Hard Truth Wisdom and Stories

Hard Truth Story No. 1

The Townhome I Bought Twice

How I bought the same UC Irvine Adjacent floorplan twenty years apart, and what it cost me to learn a lesson I could have learned for free.

Every investor has a property that taught them a hard lesson. One of mine was a two-story Becket Model townhome at 156 Stanford Court in Irvine, California with two bedrooms, two baths, a walled-in patio that felt more like a backyard, and a location steps from UC Irvine that made it quietly, reliably valuable in ways I didn't fully appreciate at the time.

I was young (22), working as a real estate broker apprentice in Newport Beach under a veteran broker named Bill Cote. Bill was the real deal, a solo practitioner who specialized in waterfront properties from Emerald Bay to Harbor Island. He knew what he was doing, and he was generous enough to cut me in on a small percentage of his commissions. That arrangement gave me the seed money, and with my parents chipping in for the ten percent down payment, I purchased 156 Stanford Court for $151,000. It was 1998.

It was the first property I ever bought, and looking back, the instinct was perfect. Close to my family and friends in Newport Beach. A stone's throw from UCI, which meant there would always be demand from students and young families. A private outdoor space that set it apart from comparable units. It had the fundamentals. It had the location. And for a while, I used it the way a smart young investor should—I lived in it and rented the other room to my friend, then rented it out, then moved back in after getting married, then rented it out again. It worked every time.

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Then, in 2003, I made my biggest move. And I got it wrong.

I sold 156 Stanford Court without 1031 exchanging into a better property. No deferral. A straight sale, taxes owed and paid in full. The reasoning at the time felt sound: I believed we were in a bubble. I was trying to time the market. I thought I was being the smart one, getting out before the correction hit. By the time it did hit, and prices had dropped considerable (Irvine was not hit as hard as many inland areas of Southern California), I was not in a position to buy it back. This is a Hard Truth that presents itselfy in my biological neural network under certain patterns. Here it is: You are not always in a position to buy the same property you are considering selling.

Here's the thing about market timing. Even when your instincts aren't entirely wrong, your timing usually is. Yes, there was a bubble forming. Yes, a crash eventually came. But I still would have been much better off holding this property long term, throgh the corrections and into the next recovery phase. Had I simply held, the math would have been overwhelmingly in my favor.

I thought I was being the smart one, getting out before the correction hit. But the smartest move was the simplest one: hold.

Instead, I paid the capital gains taxes, and the proceeds went where proceeds tend to go when you don't have a plan for them: into life. Expenses, living costs, the everyday current that pulls cash away from you if you let it. Before long, I had far too little to show for what had been a genuinely good investment.

No exchange meant no tax deferral. No tax deferral meant a smaller net. A smaller net meant less to reinvest. And less to reinvest meant I was starting over from a weaker position. That's the cascade effect of selling without a strategy, and I lived it.

It took me years, but the lesson stuck. And when I was finally in a position to buy again, I did something that might sound poetic but was really just the market teaching me in the most literal way possible: I bought the exact same floorplan. Same Becket Model. Two stories, two bedrooms, two baths, private walled-in patio. Same community, steps from UCI.

The year was 2021. The price was double, to the dollar, what I sold the identical model for in 2003.

Let that sink in for a moment. I paid twice the price to get back something I already had. And that doesn't account for the Prop 13 property tax base I forfeited when I sold at a lower assessed value that would have saved me money every single year I owned the property. In California, that's not a minor detail. That's a financial advantage that compounds quietly in the background for decades, and once you give it up, you don't get it back.

But I'll tell you this: I'm grateful. I'm grateful I got another one. I've had the privilege of renting this unit to really great residents, earning income, paying down the mortgage, and building equity the patient way. And importantly for me, I have a place—a real, tangible place—that's there for me or my kids should the opportunity arise.

As it happens, my son Max was just accepted to UCI for undergrad. I’m waiting to hear where he chooses to go but if it is UCI, we have an option for him and a roomate.

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Selling was the wrong decision. Not because the market didn't eventually dip, but because the long-term math of holding for rental income, mortgage paydown, tax-base protection, and appreciation almost always beats the short-term logic of cashing out. And when you sell without exchanging, you hand a portion of your equity to the IRS instead of rolling it forward into your next investment. Properties you've held for a long time are almost always worth holding longer. The instinct to sell is usually the instinct to reduce your hassles for comfortable, but comfort can be very expensive.

I share this story not because I enjoy admitting I was wrong, but because I see investors on the verge of making the same mistake every day. They've held a property for ten, fifteen, twenty years. It's appreciated beautifully. And now they want to "take the money and run." I understand the impulse. But I've sat on both sides of that decision, and I can tell you from experience: the run is shorter than you think, and the money goes faster than you'd believe.

If you're going to sell, exchange. And if you have a good property in a good location with good tenants and a low tax base, for the love of real estate, hold it.

My1031.com · Hard Truth Wisdom & Stories
A blog series about real 1031 exchange decisions—the good, the bad, and the ones that got away.

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