Crime, Rats, and Subprime Mortgages…Oh, My!
A “Success” Story of My First Home Purchase
TL;DR - Take this course, or your investments might take a wrong turn and end up next to a crack house, like my first one did!
I was just given the keys after closing on my first home. I hop in the car and swiftly drive to 1st St NW in Washington, DC. I pull up to a beautiful yellow brick townhome, greeted by a small but perfectly manicured front lawn. When I open the door, I am immediately greeted by the smell of fresh paint. I look around with a big grin and think to myself, “I’m a homeowner. I’ve finally made it!” I then proudly step into MY first home…one burdened with crime, rats, and deception.
It was 2004, and I was barely a year out of college, renting a 500 sq. ft. studio apartment, barely making ends meet at my nonprofit job in Washington DC. It was in the middle of the housing boom where it seemed like everyone was buying a home and I wanted in on the action too. With my small salary, I couldn’t afford much, so I decided to go in with a college friend. We didn’t know what we were doing and relied on another “friend” to be our realtor and guide us through the process.
After weeks of stewing over numerous homes, most of which were gobbled up as soon as they were listed, we finally found one that met our needs: location, size, decor, and availability. Surprisingly, price wasn’t really a factor -not because we were filthy rich, but because of our timing. This was the beginning of a housing bubble fueled by greedy lenders who gave out high-risk, irresponsible loans like hotcakes. (Anyone remember the financial crisis of 2008?) We ignorantly and blindly accepted a $400k+ loan that we couldn’t afford (back then, full-documentation underwriting wasn’t enforced). But what did we care? We had a brand new, beautiful home with our name on it in an up and coming neighborhood in Northwest DC (the wealthiest quadrant).
Oh, what a glorious and profitable mistake! Now on the one hand - 10 years later, I sold this home for a handsome 65% profit and walked away with a check over $200,000 in my hands. That part was great. But was it worth it? What did I have to endure? What were the lessons learned?
1. DO YOUR DUE DILIGENCE
Lipstick on a Pig - The house was remodeled and looked wonderful. However, the seller took the cheapest route possible to “pretty up” the house, then sell it for 200% more. The roof needed immediate replacement, the foundation was cracked, the back yard was full of trash and debris under the grass, and the plumbing sucked. When buying a home, you should hire the best home inspector you can find, buy home purchase warranties, and test everything yourself when visiting the home.
“Up and Coming” - Had we driven around the neighborhood or sat outside of the home for 15 minutes, we would have realized we were literally moving next door to the neighborhood crack house...Nonstop trafficking, noise, and loitering occurred day and night outside our steps for years. I experienced two murders in front of my house, personal threats, theft of my personal property, and vulgar sexual acts in my backyard.
Then There is “Ralph!” - Most nights, I would receive visits from “Ralph” and his friends (a moniker for the mischief of rats gnawing and scratching in the walls, 13 of which I personally caught and…evicted). I learned no matter how clean you keep your house or how much you pay in pest control, you can’t control what happens when you share a wall with a house full of crackheads.
What’s Mine is Yours - I spent years revitalizing and caring for what I thought was my small plot of land. Only to find out, via the land survey when I tried to sell the property, that I only owned HALF of the back yard! Technically, I couldn’t even access my driveway without walking through someone else’s property. Thus, I ended up agreeing to pay the non-crack house next door neighbor $50k to purchase what we both thought was mine in the first place.
2. RUN THE NUMBERS
A House is Not a Home - We thought we were buying a home for us, but quickly realized we couldn’t afford the ballooning monthly payments and needed to rent the additional rooms. We unintentionally jumped into becoming landlords and real estate investors without prior experience or preparation. We were smart and resourceful and figured out how to cover the mortgage, but not everyone was so lucky (hence the housing crisis)! Had we fully understood the terms and ran the numbers, we would have been better prepared for this predicament.
The Tax Man Cometh…Especially When You’re Not Looking - Without getting too technical, there are many financial and tax strategies available to those selling a profitable investment. I knew none of these and was just happy to get away from the crack house, sell the property, and get a check. I wish I was better informed because I paid more in taxes than I should have and made many mistakes with that large sum of money in my hands. Naturally, shortly after I sold, the crack house was also sold, renovated, and replaced with more "desirable" neighbors.
3. FRIENDS AND BUSINESS DON’T ALWAYS MIX
Wait…Bad Realtors Get Paid the Same as the Good Ones!? - We blindly trusted a “friend” who was a new realtor and only part-time in the business. They didn’t know the neighborhoods nor used the level of scrutiny we needed to discover issues like the construction quality or property lines. As an inexperienced realtor, they made subpar referrals to critical roles like home inspectors, lenders, and contractors, which cost us tens of thousands in the end. If you’re paying the same percentage, go for a top realtor over an unqualified friend or family member.
No Contract, No Problem? - Thankfully, my friendship with my college pal survived and we continued to purchase additional real estate investments together, but we went through very tumultuous times that could have been avoided had we drafted a contract between us. We were young and ambitious and skipped basic partnership strategies, relying on the strength of our friendship, which definitely took a hit. In the end, I ended up buying out their stake to eliminate the messiness between us.
This is just one story and a few lessons I learned from my first real estate adventure. Many mistakes could have been avoided with a basic understanding of personal finances. Thankfully, I learned from my mistakes and have bought many more investment properties since, all of which benefited heavily from this first glorious and profitable mistake.
THIS is why I teach the Financial Butlers Academy - a 10 part virtual course in personal finance. I didn’t grow up learning many key lessons about money, but through my life experience and years of research, I’ve discovered so many lessons, strategies, and tricks that have helped me to become the financially stable and successful person I am today. I love helping others avoid my mistakes and build their own success stories.
Starting August 6, I’m launching another session of the Financial Butlers Academy. We will discuss real estate investing, yes, but also so much more - including the fundamentals you need in order to be ready for any kind of wealth-growing. For this special summer session it’s just $100 for the 10 weeks - that’s just $10/ session packed with strategies to save you money, grow your net worth, and save you from headaches and mistakes.
Check out the Curriculum Here There’s something for you!
I love what I do, it’s my passion. I’d love for you to join the community of learners who will be in this course, asking questions, sharing tips, and cheering each other on.
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