In 2004 I bought a condo. Well, what would be more accurate to say is that in 2004, the bank bought a condo and was nice enough to let me live in this 375 sq foot studio in a great area of Boston. And I was told that after years of “throwing away” money on rent, I was making an investment where I would never lose. And everyone around me seemed to be getting on the property train. It seemed like a no-brainer. So how could I miss out on this opportunity?
Especially when the bank was just handing me money. Well technically it was two banks. Because I didn’t actually have a down payment. Yup. I put no money down. I had something called an 80/20 loan. I got 80% of the home’s price from one bank and 20% from another. Now you’re probably asking yourself, was there some kind of collateral that I had to make the bank think I could handle this type of loan? Why yes I did. My approximately $40,000 in student loans and my $10,000 in my 401k acted as my collateral. And that was it. Plus, I guess, the fact that I had a decent job at an investment bank and was making pretty good money for a 24 year old. Oh yes, did I forget to mention that? I was only 24. And I had just been handed a check for $210,000.
24 and about to own my own home. The American dream right? And after 6 years of paying rent in Boston, well this seemed like the logical next step. And the bank was basically just handing me the money. And the interest rate? Well that was a 3-year adjustable rate. So it was super low for 3 years and then it would re-adjust to prevailing rates in 3 years. But I mean how high could the rate go up? And in 3 years, well in 3 years the value of my condo would have gone so high up that I’d be able to flip it and buy a 2 bedroom. I mean that was the plan…
And then in 2006, right after I had actually re-financed my condo with a 5-year adjustable rate (so now it was locked in until 2011), I moved to London for my job. I had never wanted to be a landlord so I decided the best action was to sell my condo. Easier said than done. The housing market was already on a very slow descent. But I was positive and my real estate agents were even more positive, pricing my condo for about 30% more than I paid for it just two years ago. And I felt fairly confident as my company was paying the first 3 months of my mortgage costs while I got set up in London.
Three months went by and I still did not have a buyer. On a trip back home I decided to switch agents and to find someone to rent my apartment to at least cover the majority of my monthly mortgage. I also agreed with my new agent’s decision to “stage” my apartment which meant that someone would come in to paint, set up furniture, and just give the apartment a new and fresh look. As the months slipped by, though, I became more and more anxious. Not only did I not enjoy being an overseas landlord, but also I started to get more and more nervous about the housing market. We had dropped the price slightly but I was started to get terrified that I would have to drop it below what I had bought it for. Or rather, what the bank had bought it for.
In March of 2007, after 11 months of the condo being on the market, we got an offer. It was under asking and the buyer wanted to close at the end of the summer. Not ideal but it was something. I really wanted to close in April because if I closed within a year of moving, my company would cover my closing costs. A pretty sweat deal. So I came down on the price more and we agreed to an April closing. So in April 2007, after many stressful months, which also included a few incredibly stressful issues right around the closing date, I sold my condo. And I even made a few bucks on it. Bucks that would allow me to go back to graduate school and only (!) have to take out loans for tuition and not for living.
I was LUCKY. That is all there is to it. I only got one offer on my condo. In 12 months. If I was still holding on to that place, my adjustable rate would have skyrocketed in 2011 and there is a very good chance I would have had to declare bankruptcy if I had wanted to leave my job. And even if I hadn’t wanted to. But someone happened to come along to buy the apartment. And I am so thankful for that luck that I was handed.
So why did I share this story? I had a great conversation the other night with a fellow librarian about the Occupy movement and just about wealth disparity in our country in general. I told her my housing story. And we talked about how lucky I was. Because people say that it was only stupid and uniformed people who bit off more than they could chew when it came to the housing bubble. I do not think of myself as stupid or uninformed. And yet, I absolutely bit off more than I could chew. And I was enabled by a system that would give a $210,000 check to a 24 yr old based off of student loan payments and one year of 401k investments and a paycheck. There is something wrong with that. So if you’d like, you can absolutely call me stupid. You can call me greedy. And you can call me lucky.