY TIMES, despite doing incredibly stupid things. I’m extremely grateful for that, otherwise I would be sitting here telling a very different story.

And yes, I knew what I was doing. I even did the “worse-case” what if’s like “what if I can’t get it rented”? and determined how long I could make the payments using my savings. But I wanted to believe, and it had worked out wonderfully before…

When things are going good, it’s human nature to believe that they will continue to go that way. It doesn’t make me a bad person that I did some things that were stupid. It makes me human, and overly optimistic. Luckily, I realized my mistake and was able to get out of the duplex in time. That doesn’t make me “better” than people who didn’t realize it until it was too late. It just means that I got more more interested in personal finance at the right time, and that I was able to find a willing buyer.

I will invest in real estate again.

Local real estate. That I pay for in cash. I’m never going through that kind of stress again if I can help it.