
My 10-Year Odyssey Through America’s Housing Crisis - dankohn1
https://www.wsj.com/articles/my-10-year-odyssey-through-americas-housing-crisis-1516981725
======
chime
I bought my first very similar house in 2005 and experienced this exact thing.
Fresh out of college, moved to South for a promising job, and bought something
small I could easily afford. I even wrote about the potential of a housing
crash in Oct 2005 ( [http://chir.ag/200510301225](http://chir.ag/200510301225)
). I lived there through the housing bubble, saw my 145k house go up to 200k
and then down to 75k, rented it out after I got married and moved away, and
kept losing thousands each year for 5-6 years.

Last week someone offered to buy it for just a bit over my mortgage pay off
balance. I will lose a few thousand but at least I will be out of the
landlording business. I have my fingers crossed that the inspection goes well
but I'm not holding my breath.

> From the original purchase in 2005 to last year’s sale, I lost $25,500. My
> losses as a landlord? At least $35,000. Whatever the sum, it no longer
> mattered. I was free.

It's scary how similar even his figures are to mine. I bought a much more
modest house than I could have bought in a prime location, I fought hard to
get a great deal on my mortgage, I paid bills on time and kept up with
maintenance, and I've kept up with the market trends so as not to miss my
chance to refinance/sell.

Time and again I asked myself what I did wrong to lose 60k+ of my hard earned
money over a decade. But after an investor friend of mine discussed his plans
to buy numerous distressed properties to fix and rent them, I realized what
had happened. The Great Recession had turned affordable residential real-
estate into a zero sum game. I, along with millions of others had to lose 10k
each per year to make it worth it for him to be a residential real-estate
investor. My piggy bank investment was competing in the same arena has his
tooth-and-nails livelihood.

The big lesson is that market manipulation can convert a non-zero sum activity
into a zero-sum activity. It used to be that your small family home was a
safe, gradually appreciating asset. Most everyone won, few lost.

> In 1944, John von Neumann and Oskar Morgenstern proved that any non-zero-sum
> game for n players is equivalent to a zero-sum game with n + 1 players; the
> (n + 1)th player representing the global profit or loss.
> [https://en.wikipedia.org/wiki/Zero-
> sum_game#Extensions](https://en.wikipedia.org/wiki/Zero-sum_game#Extensions)

Just need one new player to turn the game around. Enter my friend and a few
thousand others like him with resources to buy out every third upside-down
house in the neighborhood with cash, upgrade bath and kitchen, and then rent
them out long-term with a team of property managers. It's a sellers market but
very few homeowners are bidding up sub-200k houses. Instead it's the cash
investors low-balling the price until owners such as myself and the author
just break down and say 'Screw it! At least the 60k loss will save me some
taxes next year.'

~~~
conjecTech
I don't think the reality here is nearly as sinister as you make it out to be.
If an investor is making an appealing return at the price you're selling it to
him at then either you're making a poor financial decision by selling or he's
playing the game better. I think it's the latter in this case, and I'll
explain why.

As background: My father was a handyman turned landlord. I've worked on rental
houses since 1st grade. A large number of landlords have a similar background.
It's not a coincidence. They make money off properties in the price range you
describe in a very particular way - they do nearly everything themselves. It
is an arbitrage on the cost of maintenance. Think about it this way - if an
electrician/plumber/contractor is going to charge $100/hour to do work on the
house and rental prices have this cost baked into them, then you can
effectively earn $100/hour by doing the work yourself. Enough people do this
that the equilibrium price drops below the cost of having professionals do all
of the work. Since that is probably the situation you're in, of course you're
going to lose money. You seem to have said you have external management on top
of that. That in itself would pretty much wipe out the expected yield. The
cashflows from <$200,000 houses are WAY too low to have someone else managing
it for you.

So your game theoretic analysis is somewhat correct, but it's more of a
feature than a bug. There is an army of people willing to do unglamorous work
with their nights and weekends, and as a result they are not only able to do
well by themselves but also systematically lower the cost of housing.

You also made a dangerous statement about historical returns on real estate.
Historically, across a wide span of markets, real estate tracks wage growth.
The recent shift since the mass financialization that started in the 80s being
a complete aberration. The alternative is that the real cost of living would
grow exponentially. Even with the excess credit of the last 15 years that
hasn't happened for most of those outside of SF.

If you want to buy a house to live in, I suggest you view it as a consumption
good and not an investment. Your money will almost certainly do better in
equities.

~~~
Dowwie
You've been to exposed to a great life experience. How much of your father's
work/investment remains today-- did he manage to create a nest in time for
retirement and for your estate?

Retail investing, and especially trading, in equities isn't necessarily a
better proposition. It's concerning that you recommended this instead. I hope
that your family's hard work paid off.

I have been solo-preneuring a project that will help those like your family to
realize their dream. It's been a long journey.

~~~
graeme
OP was giving advice to someone without handyman skills. That person's money
would do better in equities.

------
timewarrior
I have lived in the Bay Area for 6+ years. Could have bought a house, but the
prices seemed crazy in 2014 and look a lot more crazier now. And the prices
keep on creeping up higher!

All my friends have bought houses. Some of them have bought houses worth 2.4M
in Cupertino. Most of them are Indians on H1B visa and not Green Card in
sight!

Are Bay Area prices sustainable? Am I being unnecessarily paranoid?

~~~
stevenwoo
I own and am not sure. Could have bought in San Francisco in 2001 and decided
to buy on the peninsula instead. Cupertino still had starter homes < 500,000
at that time but I didn't want to live there, either. For a while there it
looked like a mistake to not live in the city then the market turned insane
and the peninsula housing market is almost as hot as the city. Part of me
wants to take the profit and run but to where?

~~~
justherefortart
Midwest? Buy 10-15 rent houses in a college town and retire.

My neighbor owns 15 houses and lives in Europe most the year. I'm working on
the same path (may buy their homes in the next year or two, we're in
discussions).

~~~
stevenwoo
Does this plan mean living in the town and doing the property management or is
it more self sustaining remote?

~~~
justherefortart
You can do it either way. The risk threshold from my perspective is how much
you charge in rent, with how large your deposit is, along with how often you
inspect your properties.

Also, you have to be prepared to sue, file liens, and use sheriff evictions.

Everything is easier if you're local. If your investment is large enough,
flying in to deal with your properties is a reasonable business expense (I
wouldn't do it outside setting up a company and having general liability in
addition to your normal house insurance).

------
neonate
[http://archive.is/GPTMc](http://archive.is/GPTMc)

------
jcadam
Bought a house in 2007 in Colorado Springs and had to move out of state in
2012 for work - the crash meant I was underwater on my mortgage, but not by
much.

So, I decided to hire a property manager (Lesson 1: Never be a landlord if
you're not going to be present to manage the property yourself - PMs take
their 10% cut of the rent and do absolutely nothing in return) to rent the
place out and sell in a few years after the market had recovered - which
didn't happen in Colorado Springs until recently.

Last summer I gave my tenant her 60 day notice, found a listing agent, and my
wife flew out to Colorado Springs to help prep the house for sale...

Turns out the tenant had totally trashed the place. In fact, she had been
operating a rabbit breeding operation in the house (there were rabbit cages
stacked floor-to-ceiling in some places, and a large outdoor hutch had been
constructed in the back yard). Carpets ruined, feces smeared on walls, and a
general unholy smell throughout the entire house. Hell, large amounts of
rabbit bedding and feces had been dumped into the crawlspace.

This is the tenant I had cut a lot of slack to over the years with late
payments, etc (Lesson 2: Never cut a tenant any slack - if you do they'll walk
all over you).

What should have easily been a $40k profit (had the house sold at market rate)
turned into a $5k loss (at least I didn't end up owing any capital gain tax,
pfft). I will burn a house to the ground before I become a landlord ever
again.

Also, Zillow keeps sending me updates on the property value (which magically
keeps going up), despite my attempts to make it stop (I don't want to know,
really) :(

~~~
EADGBE
That's unfortunate, and something that keeps me only managing my own
properties locally. I know it won't scale so much, but I feel like I have too
much skin the game for the property to lose value on my own fault.

It sounds like a very bad experience with a management company. Was this your
first PM company?

~~~
jcadam
Yes, first and last time being a landlord. When I was growing up, my parents
had a similarly bad experience renting a home they couldn't afford to sell
after moving out-of-state. Theirs included an unscrupulous (rather than just
incompetent/lazy) PM who charged them for unnecessary and expensive repairs,
and tenants who paid their deposit and never paid again (the PM talked them
into renting to Section 8ers). The situation ultimately ended in foreclosure
for my parents (they were depending on rental income to make the mortgage
payments).

If I ever find myself upside-down on a mortgage again, I'm going to short-
sale, walk away, or find a reputable local arsonist to deal with it.

------
wonder_er
it's sad, how much the author suffered for bad behavior on behalf of the
banks.

They got bailed out, the author didn't. He should have foreclosed.

The banks lent money they didn't have. I don't see why the author paid it off.
I respect his integrity, but he should have declared bankruptcy.

~~~
adrianratnapala
> The banks lent money they didn't have.

I don't get this. Banks must always do this, they exist because everyone else
wants to lend short term or borrow long term. Anyone who acts as the
counterparty to that is automatically a bank or bank-like.

I guess what you mean is that when the banks borrowed short term (as they
must), they did it using home loans as collateral, and that more of those
loans defaulted than was expected.

How does that justify defaulting?

~~~
soVeryTired
> I guess what you mean is that when the banks borrowed short term (as they
> must), they did it using home loans as collateral

But that's not really what happened. Banks made a lot of poor quality loans,
then packaged them up and sold them on, taking a spread in the process. Some
banks (e.g. Bear Stearns and Lehman) kept some of that risk on their books,
but others (Goldman) didn't.

This wasn't a case of banks using their mortgage book as collateral, it was
banks originating and actively marketing a dangerous product. It's also worth
noting that some banks _knew_ that the products they were selling were low-
quality and likely to default.

Then the US government stepped in and propped up the instigators of the
crisis. People who made poor borrowing decisions had a part to play in the
crisis too, but I think it's fair to argue that the pain could have been
distributed more evenly.

Under the circumstances, I can see why it might seem fair to walk away from an
obligation like the author's mortgage.

~~~
mlrtime
Neither Bear, Lehman nor Goldman 'make' loans. They created CDOs,CDSs,MBSs and
sold them to other credited investors.

~~~
soVeryTired
Yeah, fine - that's a simplification. They bought third parties' loan books
and securitised them. But it was that flow of money that encouraged the bad
lending practices. If you know you can make a crappy loan and sell it on to
Goldman for a profit, you'll make the loan.

------
txsh
What I don’t see anybody talking about what’s going on with car loans. The
next time we have a recession it’s going to be a lot worse as people will lose
both their houses and their cars. I know a waitress who can barely afford an
apartment, with no family support or co-signer, who financed a brand new Jeep.
This is not sustainable.

------
wpdev_63
Why don't more people just live in RVs/vans? Taking out a mortgage is a huge
risk over 30 years - what happens if you lose your job and cannot find another
one at the same pay? Or you get sick and cannot work?

I guess you could sell and take the equity out of the house but you lose so
much money and time to the banks.

------
toomuchtodo
My god, the author of this story made all the wrong choices. Wouldn’t walk
away from the property, liquidated his 401k to obtain sole possession of the
dwelling from his ex, wouldn’t commit to missing payments to get a workout
commitment from his lender.

Had he walked away from the property, he’d still have his 401k (protected from
creditors by federal law; he could’ve lived in the house for _years_ while it
went through foreclosure and put his mortgage payments in his 401k) and if the
lender absolutely decided to pursue the deficiency judgment (rare), he
could’ve settled for pennies on the dollar or declared bankruptcy and still
been hundreds of thousands of dollars ahead.

Just sad. My advice to those who read this: never get emotionally invested.
It’s just business. Look at the numbers, and throw out any sense of morality
of the debt repayment. That is how the system is built; act like a rational
actor within it (losses are built into the mortgage interest rate). Your
future self will thank you.

~~~
tankerslay
>My god, the author of this story made all the wrong choices.

Did he? He kept his job, didn't get drunk or hooked on pain pills, bailed out
what sounded like a very uncooperative ex-wife, and all through it kept his
house clean and even took care of the neighbor's dog. If anything, I'd say the
story comes dangerously close to being a humble brag.

Whatever money difference there was be between him and pretty much any of the
others, including the couple who skipped town with pizza on the counter...I'd
gladly pay it twice over to have neighbors like this guy.

~~~
justherefortart
My first wife tried this uncooperative shit with our home (I bought before we
were married). I told her I'd sell it for exactly what we owe if she didn't
take my fair offer.

Probably should have just gone ahead and done that but I didn't want to move.

------
juhq
Any link to this article without paywall?

~~~
neogodless
[https://www.realtor.com/news/trends/10-year-odyssey-
americas...](https://www.realtor.com/news/trends/10-year-odyssey-americas-
housing-crisis/)

