The mister and I married  on a hot July afternoon in the summer of ’80. Soon thereafter, our area slid into the ugliest recession ever to hit this part of Texas. If you’re old enough to remember the Savings and Loan Scandal, you might know first hand what that decade was like.

Houston was a virtual ghost town of empty skyscrapers.  Strip centers became empty shells as business after business failed. Every neighborhood was dotted with empty homes that stayed that way for years. For cheap fun, the mister and I would sit in the backyard at night and shoot rats off the telephone line as they ran back and forth between abandoned houses.

Our Story Begins…

By the time I graduated from nursing school, the dream of owning our own place had begun to recede further and further into the distance. During those early years, we worked hard and saved and dreamed and prayed. We wanted a little house with a yard for a dog and flowerbeds for petunias and an extra room for a baby.  I remember obsessively calling FSBO ads, talking to real estate agents and watching the ever-worsening market.

Back in the olden days, a body needed established credit and a down payment. We had neither. We couldn’t get credit because we didn’t *have* credit, a hamster-wheel conundrum that endlessly frustrated our plans. I’ll never forget the day we danced like banshees because the local department store had agreed to sell us a new mattress on time.  We made those $65/month payments one by one, then started applying for a credit card. When our Mastercard arrived, we sat on the bed staring at it like the Holy Grail, then tucked it away in a fireproof box for safe keeping.

Remembering the Bad Old Days

Folks tend to forget that once upon a time, interest rates for homes were in the double digits. Even if you managed to save enough for a down payment (usually a full 20 percent) the sky-high interest rates meant most young couples were completely priced out of the market. Very, very few could afford the monthly note no matter how small the house. The only open path to affordable payments meant assuming an older FHA loan and paying a large chunk of cash for someone else’s equity.

We’d just about given up when we heard a rumor that someone from our church was loaning money to young couples like us to help them get a start. I can’t imagine how we swallowed our pride long enough to go for a visit, but eventually we found ourselves in the living room of Dave and Kay Hartman. When we arrived, Dave told us they’d prayed together before we came and would loan us $7000…

Interest free.

Hard to Believe…

At the time, I couldn’t fathom having enough money to write a $7000 check to virtual strangers with nothing but a promise of repayment and a handshake. And who in their right mind would even want to? But Dave and Kay embodied the very definition of saint– the sort that’s rare as it is genuine. They were folks who saw a need and provided a solution just because they could. Through their dozens of loans, the Hartmans sowed seeds of generosity and kindness into the heart of the next generation.  

God bless ‘em.

With their help, we bought our first home, paying $11,000 for the equity and assuming the balance of a 14% FHA loan on a $48,500 purchase price.  It was quite a deal at the time. Our little piece of the American Dream was 3 bedrooms, 2 baths crammed into 900 square feet. We were beyond ecstatic.

Things change.

I’d all but forgotten those years of struggle and longing, of wanting my own place to remodel and paint and plant. But about a year ago, we started getting calls in the office from folks who saw our ads, wanting to know if we had homes for sale and wondering if we might owner finance. Lately, those calls have become more frequent, more urgent. In their voices, I hear the same, familiar chorus. We’ve always felt that someday we’d offer homes for sale, but I’m thinking the time may be now.

So Here’s Where We’re At…

Honest to goodness, I have no idea just how this is going to work, but this path needs exploration. Maybe it doesn’t make the best economic sense, but not all things can be balanced on a spreadsheet. After compulsively running the numbers over the last few weeks, even at the worst case scenario, we should do okay. The potential is there to do much better than okay, but it’s not something we can count on considering the current situation, both national and local.

Our old plan involved buying 20 houses by the time the mister retires with half mortgage-free. That would’ve given us a very healthy retirement income.  We have some cash now earmarked for down payments and rehab money. A change of direction would mean that this portion of our business would go on hold and the cash we have now would be invested in The New Plan.

Here’s a very basic outline that I hope to expand upon in future blog posts:

• We’ll start by buying homes in the 20K range. In our area, this is possible although not common. At that price point, we’re talking 2/1/1 fixers with ‘potential.’
• Rehab would have to be kept to a minimum. This would be a *huge* departure from previous experience. We’d try to keep the total cash in the deal to 30K or less.
• Sell for at least twice that amount. Here, a 2/1/1 that’s habitable, even if ugly and in need of some repairs can easily sell for 60K-70K. The price would need to be high enough to make a decent profit, but not so high that the owners couldn’t re-fi in a few years.
• Owner finance. We’re talking a straight deal with low down (perhaps increased payments for the first year to increase the down payment) but no lease-to-own , wraps or other fancy stuff. Just a  20 -30 year fixed interest mortgage. Current Texas law makes the fancy shenanigans almost impossible anyway and our restrictive investor environment means that a huge number of Texas working class families are once again being priced right out of the market.
•  Charge a higher than average interest rate. It would need to be high enough to encourage buyers to work on their credit and re-fi in 2-3 years.
• Encourage the new owners to build equity through home improvements.
• Keep all income in the same pot. No drawing anything from this venture for possibly 10+ years, allowing the payments to accumulate to continue buying and owner financing more homes.

Final Thoughts

Right now, people are afraid. Economically it looks like we’re really in for it, maybe much worse than the ‘80’s. No one knows for sure, but indicators look bad. Very Bad.

The mister and I aren’t really worried. We’re doing fine thanks, and truthfully, we know how to profit during the coming hard times. But is that really what’s most important? Is our own comfort and prosperity really all that matters? Believe me, I’m no socialist and I have absolutely no compunction against wealth, mine or anyone else’s for that matter.

And as much as I hate to agree with Jimmy Carter on anything, home ownership is one of the foundational principles of our way of life. Our ancestors came here for land and freedom. I don’t like what I see coming economically in the years ahead. I don’t like the idea of far-away investors with deep pockets coming to my town and buying up the empty homes. I don’t like the idea of what this place will become if the dookie really hits the fan.  And I *really* don’t like to think what my community will be like if a huge segment of working Americans lose hope of ever owning their own place

So maybe if the mister and I buy two or three homes and owner finance, it won’t make much of a difference. But what if other investors chose to follow this model? What if real estate investors from all over joined together to do something to save our neighborhoods, our towns, our communities? What if we could convince a few of our better-off neighbors to do the same, even if they’d never considered REI before? What if we could convince them to loan out that 50K they’ve got tucked away in the bank making 3% and improve their return to 10% or more? What if we could show people that by helping each other, we can also help ourselves?

 What if?

Okay-I know this is sketchy, but it’s a bit hard to cram weeks of rumination into one blog entry and I just didn’t want to throw this out until we’d spent plenty of time thinking things through and felt certain we were heading this direction.  

The floor is now open for discussion.

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