What's your 2007 crash story?

[Nolan O.]

I wasn't investing leading up to and during the last crash, but I'm interested in absorbing lessons from those who learned a lot in that time. If you were investing at the time...

- Were you investing right up to the crash?

- What sort of leverage were you using at the time (fixed, variable, interest only)?

- How did the crash impact your portfolio?

- What are you doing differently (or the same) now to ensure your current portfolio is sustainable?

[Frank Chin]

I don't know about CA, the last crash in NY was a brief one, lasted from 2007 to 2008. The one before that was longer, started in 1987, and hit rock bottom in 1992-1993, with pages of foreclosure auctions in the newspapers. I attended auctions weekly.

My take in the earlier crash is not to negative cash flow. I invest in triplexes here, from 1982 to 1986, they went from $150K to $350K. I got mine at $150K, lived rent free with 25% down.

In 1986, an investor paid $360K for a triplex next store,  exactly like mine for $360K. Then I learned he expected to flip it for $399K. Then, the crash came, he held on till 1990, sold it for $300K, and from what I heard lost $100K total with the negative cash flow. A second investor picked it up for $300K, negative cash flowed even more, as he had his son living rent free managing it, and gave up by 1993, selling it for $275K. Heard he lost another $100K. I know of several horror stories like it, people lost $100K or more and swore off real estate.

The market moved up, and by 2003, triplexes went for $500K, and I decided to sell one. My wife was a little timid, thought I should sell another one. I gambled, held on till 2006, and sold one for $740K, though realtors say I can get $800K or more.

Good thing I wasn't that greedy. The market tanked in 2007 and quick. The property I sold for $740K, fell to $630K by June 2007. The buyer turned out to be a flipper, had a for sale sign outside in Jan 2007, believing realtors the property is worth $850K.  Funny, my wife got into a shouting match with the buyer at the closing, put her coat on, and was going to walk out. I still remember how mad she was, but I managed to talk her out of it, saying I think the market topped out. How lucky and right I was. Closing was in Dec 2006.

So this is my 2007 crash story.

This last crash from 2007 to 2008 was a quick one, My gut is another correction is coming. A foreclosure I picked up in 1993 for $200K is currently worth $1.275 million. I'm not worried, it will probably drop to $900K if the market crashes. Again, the property cash flows no matter how much it drops. Reason is rents rose during the period I had it, doubling, though it didn't go up six times as housing prices.

I guess your head would spin with the price gyrations. I'm semi retired now, so I don't really worry about it any more. I'm totally mortgage free at the moment anyway.

I always wondered, was I smart, and just plain lucky??