Patience (sometimes) pays off - avoiding a short-sale

[Dean OMalley]

Investment Info:

Single-family residence buy & hold investment in Surprise.

Purchase price: $282,000
Cash invested: $58,000
Sale price: $225,000

Rode the wave up and down through the financial crisis, but thankfully held on until the price came back close enough to where I purchased it to not take a huge loss.

What made you interested in investing in this type of deal?

I bought this property as my first true real estate investment at the height of the real estate boom of the early 2000's after seeing people making easy $50-$100k profits over the course of months, which was enough to lure me into the market.

How did you find this deal and how did you negotiate it?

I bought this as a new construction project through a real estate broker friend of mine working in Las Vegas and Nevada.

How did you finance this deal?

Paid cash for the down payment and financed the rest through Bank of America.

How did you add value to the deal?

The only "value-add" was through the actual construction when the property was built in a new development outside Phoenix. The problem with buying a property sight-unseen is that you don't really have a good idea what the area is really like. It wasn't until I visited after I'd purchased the property that I realized just how undeveloped the area was, but by then it was too late.

What was the outcome?

Within months, the property value had shot up, making me feel like a real estate genius like everyone else at the time, but soon enough the market peaked, then dropped...and dropped...and dropped...and dropped. Before I knew it, the property was worth less than half of what I'd paid for it, so I was underwater and things were getting worse by the month. Fortunately though, I had a tenant, so I decided to ride it out rather than do a short sale, which most people were doing at the time.

Lessons learned? Challenges?

Never did I think it would take almost 12 years, but thankfully the market did finally come back and I was able to sell the property for close to what I'd bought it for without coming out of pocket at closing. I'd gotten the interest and depreciation write-offs and I'd had minimal cash flow from the renters along the way, so even though I had to stomach huge paper losses, I'm proud of the fact that I saved my credit and had faith in the real estate cycle.