Cost of Reentry
In many areas prices have depreciated to the point that many of the loans secured by these properties are more than the value of the property itself. To makes matters worse, the mortgage payments are in excess of the market rent in the area. This double whammy raises the unfortunate question: at what point does it make sense to cut your losses and walk from an investment property that has lost value and is bleeding cash. The answer is that it depends on the extent of the negative cash flow and options for mitigating it. It also depends on whether you believe real estate will rebound.
Clearly there are many things to consider in making a decision to allow a property to go into foreclosure but the consideration that is often overlooked is the cost of reentry. Here's what that means. Even the pessimist generally concedes that at some point (3 years, 5 years, 7 years) the real estate market will rebound. The time frame is not that critical to the essential point. The point is this. Assume that you bought a property for $500,000 using a $400,000 purchase money loan and you put $100,000 down. Market crashed and the property is now worth 350,000 so you decide to let it go. Now, let's assume it took 7 years for the property to get back to its original value of $500,000. There are two consequences of the decision to let the property go.
Locked-in Losses: The more obvious consequence is the one you hear cited frequently by the Wall Street pundits which is the idea of locking in your losses. If you let the property go you have permanently lost the $100,000 with no chance of recovering it as the market comes back.
Cost of Reentry: The more subtle and often overlooked issue is that to reacquire the same property 7 years from now in order to get back into a position where you are benefiting from equity appreciation you would need to find another $100,000 (assuming a 20% down payment). If you are not able or willing to liquidate another $100,000 to reenter the market, you are permanently barred from the prospect of equity appreciation in an investment property. This is significant because equity in an investment property can be used differently than equity in a primary residence (e.g., 1031 tax deferred exchange).
Regardless of the consequences, if it is simply not feasible to maintain a property, then you have to do what you have to do. What's important is being able to make the best decision under the circumstances by being informed. Watch for a webinar on this subject in coming weeks.
|
LOL - Laughs OnLine
"I saw this work for the dog one time..."
|
What's The Big Idea? 
My parents are from the Caribbean and I was born in London, England. Despite having all become U.S. citizens there are certain things they just don't teach you as part of the naturalization process. I was reminded of this on Super Bowl Sunday. Maybe I am overly rigid in my thinking but I view Super Bowl Sunday as an official moratorium on any dietary regimen that you might otherwise be adhering to. Hot dogs, cheeseburgers, French fries, these are sacred dishes not to be tampered with as men are preparing to give each other concussions for the sake of public entertainment. My mother made turkey burgers with parsley in them, organic bacon that was so lean it was brittle and sweet potato fries lightly fried in olive oil. I feel like I participated in sacrilege and to clear my conscience I feel compelled to go to Carls Jr. today.
|
Share If You Care
Our goal with this newsletter is simple: Cover every important topic that might help homeowners and investors make more informed decisions concerning real estate. You can help in two ways:
1) Send us any articles or information you come across that might be of interest to other readers
2) Forward this newsletter to anyone and everyone you know that owns or plans to own real estate!
Sincerely,
Kwame J. Granderson
Equinaire
| |
Need a Loan Modification?
AmeRestart Can Help
Lender: Home Savings
Loan Amount: $402,533
Old interest rate: 7.88%
Old payment: $2,764
New int. rate: 4.75%
New payment: $1,915
These are real numbers!
Click Here to learn more.
Call 877.619.3258
|
Free Probate Property Webinar
|
|
Learn About...
1. What Probate is and how it works
2. Our proprietary system for finding Probate properties
3. How you can benefit
Date: Febuary 10, 2009
Time: 7PM - 8 PM
Register by clicking Here
|
Did You Know
|
|
Did you know that no word in the English language rhymes with orange, silver, and purple?
Did you also know "market direction" plays an important role in determining a property's appraised value
Click here to learn more...
|
Free 401k Investment Webinar
|
How to use 401k's and IRA's to Purchase Real EstateLearn How To...1. Roll money from a 401k to a Self-Directed IRA2. Buy property and pay NO tax on the income3. Sell property and pay NO capital gains taxDate: February 12, 2009
Time: 7PM - 8 PM
Register by clicking Here |
Newsletter Archive
|
Want to check out a previously published newsletter?
Click here to access our archives.
|
|
