All the Mistakes I Made Buying my First Apartment
Why the mistakes didn’t matter and why I’d do it all over again.
Growing up, my father worked as a realtor. I had seen him help people buy and sell property countless times. I loved going with him to the houses he was selling and making sure everything was neat and tidy before watching him show people through the houses and apartments. In my child’s mind, buying a property was exactly like an episode of House Hunters. While finding something you like and which meets most of your requirements is important, there is so much more to homeownership!
Buying my first property.
I bought my first property in 2004 in South Africa. I had just gotten my first “real” job after finishing university and I moved from the smaller, coastal city where I had grown up to a much larger city where I would be working. I did initially rent an apartment but it was so ingrained in me that people with real jobs bought their homes and it was only a matter of time before I would do so too. I will just add a disclaimer that this was a few years before the housing crash of 2008. Some things happened in this story that probably (hopefully?) would not happen now.
I had no plan. The apartment building where I was renting had been completed just before I moved in. After living there a few months, I saw a sign posted that the property developers were now selling off the apartments and that existing tenants would get a special deal. I arranged to view some of the available apartments and two days later I put in an offer on a 2-bedroom unit. That was also when I first spoke to the bank to see if I could get a mortgage. Two months later, I was the proud owner of an apartment.
I had no down payment. I still have no idea why the bank decided to give me a mortgage since I had no down payment nor any money for closing costs. Perhaps it was because I was a university graduate and the economy was doing well. Perhaps it was simply because I asked. Who knows? The bank was so sure I was a good bet that they gave me a 100% mortgage and even rolled in the closing costs! From the start, I had a mortgage that was larger than the value of the property I had purchased.
I had done no preparation. I had only had my job for a few months and had not settled into a monthly spending pattern. I’m sure the mortgage consultant must have told me at some point what my monthly payment would be but in the euphoria of buying the apartment I figured it would be OK. I definitely did not spend time thinking about how I would adjust my budget (what budget?) nor what other large expenses were looming. I was driving a 15-year old Volkswagen that was having one problem after the other and would very soon need to be replaced.
I had no idea homeownership was not just a mortgage payment. In addition to the monthly mortgage payment, there would also be a homeowners’ association fee, the bill for municipal taxes, water, and electricity, and I had no furniture. On the positive side, the apartment was brand new and there were not likely to be any maintenance costs in the short to medium term. In addition, I did not have a credit card and so I figured out black garbage bags taped neatly to the windows would do for curtains, a mattress on the floor would do for a bed and two borrowed chairs from a friend would turn my home into a castle.
I was living paycheck to paycheck. Since I had done no preparation and I did not know all the costs in advance, I was barely making it to the end of each month. I was eating a lot of peanut butter and jelly sandwiches. I did have to travel for my job fairly often which meant a bit of extra cash in the form of a per diem on travel days and also lunches and dinners. Also, since I was living in a new city and did not have friends in the area, I wasn’t exactly spending much on entertainment or socializing. Even then, things were tight.
I was somehow able to avoid a few more curveballs and made it out alive on the other side. I managed to live within my means, pay my mortgage and all the bills and keep myself fed and clothed. I also did eventually buy curtains! A year and a half later I got offered a dream job abroad, and in the excitement of moving abroad, I was able to find a tenant whose rent would cover my expenses. I would go on to evict that tenant for non-payment of rent. The second tenant was no better and after my second eviction, I finally found a tenant who was an absolute dream and I ended up selling her the apartment a couple of years later.
What did I learn from this?
Let me start with the platitude that the only bad mistake is the one that we don’t learn from. As it relates to homeownership, and real estate investing which I would get into a few years later, I learned a lot from the experience. I went on to purchase 4 more properties and currently own 3 that are rented out successfully. These purchases were well planned, down payments were on hand, my personal finances and budgets were well managed, and cash flow projections were documented in a nifty Excel spreadsheet.
What should you learn from this?
Probably nothing. At least super smart and logical people should move on and hopefully forget what they have read here. If you are a regular, flawed human being perhaps the take-home message is that some mistakes are meant to be made. And that mistakes can be survived and overcome. If I hadn’t made those mistakes, my life trajectory would have been different and I wouldn’t have learned from my mistakes and gone on to make better choices that led to success.
Researching, analyzing, and planning are excellent tools to help us make better decisions but can sometimes block us from moving forward. The important thing is to know the difference.
