That's not necessarily true, it all comes down to numbers. $1,000/month is not that difficult. It would only take you $240,000 at a low safe 5% yield to earn that. The current 30 year government treasury is offering about 4% tax free, which is even better after tax. And this is with very, very safe work-free investments. With higher risk investments you can probably average 10% dropping your principle requirements to $120,000. While dependant on the area; even now, in mid-bust, most properties still give a bigger return if cashed out and that cash put to work earning interest especially since it will be a depreciating asset for some time to come.
How much additional out of pocket money will be risked and place into the properties before they fully pay for and support themselves?
If you placed that out of pocket money and any interest earned into saving bonds (or maybe even riskier investments), how long would it take before it would grow to a number that will give you a similar yet relatively risk free return?
If you foreclosed on the losing properties and saved every penny you would have otherwise have spent on the properties how many similar properties (but much better priced) could you buy seven years (after the bubble bust completes and your credit is back) from now at a huge discount?
The moral imperative to pay the banks back aside, I find it unlikely that the better money-wise choice will be to stick it out.
Sammydy. If I HAD $240k, I’d take that and invest in properties that would cashflow. I could buy 10 $100k properties with putting 20% down. On average, properties double in value every 10 yrs. with an average increase of 5%/yr. I know some yrs. RE is and some are up. But on average its 5% over the last 40yrs. or so. So lets assume you manage to pay them off in 20yrs. All the properties would be worth about $3 Million. If you just put that $240 in a savings account with a 5% interest rate. You’d have $651,000. I’d rather have $3M at my disposal. Like I said before, you could easily get a 50% LTV on those properties. That’s $1.5 M tax free because it’s a loan, not income. That’s the payoff at the end. But here’s what I see from the beginning.
Now keep in mind that any property I’d buy would have to financially stand on its OWN income AND provide a cashflow of at least $100/unit/month. Let’s assume I bought 10 duplexes with that $240K. That would be $2000/mo. ( 10,2 unit properties each giving $200/mo.). So after 20 yrs. you would have recieved a total of $480,000. Then you’d have access to $3M worth of properties tax free. I like cashflow, equity buidup, control and tax advantages.
Now when it comes to Mistapant’s situation, it depends on how long he can hang on with his own money. There’s a lot of specific details left out in this situation. But I think he should tackle this by trying to get the places rented and possibly cashflowing. At the very least break even during these hard times. I don’t think you can put aside the issue of paying your debts and preserving your credit and reputation. In fact I think that’s the most important issue. There are too many people out there that are so quick to stiff their creditors just to save their own neck. They take the easy way out instead of doing whatever it takes to pay what they owe. Well I think we’ve just about beaten this subject to death… or at least I have :biggrin. On that note. Mistapants, I hope you can turn this situation around and preserve your credit/reputation. It sounds like you have the integrity and desire to do it. Good luck.
Real estate investing is a learning experience and sometimes our lessons are costly, but 9 times lout of 10, you won’t repeat what seems to be a mistake in the future. Yes you didn’t buy at a discount and you did buy when the bubble was exploding, but what should you do now? I have learned that excellent credit can sometimes be more valueable than money, because this is the tool used to borrow money. When you have no borrowing power, you’re in neutral and can go nowhere. Save your credit. If you can afford to make the payments, make them. This is the part of your investment experience that should make you wiser and tougher. Dig inside that good brain of yours and discover solutions. Get creative, don’t give up. Single family homes are long term investments, 10, 15, 20 years. It is much wiser and safer to purchase multi-units, 10 units or more, because it is a more stable investment. You have several people helping maintain your mortgage instead of one person as with an investment single house. And it is just as easy to buy multi units as it is a single house. Financing is not hard at all for multi units. And remember, real estate always go up over time, just like bread, cereal and milk. Some properties during 01-06 tripled in value, but then decreased after and during the bubble maybe 20% or a little more in some areas. But overall, these people still made good. So hang in there for the long-haul if you can afford to. And another suggestion, buy more real estate because now you have bargaining power as Warren Buffet and Donald Trump has said. Buy when prices are low, study the market and the area a little closer. As one person mentioned, you make money in real estate when you buy, not when you sell. This should help you tighten your game and learn from this experience. But don’t stop, let this propel you to the next level and come out of this as a winner.
Your key to turning this situation around is creating more income. Look at the cashflow in your existing properties. There must be something that can be done to retain your tenants, get more rent or decrease your other expenses. At the very least try to sell them as income producing properties. Make sure your numbers are realistic though.
Other than that, earn more income by investing better. Even if you have to let go the properties and ruin your credit temporarily, if you become good at at least one real estate investing method, you can come out ahead in the long run. Sometimes you have to cut your losses, but always have a plan to move forward, learn from the mistakes and decide to turn things around. This is a real estate investor forum. You have almost everything you need to learn how to become wealthy right here, so instead of feeling hopeless start taking advantage of the opportunities in front of you. Good luck.
you cant really do a short sale until you are behind on your payments. The banks are not going to modify your loans either as long as you are paying them.