In this episode of Motley Fool Answers, Robert Brokamp and Alison Southwick talk to special guest, New York Times reporter John Schwartz. Like many of us, the money decisions he made through the first few decades of his career were not the very best, but in his mid-50s, he made a concerted effort to get back on track, which he chronicled in his new book, This is the Year I Put My Financial Life in Order. And because it's far less painful to learn from other people's mistakes, the Fools brought him in to discuss five lessons that they took away from his tale of fiscal woe and redemption.
In this segment, we combine three that relate to one aspect of his book: First, when you're buying a home, know what you're getting. Because -- as you'll come to understand from lessons two and three -- buying the wrong property at the wrong time or without full information can lead to years of trouble.
A full transcript follows the video.
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This video was recorded on May 8, 2018.
Robert Brokamp: I've read the book and I quite enjoyed it.
John Schwartz: Oh, thank you!
Brokamp: I have pulled five lessons from it. You're hearing these five for the first time, so feel free to disagree with them or change them in any way. But, first let me set the stage a little bit more about your biography.
You grew up in Galveston, Texas. Your father was a state senator and lobbyist who at age 91 is still active in politics, which I think is pretty impressive. You've got an undergraduate degree and a law degree from the University of Texas, but instead of becoming a lawyer you decided to try your hand at journalism. You got a job with Newsweek and moved to New York City. In 1988 you bought a co-op apartment [when, by the way, mortgage rates were over 10%].
And this brings us to what I think is the No. 1 lesson in your book and that is know what you're getting before you buy. Tell us a little bit about why buying this apartment didn't turn out quite like you had hoped.
Schwartz: Well, if you go into the world of real estate with the idea that you can't go wrong in real estate [which is how a lot of people felt before, say, 2007], then you might be lulled into thinking, "God! Everybody's buying. I better buy". You look at a place and you say, "Well, this looks like a good value," without doing the kind of research that tells you whether you're going to be comfortable in the place. Whether it's financially likely to do well and do well for you.
We fell in love with the building. Fell in love with the apartment. It was big. By New York standards it was enormous, and it was up in Washington Heights, which is a really cool neighborhood. When it came time to sell, we found that it was unsellable for a number of reasons we could go into, but this was a big set of problems that might have been avoided if I'd done more research, and also if I'd waited out this interest bump that we were in the middle of.
Alison Southwick: There's also a sense that when you get to a certain age, that's just what you do. "We're at this age and now I'm supposed to buy a house" regardless of whether it's a great decision for you financially.
Brokamp: Right. I think you had at least one kid at that point.
Schwartz: Right. We had a kid. You've got to buy a place for him. It's on the program.
Southwick: Right. You were doing everything right. Come on!
Schwartz: That's right. The only problem was that I did those right things in the wrong way.
Brokamp: The other thing is it turns out that your neighbors -- I don't know how you say it -- weren't the most family friendly folks. A lot of noise. One guy threatens to cut you... Things like that. It's very difficult.
Schwartz: Alison, you've got to read the book. It's fun. There were problems in the building. If I'd spent more time in the building, I might have known that we loved the building, but maybe this particular apartment isn't the one you want.
Schwartz: Maybe you want to look for a different one. Maybe you want to wait until a different one comes open. We didn't know that the upstairs neighbors ran a music studio out of their apartment.
Schwartz: We found that once we were there.
Southwick: Fantastic. Lull your kid to sleep every night. It worked out so well.
Brokamp: One of the ways they solved it was to get an air conditioning unit that was the loudest. Am I right on that?
Schwartz: That's right. I walked into the appliance store and I said, "Can you help me? I want the loudest air conditioner you've got." And, of course, they look at you like, "That's not really the request we get," but they had heard it before.
Brokamp: Let's move on to Lesson No. 2, because it's related. A few years later, you take a job with The Washington Post and you move to the D.C. suburbs [actually, the People's Republic of Takoma Park], and I bring that up because you and I, John, moved to Takoma Park at the exact same time, which is a story for another time.
Regardless, you moved from New York. You couldn't sell the apartment. You decided to try to rent it out, which brings us to Lesson No. 2. Know your rights as a landlord before becoming a landlord.
Schwartz: That's right. The second tenant I got simply stopped paying. In many other parts of the country, I might have been able to fill out some papers and start an eviction pretty painlessly. Of course, the downside of that is we have an eviction crisis in this country and in many places it's too easy to evict and bad things happen to people who don't have the resources to defend themselves.
New York is a little different. It's much more pro-tenant rights, and while I support the idea, in my particular case it did not turn out well. The guy knew his rights better than I knew mine, and he said to me over the phone in words that I won't repeat, here, because they're fine for print [but not for the podcast], "You're not going to get me out of here. I'll be hearing Christmas bells before you get me out of here." It was pretty early in the year at that point.
I just wasn't aware of what problems I would have if somebody stopped paying because I did the things you're supposed to do. I did a credit check. The guy looked good. I didn't just stumble into it. I did the things that I thought you're supposed to do.
Ultimately, I talked to a lawyer who said, "Yeah, I could try to evict him. It will take this amount of time and it will cost you this amount of money. Here's something that might be painful, but I think you should try. Send him a note saying if he leaves by the end of the month, you won't go after him for the money he owes you." And I did, and he left.
Brokamp: And he did not leave the apartment in great condition.
Schwartz: No, he tore it up pretty good. He wasn't nice. And by the way, by the time he left, our savings were gone. We were in pretty bad shape. And we were paying the mortgage in New York, and the maintenance fees, and rent in Takoma Park. Ultimately, we bought a house, there, and so we were paying the mortgage there, as well. It was just squeezing us to death.
Brokamp: This brings us to Lesson No. 3, which you already touched on. That's to get the right advice, and there are various aspects of this.
First of all, you did find a lawyer that was able to give you some good advice, even though other people were hinting that you should possibly declare bankruptcy. In the end, you found some other solutions.
Schwartz: That's right. The thing that comes immediately to mind is that when you've got crushing debt and this sort of money drain of this New York apartment, people will say, "Well, you've got to file for bankruptcy." I mean, relatives who are lawyers said it was time to file for bankruptcy. But when it came time to find an expert to help us through it, and you go to an actual bankruptcy expert, you might get different advice, and we did.
I found a guy who was terrific. He said, "You described your financials to me. You aren't a candidate for bankruptcy. You only have one big problem. Your income is decent. Your debt load, aside from this, is pretty low. You have one problem, and the way you get rid of that problem is through default and foreclosure. You now need to give up the apartment." He walked me through what I would have to do, and I did it, and I felt like the biggest failure in the world.
Schwartz: So that's a good outcome.
Brokamp: But you did get out from under that, so that's good.
Alison Southwick has no position in any of the stocks mentioned. Robert Brokamp, CFP has no position in any of the stocks mentioned. The Motley Fool recommends The New York Times. The Motley Fool has a disclosure policy.