Losing $1 Million In Real Estate Never Felt Better

During a bear market, one of the things I like to do is embrace losing. The more you can embrace reality, the more you can accept reality. And the more you can accept reality, the easier you can move on with your life.

Recently, I ended up losing ~$1 million in real estate. It was a significant hit to my net worth. Years of gains, savings, and hard work vanished into thin air! How sad.

Thankfully, as a fake retiree focused on cash flow, the $1 million real estate loss didn't negatively affect my rental income. If I can just keep the cash flow coming for the next 18-24 months, fingers crossed everything will be OK.

Let me share a situation about how losing so much money in real estate might actually be a net positive.

Strategically Losing $1 Million In Real Estate

As a real estate investor, my goal is to buy property below market value, improve the property, and rent the property at market price. I'm always focused on generating more passive income to stay free.

I plan to hold each property for as long as possible because I believe in the long-term appreciation of real estate. Further, paying taxes and fees upon sale is economically wasteful. In the long run, it's better to ride the inflation wave rather than get punished by it.

In 2019, I bought a fixer-upper for $1.75 million. The property was listed for $1.9 million with the goal of creating a bidding war to get the price up to $2+ million. However, due to some skillful neighborly negotiating, I was able to buy the property at a discount.

The Property’s Estimated Value Before A Big Loss

Below is a snapshot from Redfin that shows where I purchased ($ sign) and where Redfin felt the market value was back in 2019. The greater the gap between the dollar sign and dark black line, the greater the discount to market Redfin believes you got.

However, a month after I had purchased in 2019, the Redfin estimate line was actually closer to $2 million, not $2.2 million as indicated in the chart below.

In other words, Redfin (and Zillow) often conduct revisionist history, which is why you can't fully trust their estimates. And since you can't fully trust online real estate estimates, you can use them to your advantage when negotiating or trying to save on taxes.

Redfin estimate - Losing $1 Million In Real Estate Never Felt Better

After adding about 300 square feet of living space, remodeling the home, and adding a deck for about $200,000 all-in, the house is now worth about $2.85 million. During the height of the real estate market frenzy, the house might have gotten $3 million or more.

Home prices in the area with panoramic ocean views and newer finishes sell for between $1,000 – $1,300 / sqft. And this home is over 2,800 square feet with ocean views on all levels.

Embracing The Downturn In Real Estate

Due to the dramatic increase in mortgage rates and a bear market in stocks, it is an inevitability real estate prices will decline. Cities like Austin, which saw the most dramatic price increases during the pandemic, will also likely see the largest declines. Here are the cities most at risk of price declines.

Unfortunately for millions of homeowners in America, property assessors will not be motivated to lower assessed values to lower your property taxes. They have a desire to collect more property taxes during difficult times. Property taxes become even more important when other tax revenue sources, like payroll taxes, go down.

Property assessors automatically raise your home's assessed valuation during bull markets. But during bear markets, they drag their feet cutting it if at all. If you try to contest your property's assessed value, you will likely have to pay a fee. Then you will have to write a lengthy report with comps to argue your case.

Even if you make a logical argument with appropriate comps, the assessor's office will often deny your appeal by disqualifying your comps. Then they will use irrelevant comps of their own to support their position. Because they are the government, there is nothing you can do once they have made their decision. As a result, most homeowners don't even bother to try fighting for their rights.

I have battled the San Francisco property assessor's office many times with plenty of e-mails to show how unfair and illogical they are. Don't be naive and think the property assessors are on the homeowner's side. They are not.

The government plays by a different set of rules, which always makes them the winner in the end. Accept losing to the government, but try to lose less.

Successfully Lowering My Property Value Online

I'm pleased to say that two months after lowering my property's statistics online, Redfin has finally revised my property's value downward!

Notice how the purchase price ($) is now ~$150,000 above what Redfin estimated my property's value to be in 2019. Before my adjustments, my purchase price ($) was ~$450,000 below the Redfin estimate.

More importantly, instead of having a ~$2,600,000 estimate (doesn’t include the value of expansion and remodeling), the latest Redfin estimate is now only $1,896,825. Yes, this is the exact same property!

Redfin estimate - Never Felt Better Losing $1 Million In Real Estate

This new lowered Redfin property estimate will make it harder for the San Francisco property assessor's office to justify raising this property's value during a downturn. It's sad they won't automatically do the right thing. But that's local government for you.

Back in 2007-2010, despite declining real estate prices, the San Francisco property assessor's office kept trying to raise my property's assessed value each year. As a result, I had to fight the assessors office and actually won for three years in a row.

But most homeowners around the country just kept paying higher and higher property taxes as property prices declined by 10% – 35%. Please be proactive in protecting your financial freedom from the government.

As property assessors can't come into your home to inspect it, they must rely heavily on data online. Not only do property assessors use Redfin and Zillow estimates when evaluating the value of your property, they also use Google Maps to see what the front and top of your house look like.

Real Estate Value As Part Of Your Net Worth

Privately, you can value your real estate at whatever value you want. If you're feeling down, you can increase your real estate's value to match the best comp in your neighborhood. If you're feeling great and want a financial challenge, you might want to undervalue your real estate's value.

Personally, I like to value my real estate at cost plus any remodeling expenses. By keeping my real estate values fixed, over time, I create an upside buffer. In addition, it throttles my net worth growth during a bull market which helps damper delusional thinking.

It's dangerous to start confusing brains with a bull market. If you do, then it's easier to blow yourself up by investing in a risk-inappropriate manner. Think about all the money that has been lost in NFTs, meme stocks, and other highly speculative investments since the pandemic began. Investing FOMO is extremely hard to combat during a bull market.

Keeping my real estate values fixed in my net worth tracker also dampens volatility on the downside. After keeping your real estate values fixed for years, when a downturn eventually comes, you also have a psychological buffer. By visibly losing less, it also protects my mood.

The four times when it's necessary to know your property's true market value are:

  • When you plan to sell
  • For estate tax purposes before you die
  • If you're trying to calculate your cap rate (net rental yield) to better optimize your overall investment returns
  • When you want to refinance or get a HELOC

Otherwise, your real estate's value is not that important. What's most important is the cash flow it generates. If you plan to buy and hold forever, as I hope most of you do, then your main goal is to either enjoy your house or optimize its rental income.

Being Visibly Poorer Is The Way To Go

Ideally, every physical real estate owner wants to generate the most amount of cash flow while having their property be worth as little as possible to the public.

If the property assessor's office would assess your property's value at just $1,000, you'd take it! That would mean you'd pay only between $6 – $30 a year in property taxes, depending on location.

Unfortunately, the property assessor's office's mandate is to extract as much taxes as possible from homeowners. Given property assessors don't do the right thing during downturns, you must take the initiative by going online to lower your property's statistics.

By doing so, not only will you stand a better chance at not paying more property taxes in a bear market, but you will also be lowering your public wealth profile. The lower your wealth, the fewer people will want to ask you for money or other things. Fewer people will be tempted to rob you, which is especially important if you have young children.

Finally, with a lower property value, you will face fewer envious people. Some people just can't help hating on those who are wealthier. Hence, your goal is to make yourself looker poorer than you really are. Ideally, you come across as middle class with enough status so you and your children don't get excluded from opportunities.

The battle over property values is coming folks. Take the initiative now by lowering your public wealth! Losing lots of money in real estate isn't so bad. In fact, it can be great!

Reader Questions And Action Items

Have you successfully downgraded your property's statistics online to lower its estimated value yet? What's preventing you from being proactive in publicly losing a lot of money in real estate? Would you rather people think you are rich, middle class, or poor?

If you’re looking to surgically invest in real estate, take a look at Fundrise. Fundrise is a vertically integrated real estate platform that invests predominantly in Sunbelt single-family properties. Private real estate is a good way to diversify and earn income 100% passively.

If you would like an unfair competitive advantage in building wealth, pick up a hard copy of my instant WSJ bestseller, Buy This, Not That. The book goes deep into real estate investing strategies.

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19 thoughts on “Losing $1 Million In Real Estate Never Felt Better”

  1. Sport of Money

    I’ve had a successful challenge to the assessed value of one of my rental properties with the county before. But I didn’t do any work personally outside of spending 5 minutes engaging an attorney who negotiates real estate tax assessments for a living. The real estate attorney ended up getting 1/3 of the savings for the 1st year while I enjoyed lower real estate tax for years.

    1. Not a bad trade! Here in San Francisco, you can pay a real estate tax attorney if they win and they get I think 50% of the savings for one year. If you can get the discount for years, that’s pretty good. But I suspect it’s not years, as the city will reassess it every single year.

  2. You can get an appraisal, this trumps a mass-appraisal result. Redfin/Zillow are a joke – they openly advertise that they’re wrong by more than 7 +\- 50% of the time. How did Zillows exploration into property investment go again?

  3. Yeah the Redfin retroactive revisions and changes to historical estimates really invalidate the entire estimate in my opinion. I don’t use Redfin estimate anymore because of that..

      1. Zillow is more accurate in my area than Redfin but I look at both, as well as recent sales in the area in question. They both used to be fairly close until the pandemic, where Zillow kept up with the appreciate a lot more than Redfin did but that seems to be leveling out a bit in recent months with Redfin still increasing in estimates while Zillow has flatlined or even dropped in some cases.

  4. You are absolutely right about the city never doing the right thing during a downturn. Very wise to be preemptive and start lowering your properties value now. Don’t give the city ammunition to raise your property taxes during a downturn!

    It continues to shock me that there are citizens out there naïve enough to believe politicians won’t ultimately come after your tax dollars. Voting on politicians who raise taxes on other people is despicable if you don’t pay more taxes yourself.

    Eventually, politicians and government will run out of people to tax. So they will eventually come for you!

  5. Hi Sam – I thought assessed values were locked in at purchase price in CA. You reference fighting the SF assessor on annual increases? Just curious if that’s an SF specific issue.



    1. Yes. If you think your property’s value is down 7%, the city has no business raising it by 3%. That’s a 10% spread worth fighting for. Especially pertinent for recent buyers.

      In California, we are relatively lucky in regards to the magnitude of property tax increases. At most ~3% a year increase.

      But I hope this article helps motivate other citizens around the country to be proactive.

      For this property, the city government increased my assessed value by $100,000 over the purchase price. How is that possible when the market is the market? Bc they said so.

      How was your experience with your properties assessed value during the 2008 global financial crisis?

  6. Such great points. I think the only times you would want a higher home valuation is a) when you plan to sell without the intention to buy another, and b) when you’re applying with your current lender to eliminate PMI.

    1. Good point on dealing with the lender to eliminate PMI or getting a HELOC actually. I didn’t think of those things bc I’m against paying PMI and taking out a HELOC in the first place.

      Will add to the list! Ah, the benefits of different perspectives. Thanks.

      1. What about taking a heloc for investment in cash flow assets. I use my properties for a line of credit paying 5% now and invest in oil and gas wells generating 25%+ annual roi.

  7. For those who haven’t had to deal with the property assessors office – it’s really terrible and they are so inaccurate and shady. I did a low cost bathroom remodel once that required permits, and they totally jacked up my property tax because of that. I understand that the value should go up to some degree based on the cost of the remodel, but they raised it by way more than reasonable and it took such a long battle for me to get my bill revised. I was so PO’d

    I really dislike all the online sites like Redfin and Zillow too. They’ve never been accurate and the fact that the government uses their data to determine property tax bills is ludicrous. I didn’t realize their charts are updated retroactively either. The system is so messed up.

  8. Have you ever invested in storage facilities whether on the public market or private? If so was the entry point of the investment at the production level or management level? I’ve read they are one of the most recession resistant real-estate investments to make. It would be great to hear your thoughts and/or share your experiences on this niche. Thanks.

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