Re: Q for Fastlane Members: What if You Lost Everything?
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Sep 21st, 2007, 06:49 PM
#23 (permalink)
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I find the answers very insightful to this exercise. Without exception, everyone who has responded has said they would get their wealth back in a much shorter time period than it took the first time.
No one responded with a “I wish I could start over”. There are many people in that spot today – at less than zero. They owe more than they own (negative net worth) or just the thought of $5,000 to start something with is more than they can hope for.
So, my story:
I was on a panel when this question was asked and everyone tried to top the person before. I was last. That’s the hardest spot to be in when you’re doing that type of thing.
So, the challenge that I had quickly put in my mind (cause I wasn’t going to let these other guys come up with a plan better than mine) was that not only did I have to make the money back, but I had to do it WITHOUT the $5,000 and I had to live better than I did when it all happened. That was just because I wanted to set the bar higher for me than anyone else…sometimes that thinking gets me into trouble!
It was December 2003 and we were in Maui at the Maui Mastermind. Just before I’d gotten on the plane, I’d read an article that stated that there were 1,600 homes over the price of $1 million on the market in Phoenix. At that time, 400 homes over a million sold per year. So, based on those two figures, there were 4 years worth of supply on the market. My quick, off the cuff, answer was that I first needed to find a place to live. And since so many of the Paradise Valley homes (an area of Phoenix with homes starting the $1 mill range) for sale weren’t going to sell anytime soon, I figured there was an opportunity.
Without even thinking about how I would make money off the idea, I said that I would approach absentee home-owners (maybe through their real estate agents, didn’t have that part completely figured out) and offer to keep their homes in “show ready” condition. Houses that have to sit start to smell funky after awhile and houses that aren’t vignetted out have a much slower sales rate as well. So, I would arrange for top of the line furniture to be vignetted in the house, coordinate the housekeeping and landscaping staff and keep the house in “show ready” condition so that within 2 hours of any given time the house would be ready to be shown. The homeowner, of course, would be responsible for the furniture rental and labor costs, but my time would be absolutely free. Plus, I would be around to discourage burglaries or trespassers. I would do this all for no cost whatsoever to the homeowner.
Of course, I wasn’t really planning to do that, but it got me thinking – there are a lot of houses at the $1 mill+ level and people are going to start getting desperate. This thought process was all happening at the time that Richard and I were lamenting that our current plan of moving every two years (live in a house for 2 years, sell and take tax free gains) didn’t ever hit the maximum. We tended to live way below our means and at the $300K-$500K per house level, we usually made about $200K - $300K every two years. What would it take to make the maximum of $500K? We knew we had to go to a higher price house.
So with a slowed down market and the desire to maximize the tax free gain, we made the decision to go after that bigger ticket house.
We told our real estate agent that we wanted something in the $1 - $1.5 mill range and more than anything, it had to be a deal. She did an amazing job searching for us and came to us with an 8000 SF house right next to the exclusive Biltmore area with almost 2 acres. It was 15 minutes to downtown Phoenix or the airport, but had massive trees and an arroyo running right through the property. Actually, the arroyo ran right through the house. The house bridged the arroyo so that water flowed under part of the house (with plenty of windows and views of the dramatic water scenes.) There was a 3000 bottle wine cellar and a total of 3 kitchens. Really the house was something I’d never seen before in my life. But the problem was that a group of investors had bought it and then someone stole from someone (or at least was charged with that) and litigation held the property up for 3 years. Meanwhile, someone had the idea of turning the water off on the property, so there were dead and dying vegetation everywhere and the house was in disrepair. The title was finally clear, right when the market tanked.
We ended up getting an accepted offer at $1.1 million and then my husband started in on round 2 of negotiations, so that we actually got $30,000 back at close…from the sellers. The problem was closing the house. Every appraisal came in much higher than our purchase price and so no one wanted to finance it – they thought something must be wrong. In the end, we paid for 8 appraisals. The day we closed, the listing agent came to us and said he had a solid offer at $1.4 million. We turned it down, mainly because we were just so happy to finally have the property closed! Now, 3 years, 3 months after the purchase and $300,000 in improvements later, we have an appraisal at $3 million. (Gain of $1.6 mill) We’re considering doing a more major remodel that would cost about $500,000 but should bring us a quick sale of $4.2 - $4.5 million.
And what happened to the supply of $1 million+ houses in Phoenix? The market exploded within a year and for this higher end, it’s never slowed down. Houses are still selling in our area, most within 3 months, at listing price or close to it.
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