A “Good” Investment After College Turns Bad

This is part 1 of 3 in our “My Worst Money Mistake” series. Nick at Step Away from the Mall has graciously “swapped blogs” with me for the day to share his worst money mistake he’s ever made. Hope you enjoy the fresh perspective!

Good morning ladies and gents!  This is Nick from Step Away from the Mall taking over the typing here for Stephanie as part of a blog swap.  Head on over to my blog today if you’re interested in reading about Stephanie’s worst money mistake ever!  And if you stick around for a little bit I hope you’ll find some of my post interesting.

Today we’re talking about biggest money mistakes ever.  I’ve talked about mine before – many times – in terms of how much money it cost me (fortunately not much in total, but a lot lately…).  But it turns out that the money it cost me isn’t what makes it my biggest mistake…

It all started nine years ago…

I had one year left in grad school and decided for some reason that it would be a good idea to buy rental property in Boston, even though I knew I was moving to New York a year later… So I teamed up with a buddy of mine who was sticking around Beantown and went “all in,” buying a monster three-family brownstone in Boston.  All eggs.  One basket.

Over the next nine years we had our ups and downs.  We made some money.  We lost some money.  But the property is such a big part of our lives that we often feel “stuck” and unable to move forward with other aspects of our lives.  He bought a small condo in Boston but partnered up with family to do it.  I’ve remained a renter (turns out being a renter over the last five years was quite the blessing financially, but it doesn’t get rid of the feeling.).

It’s amazing.  When I look objectively at the numbers, the money really is not the issue.  We both make decent money and can handle the payments even with one or two vacancies. But we fear the worst – that we’ll have two vacancies or more, the roof will need replacing and the heat goes out.  That would hurt.  Hence we feel stuck…

It’s funny now looking back at what I was thinking (or not thinking…) and how many warning signs there were that should have told me this was a stupid idea.

So, with a hat tip to Jeff Foxworthy, here are a few things that I should have seen that would have told me that I was “about to do something stupid”:

  • Thinking “if I partner up with a buddy of mine this just might work”;
  • Running the numbers assuming all the rent came in every month, on time with no vacancies and everyone doing laundry all the time and with nothing breaking;
  • Not caring that I would be living 200 miles away because my “buddy” would run it;
  • Not caring that my buddy/property manager had never managed property before;
  • Signing “the only mortgage that we could get” – interest only, ARM, jumbo, sub-prime for sure; and finally
  • Not doing the math that even if everything went right this would be a HUGE part of my financial world.  All eggs.  One basket.

So that’s it.  I was blinded by real estate riches and now we feel like real estate… well it rhymes with riches….

What are the takeaways? There are definitely more than a few. But just based on my experience with this brownstone, if I could go back to talk with Younger Nick, I’d scream a lot of things at him. Here are the top things I wish someone would have gotten through to me:

  • Never bet the farm on one investment. Even when it doesn’t all go wrong it can smother you for years;
  • Wait at least two years after graduating from school to purchase real estate. Trust me, having a solid grasp on your own life is necessary before you start providing housing for others;
  • Your first real estate should be something you live in. You need to understand what it takes to own a property before you become a landlord. Pipes freeze. Water heaters blow up. (These both happened in the first two weeks…). Gutters fall off. Yes, they got full of water, froze and fell off;
  • Just the fact of having relatively fixed costs is worth money. Interest-only, adjustable rate mortgages are stressful. Even if your interest rate is 1/2% higher initially, if it’s fixed you have more control. And that makes it a lot easier to plan;
  • If the only way you can get a mortgage is by having more than one person borrowing, you can’t afford the house! The only reason a bank would want more than you on the mortgage is because they don’t think you can pay it alone! So don’t sign up for it.

Are you looking to get into rental real estate or buying yourself a big house? Anyone have kids graduating who have the “best time to buy” fever? I hope you can learn from my mistakes so you don’t end up feeling stuck like I feel. Go slow. Stay in control. Make sure you know what it takes to own property before you buy one for someone else to live in. If you’re getting a mortgage, make it fixed and something you can afford without a problem even if you never have a renter. And please, Please, PLEASE don’t overextend. Do these things and you’ll likely sleep soundly.

Until next time, put your credit card down and slowly step away from the mall!

Stephanie’s note: I know as soon as I started making money after college, I was tempted to make a big purchase right away – I even considered investing in rental property at one point like Nick. Parents: did you kid or college graduate ever want to make a “good investment” in something, even though you thought it was a terrible idea? Have you ever made a bad investment like Nick made?

Interested in refinancing your student loans?

Here are the top 6 lenders of 2018!
LenderRates (APR)Eligible DegreesMore Info
2.47% - 7.80%Undergrad & GraduateVisit Sofi
2.47% - 6.32%Undergrad & GraduateVisit Earnest
2.47% - 8.72%Undergrad & GraduateVisit Lendkey
2.80% - 7.02%Undergrad & GraduateVisit Laurel Road
2.48% - 6.25%Undergrad & GraduateVisit Commonbond
2.57% - 8.69%1Undergrad & GraduateVisit Citizens