Our firm receives many calls from reluctant condo investors and pre-construction contract owners looking to cash in on what seemed like easy money. The client wants to know “What should I do?”
While each situation is unique, in general, the decision can be crystallized in the present value of future cash flows. In other words, translate each strategy into a series of inputs and outputs today and in the future, and discount each cash flow back 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 turn an emotional decision into a rational financial decision.
Let’s look at the easiest strategy to analyze: walk away. You’re essentially insuring a loss on your initial investment, not to mention there’s a chance the mortgage company will come after you anyway if the sale of the property doesn’t cover your mortgage balance. It is an undesirable strategy to say the least and the choice of absolute last resort.
Without knowing your personal situation, I can tell you that there are much more effective options to be explored that will help alleviate your situation. Contact us for a free, no-obligation consultation and we’d be happy to explore the best options with you.
2. Selling the property: You may feel like you have to sell today. Negative media and the overpriced housing bubble contribute mightily to investor psychology today. Not to mention the hassles of owning. Or rent the unit while you take care of your millions of other tasks and work.
Perhaps the property is significantly cash flow negative and the monthly loss is draining your finances and savings. You feel like you are diving into a money pit and your net worth is plummeting. Here’s how your cash flows line up: If you’re in an active market, expect to get a significant discount to fair market value in the price you get. In other words, lock in a 10-20% price reduction you can get if you decide to ride out this correction.
A word about cycles. At the top of a cycle, things are rosy and prices are projected to continue rising indefinitely. We saw that last year. Similarly, today it is hard to imagine that prices will rise again and that real estate can remain depressed for many years. The reality is somewhere in between. Prices will recover, it is a matter of when, not if. Given the negative sentiment, we would venture to say that we have already seen the worst of the correction.
The Sell Your Property strategy also has an element of hope. There is no guarantee that you will be able to sell even if you desperately want to. The reality of the sale has to do with how low you are willing to drop your price. But also think about this, in the last correction, Californians who sold their properties near the bottom lived to rue the day, as property values have skyrocketed in the last 10 years, increasing about 2-3 times in that period. of time.
3. Final Option – Hold and Maximize – When considering a hold strategy, the investor assumes that the market will improve soon. Most experts predict that the current excess inventory will take until the fourth quarter of 2007 to reach a normal market.
How long you have to hold will depend on how well you bought. The old adage in real estate is that the profit is made on the purchase, not the sale.
In addition to the retainer option, you should hire a financial professional to review the financing of the property. Can you withdraw principal, reduce your interest rate, defer interest on your mortgage? Each would help reduce your monthly outlay. Our company has investor programs that very few other companies can offer. And if we can’t help you, we’re linked to a national network of investor loan counselors who we’re sure can help.
Second, your decision to hold depends on the demand for real estate in the location you purchased and the inventory situation. Are buyers moving into the area, are incomes increasing, is the rental market strong, is there job growth, and what is the rational expectation for the market?
If you would like a complete and honest review of your particular situation, please contact us. We can help you make a rational decision and help improve your financial situation. If you find yourself in dire financial straits, contact us immediately. We can help you shift to a strategy that will not only protect your investment, but also position you for a brighter financial future.
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