How I Fell Into Real Estate Hell

In the late 1970s, I made my first investment in real estate. It was a tidy little one-bedroom in a recently refurbished building on Massachusetts Ave. in Washington, DC. The woman that sold it to us happened to be the owner of a townhouse we were renting about half a mile away. She persuaded me to buy the apartment by explaining how prices had been escalating in the area and by offering me a loan that required me to put nothing down. Not a cent. Nice apartment. Recently remodeled building. Up-and-coming neighborhood. And zero out-of-pocket? It seemed like a no-brainer to me. The no-brainer, it turned out, was me. She was right in telling me that property values in that part of DC had been going up. And she did manage to get me a deed and the keys without taking a nickel from my wallet. But what she didn’t tell me was that the value of the property that was indicated on the mortgage was considerably higher than it was actually worth. Nor did she explain that the loan I had agreed to had a three-year term, and at a negatively amortizing rate. What that meant was that my mortgage payments were not sufficient to cover the interest payments – or the principal. So, at the end of the three-year term, I had to refinance, which required me to shell out thousands. Plus, the amount I owed on the principal was more at the end of the term than it was when I first signed. To make matters worse, I rented the place to a nice young woman that presented herself as a college student. As it turned out, she was earning her tuition by entertaining men in her apartment at night. This led to constant complaints from the neighbors and fines from the HOA. To add insult to injury, after the second month, she stopped paying rent. I inquired as to the procedures for kicking her out and found that DC had such strong tenant “protection” regulations that it would take at least a year and probably two or three to get rid of her. I considered changing the locks when she was away, but was told that if I did that, I’d be arrested. I’d be in jail – still paying the mortgage, still losing money every month on the negatively amortizing loan, still paying fines to the HOA. And she’d be comfortably entertaining “clients” until the eviction procedure finally took hold. I considered refinancing again. But alas, the mortgage I had signed was not backed by Freddie Mac or Fannie Mae. That meant that at the end of those three-year terms, I could be forced to pay out the entire balance of the mortgage. (Which was growing by about a thousand bucks a month.) I didn’t have that much money. So, I had to accept whatever predatory terms the shitty bank that held the mortgage offered me. I had fallen into real estate hell with no prospect of getting out. It wasn’t until nearly four years later that I managed to pay off the mortgage and sell the damn place. Instead of the big profit my landlady had promised, I took a hit for nearly $40,000 – which was about $40,000 more than my net worth.