Own investment property? Your best options for surviving the housing bubble

Our company receives many calls from reluctant home investors and contract owners looking to cash in on what appears to be easy money. The customer wants to know, “What should I do?”

While each situation is unique, in general the decision can be crystallized to 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 cash flow to the present using an appropriate discount rate to obtain a net present value for each scenario. This combines time value of money and decision tree concepts and helps transform an emotional decision into a rational financial decision.

Let’s look at the easiest strategy to analyze – Walk Away. You’re essentially securing yourself a loss on your initial investment, not to mention the possibility that the mortgage lender will still pursue you if the sale of the property doesn’t cover your mortgage balance. It’s an undesirable strategy, to say the least, and a choice of the absolute last resort.

Without knowing your personal situation, I can tell you that there are far more effective options that should be explored to alleviate your situation. Please contact us for a no-obligation free consultation and we’d love to explore the best options with you.

2. Sell the property – You may feel the need to sell today. The negative media and the overhyped real estate bubble are making a powerful contribution to investor psychology today. Not to mention the difficulties as a landlord. Or you can rent the device while you take care of your millions of other tasks and your job.

Perhaps the property has a significantly negative cash flow and the monthly loss is bleeding your finances and savings. You feel like you are diving into a money pit and your wealth is going down. Here’s what your cash flows look like – if you’re in a hot market, expect a significant discount to fair market value at the price you’re getting. In other words, lock in a 10-20% discount you might get if you decide to weather this correction.

A word about cycles. At the top of a cycle, things are rosy and prices are forecast to keep rising indefinitely. We saw that last year. Similarly, today it is hard to imagine that prices will ever rise again and real estate will remain depressed for many years to come. The reality is somewhere in between. Prices will recover, it’s a question of when, not if. Given the negative sentiment, we dare say that we have already seen the worst of the correction.

There is also an element of hope in the Sell Your Property strategy. There is no guarantee that you can sell, even if you really want to. The reality of selling has to do with how low you are willing to put your price. But also consider this: In the last correction, Californians who sold their homes near the bottom lived to rue the day when property values ​​skyrocketed in the last 10 years, rising about 2-3 times in that period.

3. Final Option – Hold & Maximize – When considering a hold strategy, the investor assumes that the market will improve soon. Most experts assume that it will take until the fourth quarter of 2007 for the current inventory glut to lead to a normal market.

How long you need to last depends on how well you bought it. The old real estate adage says profit is made on the purchase, not the sale.

In addition to the hold option, you will need to consult a financial expert to review your financing for the property. Can you cash out equity, lower your interest rate, defer interest on your mortgage? Each would help lower your monthly expenses. Our company has investor programs that few other companies can offer. And if we can’t help you, we’re linked to a national network of investor credit advisors who we’re confident can.

Secondly, your holding decision depends on the demand for real estate in the location you have acquired and the stock situation. Are buyers moving to the area, are incomes rising, is the rental market strong, is there job growth and what is the rational expectation for the market?

If you would like a thorough and honest review of your particular situation, contact us. We can help you make a rational decision and improve your financial situation. If you are in financial distress, contact us immediately. We can help you create a strategy that not only protects your investment, but also positions you for a brighter financial future.

© 2006, all rights reserved.