Ep146: Deacon Hayes – Nearly Lost it All Buying Two Condos

By Andrew Stotz | 11/12/2019 |

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Guest profile

Deacon Hayes is the founder of WellKeptWallet.com, which reaches over 1,000,000 people per month. He has been a contributor for the US News & World Report, Investopedia, Clark Howard and more.

He is also the author of the book, You Can Retire Early! Everything You Need to Achieve Financial Independence When You Want It.

“Opportunities are like buses, there’s always another one coming.”

Deacon Hayes

My Worst Investment Ever

Life before the devastating investment

Hayes lived and worked in Phoenix, Arizona before his big fall and his subsequent rise from the ashes. Like most Americans, he had his fair share of debt but had so far managed to find a balance with his income. However, he loved his job and his life and lived by his philosophy of following his passions.

Until he came across the opportunity that changed his whole life.

Real estate fad covers country in early 2000s

The early 2000s were times of great financial stability. It was a time of prosperity and growth in the world of finance with all markets from the stock market to currency exchange achieving record highs. The real estate market, in particular, was doing really well, with that being described as the age of the real estate boom.

With emotions running high, Hayes decided to take a risk on the market. Investing for him meant the possibility of having a debt-free life, and it was too good an opportunity to pass. So having done his homework he decided to buy not one but two condos.

Investor gives in to ARM loans’ allure

The first mistake that Hayes made was taking a huge risk on multiple investments without being fully informed about the real estate market. He had a payment option ARM (adjustable rate mortgage) plan. In a nutshell, this would allow him to make a small minimum investment with variable interests which seemed like a good idea. In retrospect, giving in to this allure is the worst mistake he made given how much he ended up losing.

Financial crisis begins in 2007, put all his net worth at risk

Between 2007 and 2008, half of the U.S. suffered the worst market crash in real estate history. For a number of reasons, property values plummeted while interest rates shot through the roof.

Hayes, alongside many other Americans, felt this major blow. And as a result of his poor risk management, he was at risk of losing not just his two condos but a majority of his net worth.

When it rains, it pours

So here was Hayes, in his early 20s, hundreds of thousands of dollars in debt and had lost up to 95% of his net worth. Sounds pretty bad huh? Well, it got worse for him.

See the land that his two troubled condos were built on was on a lease that ran out soon after the market crash. This meant that his Homeowners Associated (HOA) fee payments would go up. And boy did they go up; by more than 300% to be exact.

Struggling to stay afloat while drowning in debt

For the next several years (a decade to be exact), it was an uphill battle to keep financially afloat. Despite having double income through his wife and some investments in the stock market, he did not have enough money to rescue let alone sustain his properties.

He was also in constant conflict between dumping the seemingly rotten investments and finding ways to save them. He tried everything from cutting costs to paying off the loans to finding multiple tenants for the property. Unfortunately, it wasn’t enough. He lost one condo a few years after the crash through foreclosure after failing to find someone to buy it. The other one went soon after, and despite finding a buyer and escaping bankruptcy, he ended up selling it at a loss of $40,000.

Ten years later, Hayes is finally free. It was a rough several years, and he lost a lot; there is no doubt. But he also learned a lot from his experiences on risk management and how to avoid loss.

Lessons learned

Here are some of his lessons so you too can avoid making bad investments and losing more than you are ready to.

Do your research

Investing is more than just having a gut feeling that a market will go up. You need to research. Learn as much as possible about the risks, rewards, and everything that could go devastatingly wrong. And only after understanding the good, bad and the ugly should you take out that check book.

Minimize your risks

Risks are inevitable when it comes to investments. However, unnecessary risks are purely out of choice. It is important to minimize your risks as much as possible when investing, especially in real estate. The best way to do this is by making a decent-sized deposit with rates that favor you. That way, you will manage to pay off the mortgage sooner and with less interest. If this means getting one investment at a time, then do it. Some risks are just not worth taking.

Don’t go all-in on a new investment

Whether it is a new company in the stock market or some new investment fad, it is never a good idea to give it all you have. It doesn’t matter how good the deal seems. Instead, invest a little at a time as you get to understand the market through different financial seasons.

Don’t bite off more than you can chew

Avoiding loss is all about taking risks that you can manage. Hayes made a huge mistake buying two condos at the same time when his income could not cover both. This left him vulnerable to the major loss he suffered as it became harder to save both condos with limited resources. Don’t make decisions out of excitement or emotion

Never mix money with emotions. It really doesn’t matter how excited you are at the prospects of big wins. Take the feelings out of it, think critically about it, and make a sound decision based on fact.

You don’t have to invest in all fads; opportunities never stop coming

As Richard Branson so famously said, “opportunities are like buses, there’s always another one coming”. So don’t panic and enter a market because you are afraid of missing out on the investment (a phenomenon known as Fear of Missing Out [FOMO]). Take as much time as you need to be ready for that major move. And if the chance passes you by don’t regret anything, a greater opportunity is sure to follow.

Andrew’s takeaways

From this story one lesson stands out the most; you do not have to take every opportunity that comes your way. It doesn’t matter how promising or even how cheap it is. Here, you have to fight your instinct to follow the hype and go with your emotions. It will take a lot out of you but it will also save you a lot of disappointment and loss down the line.

Actionable advice

Beware of the fear of missing out (FOMO). There is nothing worse than getting into an investment simply because it is a trend and you want in on it. Instead, take as much time as you need to understand the market and your options. If after your research and time to think it still seems like a good idea then go for it.

No. 1 goal for next the 12 months

For Hayes. The future seems bright with his successful online. He hopes to have reached 2 million readers on his website as a way to enlighten more people on how to handle debt for a healthy financial life.

Parting words

That brings us to the end of Deacon Hayes’ incredible story. I hope you learnt enough from his loss to secure yourself big wins in future. In a nutshell, not all opportunities are worth going after.

Deacon Hayes