December 31, 2022

Negative Cash Flow across two Continents

Bear market

“You make most of your money in a bear market, you just don’t realize it at the time.”

Shelby Cullom Davis, American Investment firm founder, 1909 – 1994

We all remember the first bear market with our own skin in the game. I did not own a single stock, index or mutual fund at the time, but a bear still took away my entire – albeit tiny – accumulation of net worth, danced on it and laughed at me.

When my Cash was still Flowing

Back in the day, when I still lived in London, a bear rampaged louder in England than in America. A scheduled tax change had a surge 20 and 30-somethings rushing across the line into home ownership just before laws changed and a deduction went away. I was one of them. I gathered my cash into a pile, put 10% down and prepared myself for a lean year or two.

Eking out my Trickle of Cash

After buying the property, I found myself living month to month. Cash was stretching itself out, rather than flowing. Then the music stopped. What had been a stampede of buyers turned to an empty plain of For Sale signs.

One year into the bear, and the gap between market value and what I owed was equivalent to a year of my salary. In the wrong direction. “Negative Equity” is just words until you actually live it. I had bought a condo with 10% down and the place was now worth way less than I owed on the mortgage. If I could have kept going with the original payments it would not have been quite so painful, but my mortgage was variable. I stopped opening the envelopes somewhere north of 7%. The money still drew from my checking account, and my credit card balance reflected it.

Today, Tech salaries are considered ‘amazing’. Back then, they were good, but far from great. I had an engineering degree, I was 3 years into working as a coder and I was broke, broke, broke.

Desperately Seeking Cash

I was single and unable to afford a social life. Or new clothes. I sold my car and could barely fund my train pass. So I showed up for my day job, ‘quiet quit’ at 5pm and took myself off to a night job. This was long before the gig economy so I was back working in restaurants in the same district where I had worked through school and college. I looked on the bright side. It kept me warm, provided a fake social life, paid for my dinner every night and supplemented my income.

A couple years later, my job moved and I was given an opportunity to go with it. All the way to California, which would be a great move for me. But the bear market still shadowed me and the property was still valued at much less than I owed on the mortgage. Selling was not an option, as I had no way to bridge the gap. As I saw it, my choices were

  1. Stay there and lose the opportunity.
  2. Walk away, enter foreclosure and declare bankruptcy.
  3. Keep the property and rent it out for about 75% of its monthly costs.

Option (3) would obviously be a stupid choice for someone considering a ‘buy to let’. But as a person who already owned the place and just wanted to get on with my life, it felt like my best and only option.

That’s when the bear came back to demand I hand over cash. Month after month after month

Negative Cash Flow

For my first couple years in California, I wired money back every month to cover the shortfall. I caught the bus to work, while my tenant back in London drove around in a car worth more than the equity I had lost.

It took three years for the rent to increase and mortgage interest decrease enough to break even. Me and that mortgage co-existed like irritated divorcees still tied together by a pet. We were on separate continents, legally tied, but each in our own space with less and less contact every year. The condo never turned into a great positive cash flow for me but nearly 10 years later, a new property boom came to the UK.

Cash Flowing Downhill in the Right Way

To my shock I was finally able to sell it for double what I had paid. In all that time, the cash flow had never really turned into a noticeable income stream. But the equity had slowly recovered, cautiously grown, then suddenly exploded. In a plot twist, I had married another Brit with his own underwater London flat. When the market came back, we sold that one too. We took the proceeds and turned them into a ski condo. Funnily enough, there are bears there too. Real Ones. Right outside. Where they really ought to stay. Here are some of those bears trying to get into my life:

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