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Own Real Estate Investment Property? Your Best Options to Survive the Real Estate Bubble
Our company receives a lot of calls from reluctant condo investors and pre-construction contract owners looking to cash in what seems like easy money. The client wants to know “What should I do?”
Although each situation is unique, in general the decision can be crystallized in terms of the present value of future cash flows. In other words, translate each strategy into a series of inflows and outflows today and in the future, and discount each cashflow to the present using the appropriate discount rate to arrive at a net present value for each scenario. It combines the time value of money and decision tree concepts and helps transform emotional decisions into rational financial decisions.
Let’s look at the simplest strategy to analyze – walk away. You’re essentially locking in the loss of your initial investment, not to mention the potential for the mortgage company to come after you if the sale of the property doesn’t cover their mortgage balance. To put it mildly, choosing a last resort is an undesirable strategy.
Without knowing your individual situation, I can tell you that there are more effective options to explore that will help alleviate your situation. Please contact us for a no obligation consultation and we will be happy to explore the best options with you.
2. Selling property – You may feel like you have to sell today. Negative media and an overhyped real estate bubble contribute greatly to investor psychology today. Not to mention the hassles of being a landlord. Or rent a unit while doing your million other chores and your job.
Perhaps the property’s cash flow is significantly negative and monthly losses are bleeding into your finances and savings. You feel like you’re sinking into a money pit and your net worth is plummeting. Here’s how your cashflow grows – If you’re in a hot market, expect the price you’re getting at a significant discount to fair market value. In other words, 10-20% off the price you can get if you decide to make this upgrade.
A word about bicycles. At the top of the cycle, things are rosy and the forecast is that prices will continue to rise indefinitely. We saw that last year. Likewise, today it is hard to imagine when prices will rise again, and real estate may remain depressed for years to come. The reality is somewhere in between. The key issue is whether prices will rebound, not when. Given the negative sentiment, we’d say we’ve already seen the worst of the correction.
The sell your property strategy also has an element of hope. There is no guarantee that a sale can be made despite the desperate desire. The reality of selling has to do with how low you are willing to drop your price. But also consider this, those Californians who sold their properties near the bottom in the last correction rue the day as property values have exploded over the last 10 years, increasing roughly 2-3 times over that period.
3. Final Option – Hold and Maximize – When considering a hold strategy, the investor assumes that the market will soon improve. Many experts predict that it will take until Q4 2007 for the current inventory glut to return to the normal market.
How long you keep will depend on how well you shop. The old adage in real estate is that profits come from buying, not selling.
With the hold option, you should get a financial professional to review your financing for the property. Can you cash out equity, lower your interest rate, defer interest on your mortgage? Each will help lower your monthly expenses. Our company has investor programs that very few companies can offer. And if we can’t help you, we’re connected to a national network of investor loan advisors that we trust.
Second, your decision to hold depends on the real estate demand and inventory situation in the location you purchased. Are buyers moving to the area, are incomes rising, is the rental market strong, is there job growth and what is a reasonable expectation for the market?
Contact us if you would like an in-depth and honest review of your specific situation. We can help you make rational decisions and improve your financial situation. Contact us immediately if you are in financial crisis. We can help you create a strategy that not only protects your investments, but also positions you for a brighter financial future.
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