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Making the Tough Financial Decision, Part 2 — Our Dream Home Goes on the Market

In March 9, 2015

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I have an important rule for making financial decisions:

Set your emotions aside and let the numbers do the talking.

It’s a rule I emphasize over and over with my coaching clients. Emotions and financial math do not mix. They are mutually exclusive domains. You need to bundle up all your feelings, anxiety, attachments, desires and fears, and mentally stuff them into a suitcase outside the door of your office. Then analyze the situation mathematically.

Numbers don’t lie. Two plus two will always equal four, and five minus eight will always equal negative three. Numbers don’t care how you feel about them and neither do dollar bills. If you are emotionally attached to an unsustainable situation and you do not accept that reality, you will be blind to opportunities and solutions for solving the problem.

As I mentioned in Part I above, I was in the rapids and headed for financial doom. What do you do when there’s a deadly waterfall ahead? Get out of the water, of course!

In my case, getting out of the water meant cashing in the equity in my property. Yet I could not bring myself to think in terms of selling my dream home. My pride and ego were in the way, big time. I had made the exact same mistake I warn my clients against. Talk about being the plumber with the leaky faucet at home! I allowed emotions and sentiment to cloud my business judgment.

After running losses for two consecutive years, I became “house poor” by 2013, yet I still failed to take action. In fact, I didn’t actually make the decision to sell our home until April 2014, a year longer than I should have waited. That’s because my emotions kept getting in the way. My stubborn refusal to consider selling this property was rooted in pride. And when I looked deeper, I realized that it was also insecurity about the future.

Where do you go after selling your dream home? How would I ever replace the unique privacy and serenity offered by this particular residence? How could I ever duplicate that feeling of expansive joy at the incredible views of the mountains? I got depressed even thinking about it. Had I worked this hard all these years, scrimping, saving and sacrificing to buy a nice home, only to have to sell it so quickly?

I let my emotions get the better of me. I delayed the decision and continued to wait for things to turn around. Well, they didn’t.

The essential problem for my business is that the rate of defaulted debt was three or four times higher at the peak than it is today. The banks wrote off hundreds of billions of dollars in those years, and then battened down the hatches. Lending standards became much tighter and default rates declined, reaching 15-year lows.

When there are 75% fewer people needing help with their credit card debts, it stands to reason that income tied to this pool of debt will decline by a similar measure.

Of course, it’s easy to do this analysis looking through the rear view mirror. At the time, no one predicted such a precipitous decline in charge-off accounts. It was a unique time in financial history. Who knew what the future might bring?

Meanwhile, back at our dream house, I had been keeping my eye on real estate values. After purchasing the property for $654,000, market conditions continued to worsen at first, and on the public valuation websites, our home was valued as low as $598,000 at one point.

It wasn’t long, however, before prices started to turn up once more. Even though I knew it was an artificial price, I was elated when I checked the values one day and saw that our home was “in the money” again. After that, it wasn’t long before properties in our neighborhood started selling for prices above $700,000.

Before I go on, I want to underscore an important point. It’s true that I was building a ton of credit card debt, but I did this while I had a positive net worth position.

It’s one thing to owe more than $60,000 of credit card debt when you have no income and your house is upside down. You should talk to a bankruptcy attorney in that case! It’s another matter to owe $60k when you do still have some income (even though not enough), and you have more than six figures of equity in your home.

My credit card debt was underpinned by a non-liquid asset in the form of real estate.

I also still had some reserve cash in the bank against emergencies, although I constantly raided that reserve to pay bills, until it became a shadow of its former self.

By the time 2014 rolled around, I had already endured three consecutive down years in the business cycle, and the coming year wasn’t looking any better. In the rapids, waterfall not so far ahead. How to steer to shore?

There seemed no alternative. I had to start thinking about selling the house. I did what I advise clients to do when they are wrestling with a tough financial decision. I checked my emotions outside the door and did the math dispassionately.

Fortunately, real estate prices in Southern California had continued to increase at a healthy pace. I made some reasonable assumptions about the selling price and transaction costs to arrive at a likely net amount after paying off the mortgage.

The numbers talked to me, and the answer stared me in the face. If I could get a decent market price for my property, I’d turn a nice profit and walk away with enough cash to pay off our mounting credit card debt and still leave enough to have working capital again, capital I needed for business development and renewed marketing efforts.

Then my heart sank when I thought about what it would take to arrive at that outcome. And that was only one side of the equation. I also had to consider what the next act would be for our family. Where would we move to? Where would we be comfortable after this?

I like to think outside the box, to be as creative as possible when thinking things through. So I decided to let myself go and get as radical as possible. Perhaps I should just cash out the house and retire to an RV lifestyle!

My wife and I seriously discussed this for a while, even to the point of going to a RV show to view a few of the models. I must say, some of them seem great! But we weren’t quite ready to shoehorn ourselves from a large ranch home into a small “rolling motel room.” Not yet anyway.

No question about it though. Making the decision to sell our beautiful dream home was one of the toughest financial calls I’ve ever had to make. But I kept focusing on the relentless mathematical reality of my situation, and I let the numbers lead me to the solution.

I also went back to the very basics, the old Ben Franklin analysis. You know the drill. Take a piece of paper and draw a line down the middle. On one side list all the reasons in favor of taking some action or making a decision. On the other side list all the reasons against. Then compare the two lists. The answer is usually obvious.

In my case most of the reasons in favor of trying to keep the property fell under the category of emotion or sentiment, while most of the reasons in the “sell” column were grounded in solid financial reasoning. The Ben Franklin analysis was a no-brainer. Ben said, “Time to sell the house.”

Another technique I applied was the three-year rule. Unless you are faint of heart, this is a very useful thought exercise. Pretend you will be dead three years from now. It doesn’t matter the reason. You’ve been granted knowledge of your expiration date and in three years your time is up.

Now think about this important decision you’re wrestling over, whatever it may be. Does it matter that you hang on in order to have things your way, and stress out for the next three years, which is all the time you have left? Would you still make the same decision either way?

Or would you sit down and write out a bucket list, all the things you’ve wanted to do in life but never did. Maybe you never found the time. Perhaps you were just too busy. But now time is of the essence. Would that list include striving to maintain the exact same situation you are currently in? Even if that means stress and worry until the end of your life?

Changes the viewpoint a bit, no?

We are all taught that home ownership is part of the American dream and that it’s a smart investment. But it’s difficult to account for factors that aren’t financial. I’m talking about stress, as well as the demands on time and resources involved in maintaining a property.

If you think about it, working to maintain an expensive home is a decision to work for your assets, instead of putting your assets to work for you.

I applied all these filters to my situation and the only logical conclusion was to sell the house. I wrestled with this, let the emotions out of the bag, dealt with them, and pulled the trigger. That is, I met with a realtor.

Now, when you decide to sell a house, make sure you choose the right real estate broker! I’m a big fan of the do-it-yourself approach when it comes to settling credit card debts, but selling a house is another story entirely. Just getting the place ready and waiting for a good offer was stressful enough. There’s no way I was going to add the burden of marketing and promoting the place, showing it myself, and so on. There is also legal liability involved, and the paperwork is onerous, at least here in California.

Choosing the right price for our property proved to be an interesting exercise, one that required all my experience as a negotiator. I set the price high, not “crazy” high, but high enough to send a message to the neighborhood and to the realtor community. I chose $799,000 as my listing price. This figure was well over what any comparable homes in our development had sold for in the past year or more, but still under the psychological $800k barrier.

I decided to set the price a little high simply because market conditions warranted it. We were in a mode of rising prices generally. Plus my location was a fairly hot area, where home prices for nice mini-estates were still within reach of retirees.

Emotions did come into it in this sense. We had fallen in love with the place four years earlier, and we knew in our hearts that someone else would come along and fall in love with the place too. That instinct turned out to be exactly correct.

At first we found resistance to our price point. At a broker’s walkthrough of our property, the opinions were nearly unanimous. Nice view, but without all the latest upgrades it’s priced too high at $799,000. One chap suggested it should be lowered to $769,000. I’m glad I didn’t choose him for my real estate agent! “That was last year’s price,” my realtor told him. (I like my realtor a lot.)

I stuck to my guns and went with the $799,000 listing price, and our broker supported that decision. Three weeks later we had an offer, under our asking price but still reasonable. After a few rounds of negotiating, we arrived at a package of selling price and closing adjustments that netted to $790,000.

That figure was fine with us, a very fair price for a home with a “million dollar view.” We actually did believe it would be worth a million someday soon, but couldn’t afford to hang on long enough to find out. So we passed the property on to a lovely retired couple who had fallen in love with the place just like we did.

Escrow was a stressful process, to say the least, and ours ran to almost three months duration. But close it did, and the property changed hands in November 2014, just a little over four years from our original purchase date.

The attentive reader may have noticed I’ve said little about the other side of the equation. Selling a home involves moving and relocating elsewhere. Where do you go after selling your dream home that won’t feel like a step down?

… continue to Part 3


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  1. Laurent says:

    Charles is amazing! He has helped me tremendously!
    I recommend using him if you want to save yourself lots of headaches and money.

  2. Robert says:

    Hi Charles,
    I had two AMEX accounts in the 90’s and in 2002 I defaulted on both of them do to medical hill ness.
    Both accounts were charged off by 2003. They have since fallen of my credit reports.
    I am slowly starting to work part time and I am trying to get back on my feels.
    I don’t have any negative accounts on my credit files, just few small credit card that are all up to date.
    I would like to eventually get back at least one of the AMEX.
    Do you know if AMEX keeps your accounts on file for more than 12 years?
    Thank you.

    • Charles says:

      Robert, yes, they do. Amex retains a permanent record and will not approve new credit applications for anyone who had previously defaulted on one of their products.

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