I purchased my first rental property at the age of 21. Everyone said I would make a killing and was really smart for investing so young. I wish I had done more research and seen that we were approaching an inevitable bubble. I bought my first property (a 2-family) for $190k in 2003. Within a year it was valued at double that.

After refinancing and putting money into the first property, I bought two more properties the following two years. I had 12 tenants total (being a landlord is no easy task!). The mortgage lenders were pushing ARM’s like crazy… and they made sense to an investor like me. I needed the lowest monthly payment so I could take the little income left from the rent to put back into the properties. Plus, I could always just refinance my 2-year fixed / 28 year adjustable mortgage before the 2 years-fixed were up (refinance to a conventional 30-year fixed)… right?

Well, taxes went way up. I had a few tenants that cost me over $15k in lost rent (damn tenant-rights laws!), unexpected property damage from frozen water pipes, a couple more bad tenants, and while all this was happening the value of my house secretly dropped below the amount I owed… oh sh*t.

Then I get a letter in the mail saying my monthly mortgage payments are going to increase by more than $600 a month… but wait, I’m already dishing out over $200 a month from my pocket to pay for the properties (assuming all the units are fully rented)! I can’t refinance because the value of the property is less than what I owe. I can bust my ass for the next 5-10 years trying to keep up with the payments or I can let everything fall down, file for bankruptcy, and move on.

I’m filing. And I’m damn glad. $450k multi-family properties are now for sale at $140k… less than I bought my first property in 2003. For me it’s easy because they were investment properties, not houses my family lived in (I’m single). I’m renting now and saving as much money as I can, because when things start to turn around I want to be ready, not buried under a million dollars in debt.

IndyMac’s fate was sealed after Senator Charles E. Schumer wrote a letter about the bank. Mr. Schumer spoke strongly about the agency:

“IndyMac’s troubles, like Countrywide’s were caused by practices that began and persisted over the last several years,” he said. “If O.T.S. had done its job as regulator and not let IndyMac’s poor and loose lending practices continue, we wouldn’t be where we are today.”

IndyMac held $32 billion in assets and its demise is being called the biggest failure in 24 years. In addition to loans, IndyMac Bank held one of the largest savings in the country. The FDIC said nearly $1 billion of the $19 billion in deposits held by IndyMac were uninsured, affecting about 10,000 people. When news got out that IndyMac was in trouble, people started taking their money out of their bank accounts, to the tune of $100 million per day. Things like this are exactly why I feel uneasy saving money at all. It feels safer to invest in things that are real, be it a car, motorcycle, boat, education, health, general experience, or yes, even real estate.

Coupled with the craziness that happened to Fannie and Freddie yesterday, the reality of what’s happening in the US is finally starting to sink in. Fannie and Freddie, which own or guarantee almost half the $12 trillion of home loans in the U.S., plunged as much as 49 percent and 51 percent yesterday. ^[1] Think about that for a second: half of all the home loans in the U.S. This happened as investors feared failure in the market would cause the U.S. government to rescue both companies, which would wipe out the shareholders.

There are numerous reasons why he backed out, but mainly because of complications with the illegal studio apartment in the attic. It was clearly stated in the MLS listing that it was a 2-family property with an illegal in-law unit.

Needless to say, the bank’s $180,000 offer acceptance is only good through April 10th and I received a letter in the mail stating the foreclosure date has been set for April 28th. My agent has relisted the property in MLS and is desperately looking for a new buyer.

I am exhausted.

But one thing is for sure: I have too much stuff. Mostly tools, hardware, and other house-related things — I can partly justify having so much stuff because for many years my sole intention was to own properties for long term investment and do most, if not all, of the repair and maintenance myself. Now plans have changed.

One of my new years resolutions for this year is to reduce what I own and that’s exactly what I intend to do. I estimate everything I own would take at least a dozen, maybe even one and half dozen, truck loads to move using my pickup. I’d like to reduce that to at least half a dozen or even three truck loads by the end of this year.

Late this week, my agent called to inform me that the bank has accepted the offer (they’re probably happy to get anything kind of offer in this market) and the closing date has been set for March 28th. That’s only a few weeks away and I still have lots of stuff in the big shed I built and in the basement I renovated. This weekend and next weekend are all I have to move everything out.

It still doesn’t feel real, but I suppose owning the house and all the work I put into it also hasn’t felt real. I’m already beginning to feel the mental relief with one of the houses no longer in my name and I suppose it can only get better from here.

After explaining to him that the law is on his side and no one can legally make him move out, I called my bank to find out what was going on. They told me they foreclosed on the property on Monday! Five days had passed and I had not received a single call! The same day my realtor received an offer to buy the property. When he called to submit the offer to the bank, they told him it was too late because the property had already been foreclosed on!

So Friday evening I visited all of the tenants on Bowers St and explained to them what had happened. I explained that the letter they were given telling them to move out was meant to scare them into leaving because it would make it easier for the bank to sell the property.

Having been a landlord for the past five years, I’ve learned a thing or two about tenant rights and the local laws protecting them. Unless the landlord has a really good reason to kick the tenant out, it’s very difficult (if not impossible) for the tenant to be legally evicted. Even if the landlord had lots of valid reasons to kick the tenant out (for example if the tenant was doing something illegal in the property), it could still take more than six months before the tenant is forced to leave. That’s just the way the laws are around here and it sucks (for the landlord).

The Bowers St property was the second investment property I purchased and probably the one that has caused me the most trouble. At the same time, it was the best property because all the tenants were excellent and paid their rent on time. The units were also the largest of all the properties with three bedrooms in each of the three units.

It’s now Monday, exactly one week since it was foreclosed on, and I have yet to hear from the bank. They’re probably going to stick me with the $280k that was owed on it, but I will deal with that when the time comes.

On Sunday evening, one of the Bowers St tenants was having trouble with his heating system. He called me. He was aware that I no longer owned the property but he had no one else to call. I felt somewhat obligated to help him out since he had never paid his rent late, he had helped paint the apartment, and was otherwise a great guy. Since I was in the area and didn’t need to be anywhere in a hurry, I helped him out.

It definitely felt weird standing in the basement and realizing that I no longer own that house.

Within a few days he found a cash buyer who is interested in buying both of the properties, for $100,000 each. Keep in mind that I bought these properties two years ago for $280,000 a piece and put at least $30-40k into them.

The way I see it is any sale is better than a foreclosure. Now I just have to wait to see if the banks will approve the short-sale.

This week I accepted an offer to sell the property for $180,000. It just doesn’t seem right, but I know it’s the best thing to do. All three of my rental properties are listed on the market right now for much less than I owe and yet this is the first offer I have received in over 8 months. There are more than 300 houses for sale in Lowell right now. There are houses on the market for $175,000 that only two years ago would have sold for over $300,000! Just one year after purchasing my own first property, it was reappraised for double what I paid for it.

It will be quite some time before I know whether or not the bank will approve the short sale and even if they do approve it, they will almost definitely leave me with the balance: $170,000. My other two properties are in the same situation and I’m not alone.

I have read dozens and dozens of articles in the newspaper about other homeowners who took adjustable rate mortgages so they could have lower monthly payments. They never intended on keeping the mortgage past the two year fixed term but instead planned to refinance the property after its value increased. When the values made a dramatic run in the other direction, owners were stuck with owing more than the value of the house. This meant they couldn’t sell and they couldn’t refinance.

I wish I had the cash to buy properties right now because within 5 years all these houses will probably be selling for upwards of $400,000. Real estate value always increases over time. Thats the thing about real estate: it’s real. But with all investment comes real risk. Regardless of what happens to me financially over the next year, you can be sure I will be taking the lessons I’ve learned and applying them in the future.

Luckily I happened to be very close to Bowers St and drove over there in a hurry. My truck was in the shop and I realized that I did not have the keys to the second floor on me — I hoped someone was there and that I wouldn’t have to break down the door. When I arrived, the second floor door was unlocked. There was 2″ of water on the entire bathroom floor. There were no wet ceiling tiles on the second floor and I quickly ruled out a broken water pipe. When I went back downstairs, three guys from the fire department were there unplugging electrical stuff from around the wet areas. The tenant’s mom called 911 after she called her son, not knowing that I would get there before the fire department did (how’s that for response time!).

I couldn’t figure out exactly what happened, but either the tub or the toilet overflowed. The tub had 3″ of water in it and it wasn’t draining out. The tenant that just moved into the second floor told me he took a shower a few hours earlier and noticed it wasn’t draining. He said he tried using a plunger to unclog it, but when he was unsuccessful, he left it and went to work. Apparently, someone else must have used it after him and let it over flow.

After using a drain snake to try and unclog it, I discovered the problem: the trip lever and linkage system that holds up the plunger was gone. There was nothing holding up the plunger, so it was sitting at the bottom of the drain blocking it! By total luck, the drain snake caught onto part of the plunger and I was able to pull it out of the drain. Now the water drains perfectly.

If you’ve read this far, you’re probably wondering where the “flames shooting out from behind a gas stove” comes in. Well, after cleaning up the water, I went downstairs and talked to the tenant’s mom. She said she was sorry for calling 911 and that she didn’t know I was going to get there so quick. She told me a story about how her previous landlord got angry at her for calling 911 when the old gas stove in her apartment caught on fire due to a gas leak (the landlord told her he would be there in 30 – 40 minutes, when he lived 10 minutes away). He replaced the stove with another used stove and told her he would hook it up himself (he didn’t want to pay a licensed plumber). When he turned it on, the stove leaked gas and he was going to leave it that way. She threatened to sue and then he put a new stove in and had someone else hook it up.

That story made me realize why so many of my tenants appreciate having me as a landlord.

Most of the framing and insulation was done by a contractor. I helped my uncle sheetrock the entire place. My dad and I did the painting, built the two closets, installed custom kitchen counters, and did some of the plumbing. I installed the lights, the hardwood floor, and the shower.

I lived in this studio for a few years until I moved into the partially renovated basement (where I happened to install the exact same shower). This attic studio is now rented for $750 a month.