Did you make what you think was a bad investment?
Historically, real estate investments are probably the soundest investments anyone can make. I've read that more millionaires made their money in real estate than any other way. But, does that mean every investment is a good one? Are you guaranteed a 15%, 20%, 30% gain on your real estate each and every year? Not hardly! But some of the "newbies" that entered the market in the last year or so seemed to think so.
What makes an investment a bad one? Well, there are a myriad of possibilities including purchasing without a good inspection only to find out the building is full of asbestos, has chemical waste in the basement and is 80% sawdust now that the termites have finished with their family reunion that lasted 5 years.
But even the newest, least savvy investor isn't likely to make that mistake. And, if an agent allowed him to without fair warning, then shame on her/him. But there is one mistake many did make last year. It's one that we cautioned about repeatedly. That is the mistake of purchasing without the financial strength to carry the purchase should the market shift suddenly - and that is exactly what happened.In our area, we had a literal buying frenzy of beaches condo-conversions. Seriously, agents were in the office taking orders so fast that they were getting confused as to what customers had bought which units. The prices were escalating - not daily but hourly. And some investors got caught up in the frenzy without counting the cost.
So they purchased a unit for $ABC with big plans to sell the unit for $XYZ as soon as the construction was complete in one month. The first of the problems came when construction wasn't completed on time. One month became two and then three and then four... no problem, the investor thought, the value just continues to climb - and so it seemed.
But then it happened - 2006 arrived! And with it came a real market shift. And, well... you know the rest. So what is the investor to do? First, hopefully he heeded our caution to "only purchase if you can afford to have it sit empty and/or unsold for awhile - 6 months minimally - and be prepared to unload and cut your losses should the unthinkable occur." I'm basically a very conservative person - Susan says "too conservative" - and I don't like losing money (nope, you won't catch me buying a lottery ticket).
If he didn't heed our caution, it's time to take a good hard look at his situation. He should probably consult his accountant if he is too emotionally invested to think clearly about his situation. While there may be a number of other options, there are 2 that come to mind immediately.
1. Yes, you had hoped to 'flip' the unit, but with several thousand of them vying for a buyer too, perhaps you should consider renting it. "But", you say, "My mortgage is higher than I can get for rent." Well, wouldn't it be better to get what you can to at least off-set the loss while waiting for the market to adjust?
2. Sell it at a loss. You may be able to sell quickly if you price it a little bit low. Wouldn't it be better to take a small loss now than to slowly bleed to death?
Real estate investing may be a "sure thing" in the long run but not necessarily in the short run. Make your decisions accordingly.
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