I Lost The Beach Condo

By | April 10, 2021
beach

On Friday, April 9, 2021, I cancelled the contract for the beach condo. So, I no longer own the unit. In this post, which will be a bit lengthy, I will go into my thought process as to why. It was a tough and emotional decision, but ultimately, I think the right decision was made. I’m curious to know if you thought I made right choice, but in any case, what’s done is done. So, without further adieu, let’s dive in to see what happened.

HGTV

My decision to purchase a beach condo stems in part from me watching too much HGTV. My favorite shows to watch include Beachfront Bargain Hunt, Island Life and anything to do with buying water-front properties. That led me to check out the Florida Panhandle as an area to buy a beach condo.

So, after some research, I decided that I would try to own a condo in Panama City Beach (PCB). Literally, I was able to find a condo on the last day of my first long weekend visiting PCB. Let me say that again. I went to PCB on a Thursday with plans on leaving the following Tuesday. The Monday before I left is when I chose the condo. Looking back, I think I was what they called a motivated buyer!

I won’t go into much details as to why I chose that particular unit, because I covered it in a previous post entitled I Bought A Beach Condo back in 2019! Despite signing the contract around September 2019, I still haven’t closed on the unit to this day.

The Contract

Initially, I had to put down $5000. That would hold the unit and give me 15 days to decide whether I wanted to go forward or to get my $5000 back. During those 15 days, I weighed the pros and cons. I decided to take the risk and go forward with he deal.

In going forward, I was required to put 10% down. That amount equated to about $55000 as the purchase price was about $550,000.

While the contract was lengthy, for purposes of this post, there were three important stipulations. The first is that I was agreeing to purchase the unit irrespective of whether I could qualify for financing. The second was that if I failed to qualify for financing, or otherwise failed to close under the contract, I would lose the 10% I had down. Finally, the third was that if the terms of the contract materially changed, I would be getting a new contract to sign. This would trigger a new 15 days to decide to cancel the deal and get my money back.

The Financing

At the time I signed the contract, I had spoken to a few mortgage lenders and banks. I was under the distinct impression that the only amount of money I would needed for the bank I went with was the 10% down. So, I didn’t care about the first contract term about qualifying for financing because I had already qualified for financing.

As you shall see in a moment, the ability to finance the purchase of this deal became a HUGE issue for me.

In order to fund just the 10% down (coupled with the estimated closing costs), I made the tough decision to sell most of my stocks in my Dividend Portfolio. I wrote about my thought process and rationale in my post entitled, Should I Sell My Stocks To Buy A Beach Condo? Ultimately, I was simply transferring money from one asset class to another. Of course, that meant I would incur the cost of paying taxes on the shares of stocks that I sold.

For better or for worse, I was willing to take the risk and I did. Hence, it is the reason why I have to rebuild my portfolio. Having gone through this whole ordeal, I don’t anticipate selling off my portfolio again anytime soon. Indeed, I plan on holding my portfolio for at least another 15 years. However, as always, I don’t know what the future holds.

The Delays

The Delays

The condo was being built at the time. So, it was new construction. The estimated time of completion was February 2020! But, as you can imagine with any new construction, there were delays.

Then Covid-19 hit. There were even more delays, and now in 2021, as of yesterday, I still didn’t have a closing date.

Perhaps more significantly than the delays were the changes in the bank’s requirements to fund this deal. Initially, I was told I only needed the 10% with the additional requirement of paying off my car. Then, the amount was increased to 15%, then to 20%. Then, ultimately, when the coronavirus hit the market, the bank pulled out altogether deciding not to fund those types of loans.

It should be mentioned that most beach condos were nonwarrantable, which means, in general, that they won’t qualify for Fannie Mae and Freddie Mac financing.

It was difficult finding a lender willing to finance the deal because most lenders left the market due to Covid-19. Ultimately, I found a lender willing to do a portfolio loan with the following EXPENSIVE requirements: 25% down + closing costs + paying off my car ($18000) + paying off my student loans ($7000). And none of that included furniture!

Ya, that was definitely not what I signed up for.

The Lies

Ok, this section might be a little exaggerated, but this is how I felt about the situation. However, perhaps a better title would be “The Lack Of Communication.”

We were told numerous times that we were about to close. In fact, I was under the distinct impression that we were going to close back in July 2020 that I paid $4000 cash for a sofa for the unit. Then, I borrowed about $40,000 from my 401k in an effort to try to come up with the down payment. Yet, closing never happened.

In addition, I refinanced the house that I owned in an effort to lower the monthly payment (which would help with debt-to-income ratio calculations). I also moved from where I was living to a less expensive and less desirable place (which is where I am now) to keep my expenses low so that the debt-to-income ratios would continue to align. Again, all the while I was thinking these would be temporary constraints because closing was around the corner. But it wasn’t.

It got a bit comical how every time the question was asked when closing would take place the answer would be by the end of the month. Had the developers been more open, investors such as myself would be able to make more informed decisions.

I know I’m not the only one who felt the consequences of their delays. There is a forum I’m on with other owners in the building and several folks have lost out on doing 1031 exchanges and other investment opportunities due to the inaccurate and lack of communication (to put it mildly).

The Choice

At this point, the choice I had was clear. Either try to find the down payment and closing cost, or walk away and lose the 10% or $55,000 that I put down. Well, to me, the answer was simple. I was unwilling to lose my 10%

So, in order to fund the down payment, in addition to having sold my stocks, and borrow money from my 401k, I would have to a) Cash out an old 403(b) account incurring taxes and fees, AND b) withdraw about half of my Roth IRA. Instead of withdrawing from the Roth, I could sell my bitcoins.

Had I know now what I knew then, I certainly would NOT have purchased this unit. This is especially so since, as indicated in my I Bought A Beach Condo post, it was not my dream condo. In other words, if I knew that I would have to dip so much into my retirement accounts just to buy a beach condo, I wouldn’t have. But if it meant not losing $55,000, then dipping into the retirement account was the lesser of two evils. After all, I still think to this day that purchasing this condo unit is a good investment long term.

The Breakthrough

After a building has been built, it needs to get approval from both the State and the County. In this particular case, the building was ultimately approved by both. But, during that process, the owners had to get new condo documents due to certain changes.

To give you an idea, the original condo documents I signed were 200 pages long. The new condo documents I received were over 300 pages. However, interestingly, when I received the new condo documents, I didn’t receive new contract terms! So, if you recall, one of the key stipulations in the original contract was that if the contract terms materially changed, I would get a new 15 days to decide.

Because I only received condo documents and not a new contract, I inquired whether the new 15-day timeline was triggered. I was told in writing it was not. This, of course made sense, since I hadn’t received the new contract as of yet.

After 15 days had passed since receiving the condo documents, I received correspondence requesting that I signed for their receipt. I again inquired whether they thought that the 15 days had been triggered, despite me not receiving a new contract. I was told that it was. Well, I promptly elected to cancel the contract right then and there and was told it wouldn’t be an issue.

As soon as I sent an email requesting to cancel the contract, I immediately received a call from my realtor. She explained that the market has increased and changed for the better since 2019. So, I requested another week to make my decision and that was approved.

The Decision

During the past week, I spoke to family and friends, and I again weighed the pros and cons of purchasing the unit. After speaking with my realtor, she explained that the market had gone up, but not enough where it made sense to list the condo for sale. That is, it made more sense to cancel the deal and get a full refund.

Still, part of me really want a beach condo. However, I want to ensure that I can adequately afford the unit. Were I to go forward, I would be strapped for cash and would be in a bind if anything happened. I would have no cash reserves. So, I didn’t feel comfortable and didn’t want to be financially stressed over the next couple of years.

In any case, I ultimately concluded that there would be other deals out there (no matter how hot the real estate market is right now), and there is really no rush (no longer a motivated buyer). So, even though I had until April 12, 2021, to decide, I chose to cancel the deal and will be getting my full refund!

However, in effect, I’ve lost the beach condo.

What’s Next

Wow, what a relief! Now, with the exception of the loan that I got from my 401k, my retirement accounts are intact. I am hoping to get the money back on the $4000 I paid for the sofa. I don’t think it was delivered to the unit, but it may be at the furniture store. If I can’t get my money back, maybe they could sell it for me. If not, losing $4000 while tough is not the end of the world. I’ll just try to sell the sofa on my own for pennies on the dollar or something if necessary.

I could use the refund to payback my loan and that is a possibility. I could also use the money to pay off my car and/or rebuild my dividend portfolio. However, I don’t think I’ll be doing any of the above any time soon.

I do want to say one thing before going forward. There was a time when I had about $40,000 in cash sitting in my checking account waiting to close on the condo. Well over time, that amount eroded to $25000. I kept using it for frivolous things, etc, rationalizing and justifying stupid spending along the way. I ultimately transferred the remaining $25000 out of my checking account to prevent myself from wasting the money any further. But this goes to show that I don’t do well having lots of money readily available to me in the bank.

As soon as I get my refund, I’ll be transferring it to a separate account and let it sit there for a while. The money will be used as detailed in the sections below.

Non Beach Condo Real Estate

I plan on buying two properties this year! The first is my primary residence. I don’t anticipate needing a lot of the refund money to purchase my primary home. That’s because the real estate market where I live is relatively inexpensive. It would be owner occupied and the financing options are much more favorable. For example, were I to purchase a $150,000 house, the down payment required on an FHA loan would be approximately 3.5% or $5,250.

Because I will be SUPER BUSY at work for the next couple of weeks, I won’t do anything but work. However, after about two weeks, I will try to buy a house between then and the end of June.

My primary residence will either be a single family or multifamily house and regardless, I will have roommates to help me with the mortgage.

After I purchase my primary residence, I will use the money I have remaining to fund the down payment for another investment property here. I will have enough money to purchase an investment property in cash, but I would rather use leverage to do so. The difference is that unlike the condo, I won’t be so cash tight so if something were to happen, I would have cash reserves to help.

What About Buying Another Beach Condo?

I plan on working on my financing to be able to afford a beach condo one day. I’m hoping that my real estate investments will fast track my progress. But regardless, I do not plan on either a) selling stocks in my dividend portfolio or b) withdrawing funds from my retirement accounts to do so.

There is the possibility that later on, I could convert my Roth IRA into a Self-Directed Roth IRA to purchase a beach condo, but that would be years down the road. What’s more likely is that I try to build my real estate empire where I am, and once I’ve build up my cash flow, try again to purchase something at the beach.

Finally, I’m also exploring the possibility of buying small (like a 1 bedroom beach condo) and then working my way up, but I’m in no rush to make that decision.

Conclusion On My Beach Condo Cancellation

I know this was a long post and if you read every word of it I appreciate it. I’ve been posting numerous times about my excitement and anticipation of purchasing a beach condo that I thought I’d provide more details about the thoughts and emotions that went behind why I canceled the deal.

I didn’t necessarily talk financials in terms of what the condo could bring. My back-of-the-napkin math indicated that my cash flow would be about $300 – $400 per month after all expenses. That’s assuming everything went right. I also didn’t mention that one of the contract terms that was changed was the HOA. The HOA increased by $70, which wasn’t terrible. But, since I was at the bank’s max for debt-to-income ratio, I needed more money down to cover that difference.

It has been an emotional roller coaster for almost the past two years. But this chapter has finally come to a close. Thanks for all your support throughout that time. I will keep you updated on my real estate investments and my overall journey to financial freedom.

Do you think I made the right decision? Let me know your thoughts by commenting below.

7 thoughts on “I Lost The Beach Condo

  1. P2035

    Good for you! Good luck getting the money back 🙂 You will get you seaside RE dont worry, just this was a bit to early to big 😉
    P2035 recently posted…2021 Q1 BudgetMy Profile

    Reply
    1. Dividend Portfolio Post author

      You said it. Too big too early. I lost time, but thankfully, I didn’t lose money – other than the opportunity cost for which there’s no guarantees as to how that alternative investment would have turned out.

      Reply
  2. Mr. Robot

    Good for you! Take it as the learning experience it really is. You did the math, had the balls to make such a huge step and ultimately it didn’t work out. Either you win or you learn and you’ve definitely learned something!
    Mr. Robot recently posted…April 2021 Dividend ReportMy Profile

    Reply
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