7 minutes to read

Taking Action May Increase Your Bottom Line by $40,000

On April 23rd, 2014, my current primary residence was listed on Realtor.com.

On May 13th, 2014, my current primary residence went under contract.

The initial offer was a $135,900 cash offer with a $2,000 earnest money deposit and no closing cost credits required.

I was willing to accept it since it met my “numbers” criteria. Mainly, I would be walking away with at least $33k from the deal, tax-free, since it’s my primary residence.

However, my unofficial real estate investment “adviser” suggested I counter the offer with $137, 500 with a required $5,000 earnest money deposit, in addition to getting away without paying closing costs credits.

My counter offer was accepted and I am set to close this Friday, June 13th.

Taking Action

Three years ago I asked on this blog if I should buy another home.

I went back and forth about the idea because I knew I didn’t make the best financial decision when I purchased my first home.

I was bitter about my first home purchase because I ended up purchasing it using emotions rather than mathematics. In other words, I speculated that I would just rent or sell my home in few years when I would have to relocate.

The problem was, I didn’t even evaluate the rental market before making this decision. I ended up with a $1,550 monthly mortgage (including taxes and insurance, but not including the $70 monthly HOA fees) but later found that could only rent my home for $1,100.

Also, by the time I had to relocate I wasn’t able to sell my property either.

The mortgage crash of 2008-2010 happened and brought my home’s value from $191,000 to $136,000!

My house went underwater by more than $50,000!

I ended up renting my home for $1,100.

This gave me a net NEGATIVE cash flow loss of $470 monthly. And it sucked.

Luckily, two years later the Obama administration introduced the HARP 2.0 program that allowed me to refinance my underwater rental, of which I gladly took advantage. After the refinance, having put a minimum amount down..again…but this time strategically on purpose, my total mortgage payment reduced to $1,136. I figured it was better to have a net NEGATIVE cash flow of $36 than almost $500 monthly.

I still have this property for which I owe $171,000 and still lose money every so often, like the $6,000 that I had to pay to repair the damage done by my previous tenants.

I could have easily let my first home that turned into a forced investment property deter me from buying my second home in 2011, but I didn’t.

I realized the mistakes I made in the first deal in made in 2007, moved forward, and figured out the best way to buy a home or investment property, if I had to do it again.

Then, I took action and converted my theory into action.

Most people would have been afraid to take on more debt, but like I stated before, I’m not Dave Ramsey.

After gaining enough confidence to evaluate my past mistakes and realizing that I could get a mortgage for only $550 where the going rental rates were $1,100 monthly, I purchase my second primary residence.

Transparently speaking, I first rented for six months before saying, screw this, “I’m paying the break lease fee and am buying another home.”

What’s the Worst that Can Happen?

Sometimes you have to ask yourself, “what’s the worst that can happen?”

No one knows the future but you can make pretty safe bets against it. Here are the thoughts I had prior to my second home’s purchase:

I figured that if I couldn’t sell my home in the future,  I’d  have a $500 net POSITIVE cash flow at a minimum, even if I had to hire a property manager to look after my property.

I figured further that if I couldn’t rent my property I’d only have to pay an extra $550 monthly to maintain a nice home in a well-kept neighborhood. There are folks who pay this amount monthly for cars.

And last, I compared my rent vs. buy scenario. If I rented the same home in the same neighborhood, I would have had to pay twice as much to rent.

The situation became a no-brainer without any predictability of the future.

What’s the point?

My purchase from less than three years ago has led to a home that I’m selling for an infinite ROI.

Don’t be afraid to take an action on a situation that has multiple win-win answers to the question, “what’s the worst that can happen?

Here are my final numbers:

Original mortgage balance, September 2011: $102,150

Mortgage balance, June 2014: ~$97,000

Sale Price: $137, 500

Gross earnings (Cash to Seller on HUD Settlement Statement): $32,589.16

Net earnings from sale: $32,589.16

Comments

  1. Chris O. says:

    I like how you strategized during the entire closing process. Very good points.

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