House Rich, Cash Poor

Njeri Barrett thought she did everything right. She graduated from college, landed a job earning more than $78,000 a year, got married, and had a child–all by the age of 26. But now seven years later, the Dorchester, Massachusetts, resident finds herself swamped with debt and without a solid wealth-building plan.

“I’m an immigrant. I came here from Jamaica when I was 8 years old, and homeownership was something that was always talked about as a way to build wealth–the American dream. So I pushed myself almost to the detriment of my family to purchase multiple properties,” says the 33-year-old executive assistant for a private equity firm.

Barrett and her now ex-husband jumped into the housing market after they got married in 2006. Even though Barrett already owned a condo, the couple purchased a four-family house in which they charged monthly rent of $3,200. That same year they also bought a $400,000 town home of their own to live in.

“As a family we were making great income and we took the money and invested in properties not thinking about the possibility that both of us could get laid off,” she reflects. Barrett says when her ex-husband was laid off in 2007 and then she lost her job in 2008, the couple had a lot available in credit, but not enough cash savings at the time, with only between $1,000 to $2,000 in savings. Barrett says: “We were swimming in debt and the tenants were not paying their rent. It was a domino effect from there.”

Now the divorced mother of one is bouncing back from being laid off for nearly two years. Although she has been earning more than $80,000 a year since 2010, including bonuses and rental income, she is carrying a lot of debt. While she receives child support, she doesn’t receive alimony and during the divorce had to use most of her savings as well as withdraw $27,000 from her 401(k) to help pay the mortgages on the three properties. After the divorce, her ex-husband kept the townhouse as part of their settlement and she kept her condo and the four-family home.

“I wish I had moved back home with my parents from the minute I lost my job but I didn’t. I wanted to do it on my own. I would have saved so much money,” reflects Barrett.

Although Barrett can’t afford to live in the condo any longer, she kept it as a rental property. She uses the$1,550 monthly rent to cover the mortgage payments and condo fees. “I don’t want to sell it because one day my family and I may live there. And my credit isn’t good so I can’t purchase another place right now,” she fears of her 634 credit score.

Barrett and her 7-year-old son, London Balan, now rent the second floor of Barrett’s mother’s house, where she pays $600 for rent and has a roommate. The move saves her $950 per month. With the savings she was able to pay off a $15,000 personal loan from a bank last year that she borrowed in an effort to keep the multifamily unit from going into foreclosure. With a laundry list of constant repairs and delinquent tenants, the property became too costly for Barrett to handle. She lost the home to foreclosure in 2010 after being denied a loan modification.

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