How to Get Out of Bad Debt
Last week we established that it is a good time for people to be making real estate investments. This week I would like to take a look at those who are already in the market; and like so many people made the mistake of buying during the boom.
Very few people saw the market crash coming, and while the appreciation in property prices was too good to be true, it was also impossible to believe that values could ever fall to where they are currently. However, they did; and as a result millions of people now owe more than their property is worth, and this is bad debt.
A perfect example of this bad debt scenario is a client of ours whose property was financed for $2.3 million dollars (a first mortgage and a HELOC) in 2007, and just several months ago we had to short sell it for $1 million dollars. That is a 56% reduction in the value of their property! However tragic that may seem, we were able to get them out of that toxic investment unscathed; but it was not easy.
One of the most difficult aspects of a short sale is, as the homeowner, being able to recognize that your home is in fact not your home, it is bad debt. And there is only one way to deal with it, get out! While it is hard to accept that you need to sell your property, it is downright dangerous to entertain the idea that your property will be worth what you paid for it, any time soon.
Sure you can file bankruptcy, or pursue a loan modification, but both of these options are merely band aids and do not address the underlying issue: the value of the property. In fact both BK and Loan Mods often add your past due payments and fees onto the back of your loan. Resulting in you being even further in debt than you were before.
Another benefit to doing a short sale over the other two options is that a short sale will cost you nothing. Furthermore, you will be able to stay in your home while the deal is being negotiated, and JohnHart clients often receive cash to help with relocation at the closing of the sale.
The most important thing to know when considering short sale as an option is that, as I mentioned earlier, they are not easy. In fact a lot of our business comes from clients who are not satisfied with their current agent. It is not that these other agents aren’t good agents; they just simply do not have the resources to successfully negotiate and close these types of deals.
If you take nothing else away from this article, at least understand this: emotions will never get you into a good investment, they will only keep you from getting out of a bad one. If you purchased a property, or refinanced, during the boom of the market do yourself a favor and take a look at the short sale calculator on shortsalecalculators.com to see if you are harboring bad debt.
Remember that a good investor always takes an objective position when reviewing their investments. If you find that you are in bad debt, know that there is always a way out, and our team of experienced specialists at JohnHart will help you find it. Do not let the past prevent you from making gains in the future!
We welcome all inquiries and invite you to call us at 818-246-1099 or email us at [email protected] .
John is the Vice President here at JohnHart, and as such is responsible for managing and directing the firm towards obtaining its ultimate goals.
He is also one of our main contributors on the Blog. (please see his profile page on the main site for more information.)
