Before I started buying homes officially as "Investment" homes, I used to buy fixer upper homes as primary residence and fix them up while I was living in them and after 2 years, I would sell them for a huge profit.. capital gains tax free. I was single and moving every 2 years didn't bother me.
I did well throughout the 90's to the mid 2000's, making tons of money that way, and best of all, my profit was capital gains tax free. I had accumulated enough cash to buy my primary residence in cash without any loans. So, in 2004, I purchased a fairly expensive, large home with cash in a nice golfing neighborhood. I loved the layout with a 30 x 30 Great Room with very high ceilings and a sunken area with wet bar, 4 bedrooms, 4 bathrooms and over 3000 sq ft. It needed a full upgrade and some repairs. (Home was stuck in the 80's)
I ended up spending a ton of money in remodeling the house and by 2006, when I started to get ready to sell it, the home appraised for about $200k more than what I had invested. Everything looked great until the RE bubble started to burst. In late 2006, there were tons of houses for sale in my neighborhood and therefore there was lots of competition.. So, my home didn't sell. Market started dropping in 2007 and I kept dropping the price.. By 2008, I still didn't have a buyer by it and the value of my home now was about what I had into it.. I was still trying to get the maximum $$ for it and waited, hoping for the market to stop dropping.. In 2006, I had taken out a HELOC on the property to buy a Ferrari.. which I sold in 2008 to use that money as a down payment on another property that I was purchasing (the one I'm living in right now). Since I had the HELOC, I was required to carry insurance on the house. Insurance was about $5k per year and property taxes about $9k per year, so, $14k of expenses per year, not including regular maintenance. By 2010, my wife was pregnant with our first child and I had large expenses coming my way and I ended up dumping the house for $500k below the appraised value in 2006 and $250k below the money that I had invested, not counting the property taxes and insurance that I had to pay... I could not give the house to the bank and walk away from my mortgage as the house was still worth more than my HELOC, so I actually took a $300k loss when I sold it ($500k if counting the maximum value of the home during I owned it)
Here are the lessons that I learned from it:
Don't put all your eggs in 1 basket
Don't go for the layout that you personally like but a layout that sells.. It appears that many buyers did not like the great room layout.. The preferred separate dining/living and family rooms. The house behind mine with 700 less sq/ft and no upgrades sold for $50k more than mine because the buyers liked the layout.
If the market is dropping with no end in sight, sell low to get rid of it as otherwise, you'll lose a lot more..
Since then, I decided to buy cheaper homes in decent neighborhood and have not had a single bad experience. Made good to great money on all of them and or great ROI as a rental.
