The Answer Is: Deep Pockets

Active Rain blog Jan 27 2009

The Answer Is: Deep Pockets

You know how it is on the Jeopardy game show... ageless host Alex Trebek starts out with, "The Answer Is..." and contestants must guess the question.

 My answer is...deep pockets. Can you guess the question?

 How many of us in the real estate community have been asked, "Should I sell now or hold on? Should I unload my investment property that I bought when things were humming? What should I do?"

 A couple came to me recently with this scenario. They purchased a small, 50-year-old fisherman's home on a lovely lot on the Braden River in Manatee County. Knowing our experience in waterfront homes-even though our key market is a little further south in the Casey Key and Siesta Key areas-the couple thought I could help. I began digging a little further:

 Tell me about the property. It's a small, 50-year old home. We think the value is in the lot; Braden River waterfront with access to the Manatee River, the bay, and ultimately the Gulf of Mexico. The property was cleared of mangroves before they were protected, so the yard leads right to the water. Behind the property, there are no other homes in view as the river contains several islands and mangrove channels that are not buildable. Birds and manatees are common, and wild peacocks can be heard in the distance. The water is tidal, meaning the river flows in different directions depending on the tides. It's a beautiful, remote feeling just minutes from State Road 70 and I-75.

 Have you made improvements? We totally rebuilt the existing dock.

 How much did you pay for the property? (We'll keep their answer confidential for now; dig up the public records if you must.)

 What's happening now with the property?  It's being rented for $1100 with a newly signed year's lease.

 Does this cover your mortgage?  No.

 Can you maintain this negative cash flow? Maybe. But we're tired of being in a tight place, financially. We can pay the mortgage, but the air conditioning system is on borrowed time so it will hurt if we have to make major repairs.

 Should we sell it now? Should we wait?

What do we need?

 My answer is: deep pockets. Keeping the investment requires deep pockets. How deep are yours?

 Answering your client's keep/sell question is a decision of numbers, discomfort, and risk. But the bottom line is the bottom line: how deep are their pockets? Can they afford to hang on? What is the property worth in today's market? (Now there's the million-dollar question. Or less.)

 Your turn, real estate community-how are you answering this question for your clients?

A related article in the Herald-Tribune January 27 "Foreclosures continue to drive down prices"