Let’s talk about real estate. I’ve had a love/hate relationship with real estate for about a decade. The “hate” stems mostly from two dumb decisions I made that each played off of the other to cost me over $300,000! That’s right! I’ve written about one of those things here before. Here is the other. I was young and dumb… now, ten years later, I’m only one of those things, haha! I’ll let you figure out which one.
It all started in 2000. I just got back from about 10 months in Los Angeles and I wanted to buy a condo to live in during undergrad. I was talked out of it because “you never know where you’re going to end up.” Fine. Fast forward to July 2003. I was working as an intern in NYC during grad school. The way these internships generally worked, the internship generally means you have a job waiting for you when you graduate. So I was pretty confident that I was going to end up in NYC as of September 2004. (It was all made official in early August 2003 when I was offered the gig. Still with the same company in the same office…)
I still hadn’t scratched my real estate itch and now had $50,000 or so burning a hole in my pocket. There were a bunch of studio apartments in a great building for between $280,000 and $320,000. I looked at those apartments and everything looked great. Everything! I knew where I was going to “end up” and these would be easy to afford once I started at my day gig. But that was the problem. I still had one year of grad school in Boston. And I didn’t think I could handle the payments on top of my rent in Boston for a year until I landed in NYC (turns out I could have…). And renting it out for a year was also not an option because the building didn’t let you rent it for the first two years after purchase… I know… dumb. But they have their reasons.
So I passed. I returned to Boston without an apartment. You all know what happened next (I’ll link the post here when the migration dust settles but long story short I bought a 3-family brownstone in Boston a few months later).
A lot happened in my life between August 2003 and September 2004, when I returned to NYC.
Importantly, none of this could have been predicted by me. But what happened during those thirteen months changed everything about me and resulted in the decision to not buy this condo costing me over $300,000. (You read that right.)
Long story short (too late?), I met my wife in June 2004 – and this is now I know not buying the condo cost me so much! Don’t worry, it’s not a bad thing. She’s heard this story a few times. Two things about my wife confirm that not buying one of those condos cost me so much. First, she could not life with me in a studio apartment for too long without killing me. Second, she was not committed to NYC and desperately wanted to move back to Boston (until about two years ago when we committed to the area for good).
How do these two things add up to over $300,000? Here you go:
After I moved to NYC in September 2004, she started visiting me every weekend. Four months later, she moved into my 400 square foot studio apartment with me. We stayed there for a year and a half until she was about to murder me. I would have had no choice but to sell the studio apartment. I know this for a fact. When we moved from the studio rental to a one bedroom I looked at the places I almost bought. At the time they were selling for $600,000, roughly $300,000 more than I would have paid and about $270,000 after realtor commissions.
And because she was a Boston gal, still not committed to NYC, there was no way she would have been OK with me buying another place. (In fact, that’s the reason we still haven’t bought a place in or near NYC. Every time we got close, she got home sick and we ended up renting for another year. This happened a few times). So the $275,000 profit would have been locked in.
Why did I say “more than” $300,000?
Well, since that time I’ve spent a lot of money on my place in Boston. Especially considering some complicated tax issues, on top of the purchase price and eventual selling price the Boston place cost me more than $25,000 during the three years I would have owned it. So we’re up to $300,000 in difference not including realtor fees to sell the NYC place if I had bought it. At the very least, my mortgage interest and real estate taxes would have provided some tax benefits, for example.
Finally, I also look to what I would have done with the money had I bought and sold the NYC place, ending up with about $300,000 in my pocket, mostly tax free (up to $50,000 would have been subject to capital gains tax…). How do I know what I would have done? Simple. I look to what I actually did with the money I had during that time. I put it in the stock market. The market was up and it was down, but without over complicating things here, the market is higher now than it was then, even after the roller coaster of 2008-2009. So there would have been some additional return.
Crazy? Maybe. But I’m not really upset. Even though I really believe I know how this would have played out, I can never be 100% sure. It would certainly be sweet to have that money and to have avoided the other blunder (because I only had enough money for one deal at the time), but it’s all good.
So why tell this story?
Simple. I’m going to be talking a bit about real estate here moving forward and figure it makes sense to let you know where my biases come from. I love real estate. But I’ve been burned before, both by decisions to buy and decisions not to buy.
Have you decided against buying real estate and looked back at a place a few years later? Anyone “know” a decision cost (or saved) them money, like I do?
Lastly, what would you do if this story was about you? $300,000 in lost opportunity. Tough to get over? Ha! I didn’t think so until I started this post…
Until next time, put your credit card down and slowly step away from the mall!
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