My Biggest Financial Mistake
“No one ever lost money on Santa Barbara (CA) real estate.” That’s what I had heard repeatedly over the years. Santa Barbara is sometimes called the “American Riviera.” It’s beautiful and lots of people visit and come back to live there. That’s the start of my story.
I had retired from the Air Force as a hospital administrator and all my siblings had gone to college in Santa Barbara. I had visited many times. I found a job at a small local hospital and bought our first Santa Barbara house. A year later I lost my job. We sold our expensive house at a small profit and moved into a rental we could afford on my Air Force pension.
I went into commercial real estate leasing and selling properties. I made a lot of money. Two years later we put $50,000 down on a home four houses away from our previous location. Since I was working on commission we could only qualify for a small mortgage and had to negotiate a five-year second mortgage from the seller who was a real estate broker and understood our situation. We bought a more expensive house knowing it would go up in value.
All was fine until the 1991-1992 recession. People stopped buying houses, leasing buildings, and buying buildings in the US and in Santa Barbara too! I wasn’t making much money as a real estate broker during this period. The five-year note was coming due. The house had gone down in value. We couldn’t refinance as we had no equity left. It was time to sell. The offers wouldn’t even fund paying off the two mortgages.
We had to put the closing costs on our credit cards to pay the realtor. She got the former seller to discount the balance on the five-year note to close the selling. That was when we found out we had to put loan forgiveness on our tax return and pay taxes on it. They treat the concession as income.
It took five more years before we could buy another house, but it wasn’t in Santa Barbara. We could no longer afford houses there. What lesson did we learn? Don’t buy more than you can really afford and don’t think prices won’t go down. See if you can live on one income and still maintain your mortgage payments. We didn’t.
It’s painful to recall this mistake. I hope telling this story will help someone avoid thinking real estate values will never go down. 2008-2011 again proved to us it can happen. This time we were ready and even though our home went down in value we were prepared to wait it out. I’m afraid it’s going to happen again. Be prepared.