We all talk about positive and the best scenarios of real estate investing, but what happened when everything goes wrong?
This can be anyone of us who buy and hold properties in the past few years. So now, do you keep on going negative cash flow of $1,000 per property? and for the duration of the term of the loan? This means for the next 25-20 years? When the real estate market has been going up, we didn't seem to mind that negative cash flow. But now, we just found out all our down payment was down the drain, and not to mentioned we are hundreds of thousands of dollars in negative equity. Believe me, I have few of those in CA. I totally understand how you feel.
Refinancing is not an option for those who just purchase your properties last few years. You do not have equity to reduce payment. So, what do you do now?
I listed few suggestions, but it is up to you to take the action. Think about it, what do you want to do? and what are the solutions?
1. Keep on going! Personally, I can not afford having bad credit as a real estate investor, so, my approach is 'keep on going'. I am aggressively buying value added properties. For single family detached homes, I would want at least $40k - $50k in equity and $200 - $400 in cash flow per investment property. This is how I offset my positive cash flow with my negative cash flow properties.
2. Loan Modification - modify your interest rate and terms to give you a better payment options. I've seemed modification to 2% interest rate for 2 year, then fixed at 5% for the remaining years. So far, I have not seem principal reduction for loan modification yet.
3. Short Sale - This becomes one of the hottest Exit Strategies for many property owners. There is no cost to the owner. Agent's commission, short sale negotiator, closing costs and expenses will be paid by the seller's lender. Best thing is, your credit can usually be repaired within 6 - 12 month. When your credit is restored, you can probably buy a similar house back at 50% off.
You are still qualified if you already stop payment. Actually, you do need to stop payment and show hardship. Once short sale approval started, we might be able to stop the trustee sale and prolong the staying of the owners if is an owner occupied unit. For those owners who is already in default, do not put this off. There is nothing to loose.
4. Foreclosure - foreclosure damages your credit for approximately 7 years. This is actually worse than filing bankruptcy protection. Do not ever postpone what you need to do and get to the position.
I will be adding an article in our resource center to further educate our members. If you need further assistance on these options, give us a call at 888-688-NCRE (888-688-6273.) It does not matter where your property is, we'll assist you with some options and help you restore your credit. Don't wait now!
Whatever you decided to do, best of luck everyone!
Denise Yee
