When Bubbles Burst

Juan Fourneau

ABOUT HALF THE RENTALS that my wife and I own were foreclosures we bought around the time of the Great Recession. In fact, I closed on the first one on my wedding day—a fact my wife isn’t anxious to let me forget.

In 2000, a family had bought the house for $70,000. In 2006, JPMorgan Chase foreclosed on the house. In 2007, the bank unloaded the property for $93,000 to the Department of Housing and Urban Development (HUD), which had guaranteed the mortgage. I bought the place in 2007 for $50,000. I overpaid. It was the start of a tidal wave of foreclosures that would hit my hometown and the rest of the country.

The pattern I saw with my first foreclosure was one I’d see again several times over the next eight years. A family would buy a home in the early to mid-2000s as interest rates dropped and property prices rose. They got a mortgage backed by a government agency. Next, a new loan was secured for more than the original purchase price, or home equity was borrowed to pay for renovations and improvements.

Then the economy slowed and eventually hit a brick wall. The family would lose the home and the government would get the property back. The place would sit on the market for months, maybe a year. A local investor or landlord would pick it up for a fraction of the price that the family had paid.

October 2010 was Lucas Street, another foreclosure. In January 2007, a couple bought it for $72,000. The Federal Home Loan Mortgage Corporation foreclosed on it during summer 2010. I bought it in October for $35,000.

The front of the house was a striking stone structure that increased its curb appeal. When I had to cut the stone to make a window a legal egress, as required by city code, I found out how expensive it was to have a contractor cut the rock. During 2014’s freezing Iowa winter, the tenants left for a week’s vacation. When they returned, they found the main piping to the house frozen. The bill was $8,000. That was painful.

Next was West 4th Street, two houses down from my childhood home. The owners bought it in 2006 for $92,500. It was foreclosed in December 2011. The federal government was on the hook for $102,500. I got it for $43,000 in 2012. It was a two-bedroom home. We added a third bedroom by carving out part of the dining room.

In August 2021, the tenant moved out. It was a sellers’ market, so I was eager to get the property listed. But the home needed a new roof over the garage and some renovations. My property manager handled the repairs, but struggled to find reliable workers. The work dragged on. The price of lumber and other building materials had skyrocketed during the pandemic.

My property manager handed me the keys days after I had surgery to remove my tonsils. I wouldn’t be in any shape to do any labor for a week. Thanksgiving was approaching. The place still needed a fresh coat of paint and some minor cleanup, which I was going to handle. The house finally went on the market near Christmas.

Despite the challenges, we sold the home in February 2022 for $80,000. I felt we left $10,000 on the table because we weren’t able to put the exact same house on the market the summer before. The sale validated a lesson I’d quickly learned about homes: They aren’t liquid. At any time during the trading day, you can check a stock’s price on Yahoo Finance. When you like the quote, you hit “sell.” Done. Homes don’t work that way.

The last bargain we got during the Great Financial Crisis was the house on Spruce Street. It was purchased in 2004 for $69,500. At the end of 2009, HUD foreclosed on the property. It was a small one-bedroom house. I almost didn’t look at it for that reason. Finally, after work one day, I asked to see it. Though it was small, it had a roomy basement and two bathrooms. A part of the dining room could again be potentially converted into another bedroom. Unlike the other homes I bought, it was more modern, built in 1954.

The bank had cut me off the year before. It felt my leverage levels were approaching the danger zone, so I got a coworker—who was a diligent saver—to lend me the money. She didn’t like risk and never borrowed money, but her low risk tolerance meant she was stuck with low returns. My attorney wrote up a contract under which I’d pay a 10% annual interest rate to my investor on a three-year loan.

She was a friend and a nice lady. But she let me know that, if I quit making payments, she wouldn’t hesitate to take the property. I was able to buy the home for $20,000. We upgraded the electrical system to a 200-amp service. After plowing $5,000 into it, we were able to rent it out.

One thing that stuck with me during those dark financial times was seeing homes just sit. It almost didn’t matter what the price was. There were far more sellers and foreclosures than buyers. Credit had seized up. One of the biggest local employers was laying off folks. Overtime was cut at other factories, so many people who relied on that to make their house payments were struggling.

The Great Financial Crisis was the scariest time I’ve lived through. It seemed like the rules were no longer working. Your home didn’t always go up in price. If you wanted to sell, slashing the price didn’t matter because there just weren’t many buyers. People were selling nice pickup trucks for cash. They needed to keep the lights on and pay for groceries. They had lost their job and it wasn’t easy to find another one. Pain and fear were everywhere.

Reading about challenging economic times in a book is one thing. Seeing the aftermath of a bubble with my own eyes—and the wreckage it left behind—was another thing entirely. I hope to never see a depression. The Great Recession was enough for me. I’m thankful my family didn’t have to suffer the way so many other families did.

Juan Fourneau’s goal is to retire at age 55. When he isn’t at his manufacturing job, he enjoys reading and writing about personal finance, investing and other interests. Juan, who is married with two children, retired from the ring after wrestling on the independent circuit for more than 25 years. He wrestled as a Mexican Luchador under the name Latin Thunder. Follow Juan on Twitter @LatinThunder1, visit his website and check out his previous articles.

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