My Largest Financial Blunder
Retirebyforty posted an article on financial setbacks, which got my gears turning on a major financial blunder I had about 5 years ago. I had several co-workers who were older than me who invested in real estate. They made it sound like it was easy money, and I wanted to join the club. I had my eye on a house, it was actually the first house my wife and I wanted to buy as a couple, but someone had bought it by the time we got our offer in.
At the time we had around what I would call today a “fully funded emergency fund.” I was looking for a house to buy and fix up, with cash. The one I wanted had already sold when I went to put in an offer (Again). The county tax auction was coming up in September and I decided that I wanted to buy a house there, which meant paying cash. The house I wanted to buy was in the same neighborhood and was in a similar state of disrepair, although I couldn’t do a full inspection. Houses sold at tax auction can only be viewed from the outside, entry is illegal. The bids for this property were going up $100 at a time, and then the auctioneer switched to $500 bids, which made the price go from the $5,000 I had planned to purchase it at to $6,000 (I was bad at this whole auction thing). I won the bid and then had to pay the last tax bill on it, which I hadn’t seen. Any guesses on how much it was? $1,200! almost a quarter of the price of the house. This took up a decent amount of the “budget”. Still, my mindset was “$6,000 for a house? I can’t lose!”
Oh, and my son was born in August, so add a new baby into the mix. At this point I’m short on resources, cash, time, knowledge, project management acuity, spousal support (because I overpaid for the house), and did I mention cash? We got access to the house and started the tear out. We had carpets to tear out, cabinets, some trash, a dead bloated cat, and some damaged drywall…and an entire bathroom, all in all I think it was 2 6 yard dumpsters we filled. Then while working on the house it started raining. In the house. That got expensive. I patched a portion of the roof and replaced the lower section, which was the worst. Then I had to travel for work and the project was put on hold. While several states away my wife went over to check on the house and called me to let me know it was raining in the upstairs bedroom again, and the water was going to the lower level, and soaking the electrical box. And if you weren’t aware, I can TOTALLY fix a roof from New Jersey. At this point the cost overruns and stress were too great and we decided to sell the house and see what we could get for it.
At some point in this project I called to have the water turned on. They turned it on and we had water, sweet! A month later I get a bill in excess of $2,000. They sent me a bill for the entire time I owned the house AND the entire time the previous owner owned the house. I called them, I was very polite and had it taken care of, but just imagine my heart jumping out of my chest upon seeing this. The same thing happened to me a few years later when we shut off the water to our last house when we moved and had it turned back on for a home inspection. The municipality has something screwed up in their billing system.
The house was a simple tri-level, 3 bedrooms and a bath upstairs, a living room and a kitchen on the main level, and a concrete basement third level with the utility room, a side room that could be used as a bedroom, and a family room. I liked the layout and the house had a good structure. The plumbing was all in one small area, and it was a modest sized house; it’s just that EVERYTHING had to be replaced.
We should have tried to sell the house on our own, but it seemed like that would be too much of a headache. In retrospect we should have shopped around for competing Realtors, but we didn’t. The Realtor fee was a flat $2,500. It took a few months and we finally got an offer, but it was a super low-ball offer. We negotiated him up a bit, but it was still way below our sunk costs. THEN we found out that when you buy a house at tax auction in Michigan, even though all other liens are extinguished, you still don’t have clear title. And at this point in time there was only one shady lawyer in California who would handle the paperwork to allow for a clean title, without a several month delay. Goodbye $1,500. Had I realized how simple the process was, or that I didn’t have clear title, I would have applied for it on day one, and handled it myself for about $100.
I walked away from the closing table with a few bucks, and a lot of knowledge. If I were to attack a similar project today, I would have had an actual planned budget and timeline, and 150% of the cash I thought I needed to complete the job set aside solely to complete the job. I would be more realistic about my home improvement skills and time management skills (both of which have improved quite a bit), and when selling it I would have handled Realtors and closing companies much better. This episode made me a much more conservative person, and I am glad that my real estate financial blunder wasn’t as severe as a lot of the other ones going on at the time. Now whenever it looks like I’m going to do something stupid with money my wife merely mentions “Waukonda House.” mike drop and walks away.
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