Andy and Cindy, Lessons Learned
by Tony Chavira
Deep into the recession, a couple purchased a home in the unincorporated area of East Los Angeles for $530,000. With the intention of fixing up and flipping the place, they dumped a boatload of money into the home to upgrade plumbing and electricity and clean up some of the exterior. When the recession hit even harder and their investment turned upside down, the bank provided them no favors. After a difficult back-and-forth with bank representatives, it became clear that they were going to have to give up the home. Thoroughly embittered, they said “good riddance,” wrote a bunch of obscenities on the walls, plugged up the plumbing, tore out the heating, and boarded the house up on their way out.
When Andy and Cindy first saw the bank-owned home, they were shocked that it was exactly what they wanted. Andy had grown up in the neighborhood and always planned on moving back, and the location, within walking distance of the last Metro Gold Line stop in East Los Angeles, meant the price of homes would dramatically increase over time. It was close to their families and they knew they could increase its value by putting in some elbow grease. But most importantly, it was historic and had charm to it ... something a lot of places they saw didn’t. They knew style when they saw it: they built their own fledgling fashion company and were doing pretty well at the time.
Several years previously, Andy’s parents divided up his and his siblings’ inheritance between them, giving Andy the unusual ability to consider making an investment in his future. So with Cindy’s help (both emotional and financial), they began the process of house hunting in November of 2008. That help was much needed, as Andy and Cindy would look at over more than 80 places over the next seven months. Though people were losing faith in the housing market at the time, Andy’s family horse-riding equipment business still fared as well as during the boom, seeming like a good indicator that they would be able to make payments if they pulled out a reasonable mortgage.
Initially, they looked at the First Time Homebuyer’s Program, as Michelle and Erick had, but found that their options were much more limited. Besides, they were not against fixing up a place if it meant a lower price. Then, like Reid, they went hunting for short sale homes, only to find that short sales didn’t benefit the buyer so much as the people still living in the place. When all was said and done, 80-plus houses later, Andy and Cindy found their dream home just around the corner from where Andy grew up. They put in a bid of $272,000 (two other buyers bid at the same time) and they won the house by exactly $1,000. It was destiny.
There are pros and cons to real estate occupied (REO) homes. Since they involve people still living in the house being foreclosed on, Andy and Cindy were able to see that this one was relatively well maintained. Though the home was built in 1932, the piping and electricity were brand new, and the the back yard recently nicely paved. That had to be balanced against the indoor graffiti and the 2-by-4s inserted into the pipes.
The most biggest problem involved the heating system. As part of the mortgage contract, the house was required to have one, but it appeared that the previous tenants removed the heating units when they left. Andy and Cindy’s real estate agent, though damn good at his job, seemed like a smug shark, and he rubbed the bank’s agent the wrong way, leading her to try dumping the cost of replacements onto Andy and Cindy. But after a month of negotiations, the bank paid for the unit and they were able to move in.
In the end, Andy and Cindy found a great place in a great location. So great, in fact, that the unincorporated location keeps Andy from having to pay business taxes to a city.
Andy and Cindy had several points of advice for first-time homebuyers, ones that I heard consistently from the interviewees. First: find a really good agent. If you can find someone who knows your market, knows what your budget is, and knows how to deal with banks and legislative formalities, you’ve hit the jackpot. Some homeowners, like Erin and David, were able to get by on their own, using only the internet (which everyone agrees to be an incredibly useful tool). But even Bhanu, in dealing with the British homebuying market, found that approaching someone who knew what to look out for was useful. In fact, in Bhanu’s, Andy and Cindy’s, Michelle and Erick’s, Trevor’s and Annie and Dock’s cases, they’re still in contact with their agents and continue to use them as resources.
Second, you should understand that the process of purchasing a home is twofold: finding it and actually buying it. Both parts may take an very long time. Just about every person I interviewed looked at at least one other home before finding the one they wanted. Some, like Trevor, and Annie and Dock, felt pressured by the economic climate to jump on opportunities simply because they were available. Some, like Reid, and Michelle and Erick, didn’t get the first few homes they made offers on, which cooled their motivation.
Then, actually closing the deal isn’t always smooth. For both Bhanu and Rick, the places they wanted were available (brand new, in fact), and they were told to make good offers right away. They followed the rules and did what they had to, but of actually moving in took longer than they expected.
Third, as Erin and David put it best, “Don’t buy more house than you need.” The past five years have been an especially interesting time for homebuyers, since those who bought during the bubble (Bhanu, and Annie and Dock) ended up paying much more for much less home. They’re all capable of managing the payments, but you never know ... their situations could take a turn at any time. Just look at what happened to Joe: trapped in Austin, Texas and taking care of his daughter. Annie and Dock, Andy and Cindy, Bhanu, and Trevor all mentioned that the home they purchased was at the very top of what they could afford. They got what they wanted, but they maxed out on what they could spend. Reid, Rémi and Kristen, Erick and Michelle, and Erin and David, on the other hand, all worked within their budgets.
Last, be willing to do a lot of research into the area, and consider your future. In the cases of Joe, Erick and Michelle, Erin and David, Annie and Dock, and Andy and Cindy, that future involves building a family. That may mean getting to know your neighbors really well, and checking out where the nearest police stations, fire stations, schools, parks, and utilities are. As well as the nearest sex offenders. In the cases of Trevor, Reid, Rick, Rémi and Kristen, and Bhanu, that future involves making smart and strategic decisions to capitalize on investment opportunities. Rick and Bhanu both invested in lofts in new developments in up-and-coming neighborhoods. Trevor, Reid, and Rémi and Kristen all took spaces that were valued higher than what they paid, knowing they’d see financial returns as the years pass. Because of the way their loan works, Rémi and Kristen are banking on three years. The others are all hoping to stick around a bit longer.
For the next three weeks, to finish this series on buying your first home, I will interview a former real estate broker who at one time had investments in 48 of the 50 states. We will focus on his personal story, what happened to his business after the recession, and every bit of best practice advice he can provide.