How We Survived The Great Recession

Since this blog is a written history for my children, I think it's important to write down for you, children, how we lived through the Great Recession in Las Vegas.  Someday it may be of historical interest to you to understand what it was like to live through the financial collapse of Sin City, and our country, and highlight how we fared as a family, financially, through the catastrophe.

In Las Vegas, in 2012, it was estimated that 85 percent of homeowners were underwater in their homes.  The only people not upside down in their mortgages were those who bought in the early 90s or before.  We purchased our home in 1996.

This is what happened to the value of our home before and after the collapse of the real estate market.

We bought our home in 1996 for $175,000.  At one point at the peak of the real estate bubble, our home was valued at $535,000.  As of this posting in May 2012, Zillow has it listed at $169,600.  In a five year period, our house went up $350,000, then went down $350,000.  Just like that.  POOF!  There went your college education!  You would have thought real estate values were being determined in Las Vegas with the spin of the roulette wheel.

So to understand why this hasn't actually affected us at all, and to understand how we made money during the recession, you have to go way back to the beginning, when I met your father.  

In the beginning, your Dad and I owned an insurance agency and made a lot, a lot, HA!, of money.   Because of your Dad, we didn't spend any of it.  We were still living in a 600 square foot apartment and your Dad was driving around an old 1985 Buick Regal the year we brought home a quarter of a million dollars.  I kept pressuring your Dad to buy a house and we spent about a year looking at houses as your father stockpiled the money away.  

I wanted a mansion.  In fact, I picked one out.  It was a brand new huge, 2 story, 5 bedroom, in Henderson.  I begged and begged and begged your father to get that one and he wouldn't do it.  He said it was too much money and it wasn't on any land.  I didn't care about land.  I wanted a mansion.

He had found this old, awful, dump on a 1/2 acre.  It was built in the 1970s and it had never been updated, so it had lime green bathrooms, orange linoleum, and red brick as the backsplash in the kitchen.  It had an old rock roof on it.  It was, bar none, the ugliest house I'd ever seen in my entire life.  I hated it.  Your father said it had "potential".

Only because the alternative to buying the dump was living in a 600 square foot apartment, I agreed to buy it in March, 1996.  We put down $75,000 and mortgaged $100,000 at 5% interest.   In May 1996, your father freaked out about the $500 monthly payment and we paid it off.

It should be noted, kids, that we took a lot of grief from everyone in the universe for paying the house off.  At the time we paid it off, the NASDAQ was running up and the stock market was making unprecedented gains.  All our friends were cashing out their equities and reinvesting the money in the stock market in a get-rich-quick scheme that was an EPIC FAIL because the NASDAQ bubble burst and our friends lost all their money and still owed second mortgages on their homes.

Your dad has never been one to follow the herd and refused to entertain the idea of mortgaging equity to chase profit in the market.

The number one thing we heard when we paid our home off was, "Why would you pay it off when you can deduct the interest?'

Your father would always answer, "If you are paying $10,000 a year in interest and you only save $3000 in taxes, then you are still in the hole $7000.  GET IT?"

Yet, still, our friends goaded us as they touted their 20 percent returns in the stock market.  To be clear, we did invest heavily in the market.  We had a set up a SEP-IRA at our business and contributed the maximum amount we could.  We both made considerable gains in the NASDAQ, but had the foresight to get out before the bubble burst and never play with money we couldn't afford to lose.  Number one rule of gambling, children.  Don't risk what you can't afford to lose.

After the house purchase, I wanted to buy a luxury automobile, but your father talked me into getting a used Mercury Topaz.  Due to his advice, I was able to pay off my mother's house for her birthday in 1998.  She was stuck in a 12 percent loan she had assumed in the 1980s and it was clear to me that she needed to not be paying that kind of interest.

Your father was driving around a 1973 Ford Pickup and still stockpiling money.  The truck didn't have a bumper, but he painted a board white and screwed into the rear.  He used it to remodel the house.

Everyone laughed at us.  The big joke with all my friends was what car would come and get them at the airport when they flew into town?

"Don't let Greg get us, Michele.  I mean it."

In 2001, we accepted a cash offer on our business and walked away.  Your dad always said if someone offered him cash in a suitcase, he'd walk away.  We got a cashier's check, but that was close enough for him.  Your father hated every minute he sold insurance and even though we had a heavy tax penalty that year for capital gains, evidently he felt it was worth it to get out.

At the time, real estate was beginning to make its dramatic march upward, but instead of investing the money from the business in First Deed Trusts, like everyone we knew were doing to get 15 percent returns, we chose to make 7 and 8 percent interest rate and keep the money in FDIC-insured CDs.  Interest rates were pretty good back then and we were able to pay all our bills with our interest since the house was paid for.  That was before I had you guys and I only spent $25 a week at the grocery store.  Having you guys ditched any hope of remaining retired for the rest of our lives.  You were worth it.

Over the next eight years, the real estate market continued its unprecedented move up and all our friends and acquaintances started getting mortgages on investment homes.  Some of our friends had as many as 10 or 15 homes.  They were betting that the renter would cover the mortgage cost, and the equity would swell, making them rich.  And some of friends did get rich doing that.  They bought cars and boats and every toy imaginable and most pulled all the equity out of their rentals and cashed in HUGE.

Then the market imploded and they lost all the homes and went bankrupt.  The ones that got out before the implosion were fine and the rest just walked away from their mortgages and still have all their fancy cars and toys.  We did not participate in that.  Maybe that was dumb of us, but we didn't do it.  

I'll never forget turning on the news on a Friday and discovering the bank I had all my money in had closed their doors and been seized by the Feds.  You guys won't remember this, but it's up there as one of the worst days of my entire life, thinking I had lost all my money because I was over the FDIC limit.  I had to cart you into the bank with me that day to meet with a representative to file an FDIC claim to be reimbursed by the government for my money.  If not for you children, who I had listed as my beneficiaries, which allowed me to claim an additional 100,000 dollars per person, I would have been out a sizable amount of my deposit.

It finally paid off, having all you children.

Many of our friends and their families lost all their money in first deed trusts after the banks started collapsing.  If you learn anything from this, children, if it sounds too good to be true, it probably is.  Don't be greedy.  Stick with government-backed investments and don't get stupid.

After the banks collapsed, interest rates plummeted and your father and I were faced with a situation where our interest was no longer covering our bills.  So we decided it was time to take advantage of the failed real estate market and buy foreclosures and substitute the rental money with the interest money.

In the heat of the foreclosure market, people started destroying their homes before the banks took them back and your Dad used this as a buying opportunity to invest in a property that could only be sold as a cash deal because the owners had ripped out the kitchen, bathrooms, and cut the circuit breakers to the house.

The foreclosure market ended up being a good deal for us because we hadn't taken advantage of purchasing at the high.

Your Dad and I were in cash when the stock market collapsed, but decided to buy-in when things hit rock bottom.  We didn't freak out and go buy gold.  We looked for buying opportunities in strong equities.  Buy low, sell high, kids.  Take advantage of the other people freaking out to buy low.

During the downturn in the stock market, I bought a stock called HAIN and have made a 167 percent return, to date, during the Great Recession.

Keep a calm head during financial panics, children, and don't follow the herd.  Use the panic to your advantage.

So that brings us to now.  Since the recession started, the stock market has rebounded.  The economy is still in recovery in Las Vegas, we've "lost" the 350,000 in our house, but we're making an 8 percent return on our rental money, and we're doing okay.  We've survived.  We could have done a lot worse if we had jumped on the bandwagon and done what everyone else was doing prior to the bottom falling out, but your Dad has never been, and never will be, a follower.

I hope you learn something from him along the way because your mother would have bankrupted her mansion and be living in her luxury car if it weren't for him.

In summary, your Dad is the reason we survived the Great Recession in Las Vegas.  I must give credit, where credit is due.  If you were embarrassed in high school because your Dad came to get you in his old beater, I completely understand.  Chin up, kids.  At least you aren't living in the car.