The Loan Dictionary

Lost money but made money – what is going on here – you decide!

No, I have not been drinking nor have I lost my mind. Though some times I do wonder…

You can both lose money on a home and still make money at the same time. Depends on your point of view. I’ll tell you my story and you be the judge.

After moving to the Wenatchee WA area from the central valley of California in 1996 we moved in with my wife’s sister and her husband and rented the upstairs level of their home. This was cool for a little while but as you can expect got old soon.

Jump ahead a year and we were ready to get our own place. Problem was we were not making much money. I was working at a small electronics store [the shack] and my wife was trying to get started in real estate [working hard making $00.000].

How the heck could we buy a home under these circumstances?

We found a FSBO or “for sale by owner” for $112,000 and made a full price offer.

This house had been on the market for 13 months so these sellers really wanted to get this place sold. As you can imagine it was not a great house but was solid.

No major problems just lots of small ones.

This house was owned by a 13 yr old boy.Turns out his parents were killed in an accident and he lived with his grand parents who were also his executors and managed his estate. The large part of the boys estate was this home.

His grand parents were not capable of doing the work to fix this house up and for what ever reason did not want to spend money to hire it done. They just wanted to unload the house for what turns out was a little over what it was actually worth. It should have been on the marked for under 100k.

We could not afford a regular loan so we wrote the offer to have them carry the home and take payments for 5yrs.

This seemed to upset them big time as they just wanted to sell it.

We had a large down payment of 60k so we said look, we can make the payments even though we don’t make a lot of money and if we default you keep our 60k down payment and in 3 yrs we will sell this house and pay you off.

They came back with a counter offer to carry the home and take payments for 3 yrs.

We steadfastly refused and told them 5yrs was the minimum and no way where we going to take a 3 yr term event though we expected to be out in 3 yrs. We needed to extra 2 yrs to account for the unexpected and to have time to sell for max price. They yelled and screamed and stamped their feet over it.

I told them, look I understand your situation but you need to understand ours.

NO WAY IN HELL am I going to give you our 60k down payment and walk away.

The extra 2 yrs give us room to work with but we don’t expect to need it.

We plan to be here for 3 yrs then sell and pay you off.

They took the deal and sold us the home at asking price of $112.000

3 yrs later we put it up for sale and sold it for 113,500 and ended up losing 6000.00 on it in 3 yrs. The loss was due to having to pay the real estate agent fees. I tried the FSBO thing but could not get it sold on my own and my wife insisted on listing it, yes she is the smart one some times hehe…

So we lost 6k on the deal so how did we make money at the same time?

We lived there for 3 yrs or 36 months.

6000 divided by 36 = $166.66 per month cost for us to live there.

It was a small 3 bedroom with 1 car garage and small yard in a decent neighborhood.

The same level of house rented for that time at 600.00 to 800.00 per month.

So our housing cost for 3 yrs turned out to be about 200 per month with everything included.

We painted it inside and out and spruced up the yard a little that’s all except for other little stuff like water heater, fix plumbing etc. All stuff I could do myself as a handyman/owner.

$600.00 low end rent price minus $200.00 for our actual housing cost netted up $400.00 saving per month for 36 months.

36 x 400 = $14,400 savings.

I would not go so far as to claim $14,400 – $6000.00 = $8400.00 profit but you could after a few beers maybe say that we actually made $8400.00 on this deal and even more if we figure the rent at $800.00 per mo instead of $600.00

So in your opinion did we lose money or did we make money or did we do both?

Use the comments form below to state your opinion.