Patrick Grimes
Recovering from the 2007 Housing Market Collapse Patrick recalls that when he first got into real estate investing in 2007, the market was booming and had been for well over a year. He describes the prevailing attitude as being “the market was never going to go down ... It was only ever going to go up and you could leverage everything to the hilt ... ” Being eager to dive in and make his mark, Patrick admits he did very high leverage, estimating a “90% loan to value.” That was not uncommon at the time. He also purchased land in a pre- development using a personal guarantee, which he now acknowledges he didn’t fully understand the ramifications of at the time. In short, it meant all of Patrick’s assets were put up as collateral to ensure that investment. He had unknowingly put himself in a precarious situation, “all in on one investment” with no diversification of his investments. When property values flipped in 2009-2010, his loan was sold to a predatory lender who Patrick says, “came after me and they wanted everything that I had because they could take it.” Patrick was high risk because all of his loans were cross-collateralized. He had pinned his future hopes of earning passive cashflow on the land he had purchased and instead, spent years paying off his debt. Looking back, Patrick realizes that the way he went about speculating, doing it on “a very insecure financial foundation where it could crumble and collapse and take everything” he had, created a difficult
set of circumstances he had to work years to extricate himself from. For a while, Patrick left his real estate investment dreams firmly in the rear mirror, concentrating instead on his original career choice, engineering. He earned a master’s degree in engineering and went on to get his master’s in business administration. Patrick enjoyed his work, finding it fun and challenging, but bigger dreams for his financial future kept nagging him. As he tells it, “But I couldn’t escape the fact that I read Rich Dad Poor Dad, and if you follow the breadcrumbs of the wealthy, it leads to real estate as being a significant part of their diversified portfolio.” Patrick found he was “at odds” with himself because even though he was working on interesting projects for game- changing companies including Apple, Facebook, and other high-tech startups, he still wasn’t satisfied. A researcher at heart, Patrick ultimately concluded that to build wealth, investment in “tax-advantaged, hard, tangible assets like real estate” is essential. He also knew he had to use a different approach to avoid another disaster like the one he had faced in 2007. So, 15 years later, Patrick ventured into real estate investing again, but his strategy was completely different. He focused on purchasing “income-generating real estate with fixed debt and low leverage.” He put large down payments on all of his investment properties. He had learned to take it slow and buy real estate that was already “cash flowing or needed a minimal lift to cash flow” and kept repeating the process. Patrick concedes it took time and patience, but his investment efforts paid off his second go-round.
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