Unless you are really rich or don’t care about financial returns, you probably shouldn’t own any vacation property. In the Spring of 2008, I bought a vacation property at my favorite resort up in Lake Tahoe. The property is in a secluded place with ski-in/ski-out during the winter and golf, hiking, and fishing on the premises during the summer. Ah, the good life!
Although Bear Sterns had gone under, I was still hopeful things wouldn’t get too bad. Our government consistently bails everybody out after all. Unfortunately, I was wrong as there was no amount of money the government could inject into the system at the time that could stop the wave of defaults. Instead of making a lot of money from my job that year, my income got whacked and I lost over $200,000 in my vacation property the subsequent year.
I thought I was getting a deal for $700,000 because the owner had just bought the place a year ago for $815,000. Surely, a property with over $80,000 in gross annual rental revenue could not go much lower. Of course I was wrong because the condotel secondary mortgage market shut down as no banks were willing to lend for vacation properties anymore. The only people who could buy were those with enough cash. This was a great reminder why cash really is king.
As the financial crisis worsened in 2009, fellow resort owners started going into foreclosure, bringing values of adjacent properties down as well. This is a big problem with owning a condo. You are at the mercy of your neighbor down the hall. In a real estate downturn, the first properties to get hit are vacation properties because they are non essential. Meanwhile, you have tons of people shirking on their loans in California because we are a non-recourse state. If you stop paying your mortgage and hand back the keys, the banks cannot go after your other assets!
I’d like to go over some real estate mistake one should avoid making. It’s good to relive financial errors in order to make better choices in the future!
SIX REAL ESTATE MISTAKES TO AVOID