by Lee Bruns
Bill and I worked together at a technology company. He was a very conservative fellow both socially and fiscally. He was the sole breadwinner for his family while his wife, Cindy, stayed home with the kids, lots of kids.
As their kids got older, Bill and Cindy realized there were too many near adults living in too few rooms. They needed to move out of their cramped three-bedroom house into a much bigger five-bedroom. They knew they could afford the higher payments so they went looking.
Bill and Cindy found the perfect five-bedroom house. It had two living areas and a bonus room. It was miles closer to work—just around the corner really—and it was priced reasonably. Their buyer’s agent told them they were in a “Buyer’s Market” and the seller was motivated to sell the house. The seller would probably accept an even lower offer than usual for the house because it had been on the market a long time.
Bill and Cindy made what they thought was a ridiculously low offer on the new house, and the seller accepted after a little hemming and hawing. They were ecstatic. The bigger house was perfect! Their family would no longer be living right on top of each other.
Do you see the problem here?
Now they needed to sell their house, but it was in less than pristine condition despite the fact that Bill and Cindy had taken very good care of it. The simple pressure of too many people living in too small a space caused damage—little things, but things buyers notice. Especially in a Buyer’s Market.
There’s that term again. Buyer’s Market simply means that there are more houses listed for sale than there are buyers to buy them. That shortage of buyers causes home prices to remain stable or even to fall. It also enables buyers to be extremely picky—pickier even than what you see on House Hunters. They will move on to the next house because they have so many to choose from. Houses remain on the market for much longer than usual, and they sell for less than the seller wants.
That’s right. Bill and Cindy needed to sell their less than perfect house in a market where buyers could expect and get perfection.
After the house sat on the market long enough that they were in danger of losing their perfect house, Bill took a close look at their finances. He determined they could raid their savings, investment, and retirement accounts and have just enough money to buy the new house.
But that left them covering two mortgages. Fortunately, their Realtor told them they could rent their old house for enough money to cover the payments and even put a little money in their pockets at the end of the month. The agent even had a renter in mind.
Bill and Cindy moved into their perfect house with high hopes. Their new tenant moved into their old house and put about a hundred dollars of spending money in their pockets every month.
Things rocked along smoothly until August. One thing about August in Texas: it’s hot. PFH! The high temps are routinely in excess of 100°F (38°C). Of course, that’s when the old AC gave up the ghost.
Five thousand dollars later, the old house had a new air conditioner, but Scot and Cindy’s reserves were completely gone. That spending money plus whatever else they could scrape together now had to go into savings. With all that, it would be years before they had a comfortable cash reserve again.
In September, the tenant let Bill and Cindy know that there was water coming out of the AC vent in the kitchen. It turned out that the shower pan in the upstairs master bedroom was leaking. That was another $3,000, but this time the repair had to go on a credit card at a very high interest rate.
Their rental was now costing them money every month. It was keeping them from building back up their reserves and it was essentially eliminating their lifestyle budget.
What else could go wrong?
You guessed it. Lots of stuff.
I won’t go into the rest of the story. Just let me say that my friends and I buy lots of houses from accidental investors. Bill and Cindy eventually sold their rental to another investor. They got a lot less money than they wanted, but they were able to get out from under a rental that was crushing their spirits and put something in bank for next time. Getting rid of their rental was a big win for them.
They tell me I’m crazy for buying and selling houses and especially for keeping rentals. Their accidental experience soured them on the whole concept of real estate investing. I don’t think they’ll ever own another house they don’t live in.