Proficient Note Buyers
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September 21, 2012
Unfortunate Series of Events
I live in a small subdivision (just 18 houses in our HOA) in a very nice community of about 7,000 people. The demand to live here is high, so much so that the schools are overcrowded and some kids are bused to other schools in the district. Regardless, it is an excellent place to raise a family.

My neighbors down the street moved into their house sometime in 2007 or 2008, if I recall correctly. They moved out of their house in late 2011 and bought a one-story home due to the wife's mobility issues; she simply couldn't climb the stairs in the old house anymore. They are empty-nesters, and from all outward appearances, did well during their working careers. There was always a big 5th-wheel RV, boat, toy-hauler, or other recreational-themed outfit in their driveway, depending on the time of year. These weren't run-of-the-mill vehicles - they were all top-of-the-line and mostly new.

The house on our street sat vacant for almost a year. Originally, they tried to sell it themselves; later, they engaged a Realtor to assist in the sale. Throughout the marketing period, the price continued to drop; every time we walked by the house, it seemed the price was reduced another $10,000-$15,000. A couple weeks back, it finally sold.

Obviously, our neighbors didn't get the kind of price they were hoping for. In fact, they ended up selling for over $50,000 less than they paid for it just a few short years before. An additional $50,000 they invested in improvements and remodeling while they lived there was also for naught. In effect, the sale of their house cost them over $100,000. That's not even the worst part.

The new buyer had a crew at the property last week doing a few minor repairs, then promptly put a "For Rent" sign in the front yard. Ugh. I don't say that because we're about to have more renters in our neighborhood; I say that because my neighbors could have rented the house themselves and waited for better days to finally sell the house.

Many of my family members and friends ask my advice whenever they are considering purchasing a house, refinancing their mortgage, or consolidating their debt. They know I've spent my entire career working with debt instruments, and they value my expertise. It's no different than consulting with my buddy who works as a mechanic whenever my truck starts making strange noises. I simply wish my neighbors would have talked to me before selling their house at such a large loss.

Now, I don't pretend to know their financial situation or the reasons they felt compelled to sell at such a low price. Again, based on the cars they drove and the aforementioned 'toys' in the driveway, it seemed like a shortage of available cash wasn't the problem. I simply think they could have rented the house and covered the mortgage (assuming there was one), waiting for a stronger housing market before they attempted to sell.

What's done is done. Clearly the new buyer sees the strong housing demand in our little town and jumped at the opportunity to pick up a very nice house at a very good price. I look forward to meeting our new neighbors once they sign the lease. I just can't help but wonder if we could have kept some (or all) of that $100K+ in our old neighbors' pockets.

As with boxing matches, there are winners and losers in real estate. The trick is staying off the canvas through due diligence, savvy, and (on occasion) patience. It doesn't hurt to have a trusted adviser in your corner, either!

Make it a great week(end).

Clint


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