Ten in Ten

Ten in Ten
June, 2008

Following is a story about foresight, hindsight, financial gain, financial loss, hope, perseverance, and optimism. The message is…We all need to pick ourselves up, change our lives, and get to work!

Most of my adult life, I was a mortgage industry professional. In that 30 year career, I held almost every position available in the mortgage field, from receptionist to senior lending officer for a small bank. From 1994 until 2005 my husband Jim and I owned and operated a small, successful mortgage brokerage business in the Florida Keys. No, we never participated in subprime lending. I was brought up in a time when loans were granted to qualified individuals, in loan amounts relative to each applicant’s ability to afford the proposed housing payment. Call me old fashioned. During the days of big bucks being made by others in the mortgage business who were playing fast and loose with underwriting guidelines, Jim and I chose to stay with our conservative business approach. We were just regular workin’ stiffs, plugging away, originating “vanilla” loan product. We missed opportunities to make lots of money, but we slept well at night.

We were fortunate to have bought a modest waterfront home in 1989 in Islamorada, and during our years of living and working in paradise in the Florida Keys, we made substantial improvements to that home. In 2005, as everyone knows, the real estate market was booming, especially for waterfront properties. Jim and I decided to sell our home and use the proceeds from the sale to take advantage of the knowledge we had gained from our 30 year experience in real estate finance and become real estate investors. We were thrilled with the prospect of beginning a new career, and felt proud (a little smug, actually) to have cashed out before the mortgage market crashed. There was actually a brief point in time when our net worth exceeded a million dollars! We were very impressed with ourselves. In the summer of 2005, Jim and I would giggle together occasionally and say it was our goal to make “Ten in Ten.” That is -- ten million dollars in ten years. We were delusional, of course, and more than a little silly with a heavy dose of good ol' American greed.

I was anxious to invest our chunk of change right away…to ”put it in the dirt!” I thought, “Everyone knows that real estate, especially real estate in Florida, is the most sound investment of all!” In 2005, there was a wide spread sense of near panic among real estate purchasers to buy properties as soon as possible, before the prices got further away from us. Our plan was sound (we thought), tried and true – we would buy fixer-upper homes in desirable neighborhoods, renovate them, rent them, and sell them for profits in a few years. We anticipated that the real estate market might soften somewhat, but our plan included putting down at least 30 percent on each house, allowing for minimum mortgage payments that could easily be covered by rental income, even in a softer real estate market. (The ironic thing is that if we had highly-leveraged our purchases with sub-prime mortgages -- not that we ever would have! -- we wouldn’t have lost so much cash! But, I’m old fashioned, remember?) So, we bought a few investment properties in Florida and a summer home in Vermont. We were so confident in our investment acumen that we even loaned two hundred thousand dollars to our daughter so that she and her husband could purchase a business in Palm Beach county. We were on our way to becoming successful in our new careers as semi-retired investors!

Of course, as it turned out, our plan could hardly have been worse. We invested almost all of our cash, keeping little in reserve. In addition to the 30 percent (plus closing costs) we put down, we invested several thousand dollars in improvements and upgrades on each property. When the real estate market flattened in 2006, we weren’t worried -- we had a good plan. As it always had before, the market would bounce back, and our tenants were paying their rents. In 2007, things got slower, people starting talking about a long term real estate recession. Florida led the country in mortgage delinquencies, builders had overbuilt, speculators had overspeculated, Florida’s booming real estate market was bust! The ripple effect through the economy was pervasive. Businesses failed, including our daughter’s. She and her husband and thousands of people in Florida lost their jobs, especially those living in resort and retirement communities. People were unable to pay their rents. They were unable to pay their rents to us. Oops.

Toward the end of 2007, we were no longer living in denial that our real estate investment strategy was going to work. We were no longer millionaires. Ten in ten now meant ten dollars in ten years. Jim and I had already put most of our houses on the market for sale, offering them for slightly less than we had invested in them. We were ready and willing to take our hits and get on with our lives, but we didn’t yet understand that getting on with it wouldn’t be very easy. We couldn’t sell any of our houses, at any price! There was no market at all! Each of us began looking for jobs and soon discovered that we weren’t qualified for any professional employment opportunities that were available. Our so-called skills were in businesses that were out of business – mortgages and real estate. It was a humbling realization to learn that, in our advanced middle age we were unemployable!

We were not ready to lie down and die. We needed to make money. We needed to go to work. Whining and crying about our losses wasn’t going to do us any good. “Okay,” I thought, “Since we aren’t qualified to go to work for anyone else, then obviously, we should run our own business, but what should we do?” Planning ahead for self employment opportunities in a recession or depression is interesting. I thought about all the products that people might spend money on in a slow economy and came up with food, entertainment, electronic technology, and energy. Food production or food sales weren’t options for us – we had no experience as farmers, and didn’t happen to own any farmland anyway; we didn’t have the cash reserves to cover the overhead of running a grocery store; and entertainment was definitely out, because neither of us could sing or dance. We were just as qualified technologically as we were talented entertainers. Not.

One thing in my life’s experiences that I haven’t yet mentioned is that I was a part-time volunteer environmental and community activist for many years when we lived in the Keys. I always had dreamed of having a job that would help save the planet, rather than contribute to its decline. I had had an interest in solar energy since 1973, when I wrote a research paper on the topic in college. “So, what about solar energy?” I wondered. “Is it time now? Hmmm….this could be very interesting!”

After conducting research for several months, calling solar energy professionals, speaking with suppliers and manufacturers, and discussing requirements with industry regulators, I discovered that we could do it! Jim and I took a course in solar energy, Jim went to solar installation school, we set up our business, and now we are solar pros! We now specialize in the sales, installation, and service of solar hot water systems for homes and businesses in southern Vermont. We chose solar hot water heating because it provides the best return on the consumer’s green dollar. We officially started our business in the summer of 2008, and by the end of the year, we were almost in the black. The demand for green energy is out there, it’s just a matter of whether or not our potential customers still have jobs or enough money left to invest in green improvements.

By this point in our lives, we had hoped to be on the verge of retirement, but if we’re lucky and we stay healthy, we’ll be working for many more years. We are down to our last little bit of savings, but we are very optimistic because we know that we have lost only money. It’s not cancer. We hope that our solar business will do well this summer, and we’ll work hard to make it successful.

Karen Lee
Originally written June, 2008.
Update, April, 2011 --

Our solar business is doing well, we are making a small profit, but we have spent the last of our savings. We lost all of our investment properties, including one hundred percent of our investment in each one. As an example, our very nice home in Sebring, Florida, (we lived there after we sold our Keys home as our primary residence) just appraised for $105,000. We paid $260,000 for it in 2005, and put another $40,000 cash into the house in hard improvements. That's a 65% drop in value. It's only money, right??? Arghhh...