My phone was ringing. .
"I've screwed up BIG TIME"
A familiar friendly voice told me on the phone.
"Why?" I asked. .
"I broke my own rules on an investment purchase. A mistake that is sucking me dry, I'm on my way for the worst real estate loss I've ever experienced, EVER!"
"Calm down, maybe there is something we can do . . tell me a little more. .all I could say. .
"When I purchased a condo in this building four years ago . .it seemed to be the best investment I could do. The renter paid my mortgage for the first two years and then. . but it slowly started giving me negative cash flow. . I'm currently $700 negative cash flow every month!" she yelled.
The real estate crisis has been particulate tough for investors that were heavily burden with variable rate loans.
As investors quickly were finding out, their investment properties purchased a few years ago as a way to grow a retirement fund. ..slowly become a nightmare that was jeopardizing any plans of retirement.
Normally an investor uses sophisticated real estate investment strategies, formulas and criteria that they believe will work best for then in the short and long term.
They got caught. I know of many people that have 3, 4, 5 even 6 properties in their portfolio and they are all underwater. . ALL OF THEM!
One of my rules as a Realtor/Investor has always been to avoid purchasing a home if they will give me a negative equity flow. . .unless they are superbly located for maximum equity growth.
When you take away the only reason/benefit why you should have purchased an investment property at first place . you are left holding a cement block while swimming. . You may last a few months but eventually, after you exhaust your credit and your 401 K. . . .You will begin to sink to the bottom.
Before, you did not really mind paying a few hundred dollars per month to the bank; when your investment property was capable to gains of $30K, $50K, even $70K in one single year!
Today is different . . .
You are in new and uncharted waters, a situation which we often refer to as being "upside down", whereas you as an investor can't sell the home for enough to walk away free and clear. . . while your renter is sucking your blood dry.
Forget about profit. . You just want to break even!
If you don't have money to bring to the closing table, you are in a bad sticky situation. . and time is not your friend.
When you consider the flimsy outlook for real estate growth in our Maryland region for the next ten years . . . 3 to 5% per year?. . .and we may not be in the bottom yet!
Let's say you have 4 investment properties that are underwater with a $200,000 equity deficit
You may still have a little money to last you maybe a few more months. .
You can elect to stick it out and hope for another boom in real estate. .
Yeah right.. . Don't hold your breath
Kiplinger.com estimates a small rise in home prices this year and next but flat sales in general for the next 36 months.
Can you last 3 more years of negative equity?
Long term outlook is not any better.. .3 to 5% yearly gain . .and if we have a smooth road ahead.
Not good.. if you have negative cash flow every month.
It could be year 2020 before you break even.
Going back to my investor friend at the start of this post. .
When it gets to a point where she could not/or elect not to continue to pour more money into a seemingly investment gone bad, I advise her to start looking at "other" possible solutions.
If she was about to let it go into foreclosure, unable to make her payments anymore. .while the tenants are calling her almost every day to fix never ending problems/ . .
She was definitely in a nightmare!
Have you considered doing a short sale in all your properties?
She told me she considered but knew of the tax consequences of a 1099 for the amount forgiving by the bank. . she had to pay taxes on it and she just didn't want to do that.
I asked her then. .
"How much would you have to pay when/if the bank seeks a deficiency judgment against you then? "
I did not wait for an answer. .
"Over two hundred thousand dollars". . I quickly volunteered
"You are telling me that you want to avoid paying the IRS a few thousand dollars in taxes over having a foreclosure on your records and a possible deficiency judgment?"
She was quiet for a moment and I broke the silence.
"Call me if you want me to go over some details about this option"
She told me she would. . as she hanged up
I don't want to call her now,
It's her decision to make. . I will be there for her if she calls me. .
So far she still makes those extra payments to the banks. . And I recently learned she is also underwater on her own home.
I refused to call her.
When she needs my help, I know she will come.. . she knows that now. .
I just hope she calls me before she maximize her credit cards and run her 401K dry.
Don't be a victim of bad information!
There is currently a lot of bad and misleading information out there regarding short sales in Maryland DC and Virginia and you need to arm yourself with the facts before you take the next step you need to take.
The Worst Thing You Can Do Is Wait! Take Action Today!
Get the facts from a distressed property expert that has the ability to help you avoid a foreclosure by doing a Short Sale today!
This post was originally published in 2009
The outcome was mixed. . we helped her short sale her primary residence and two of her investment properties.
Bank of America was not a good particpant back then. .
Today, they have improved. . .but still. . the saga continues. .