Proficient Note Buyers
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December 07, 2009
Cutting Their Losses
Last week we received our first Christmas card of the season. Without revealing too much, it came from some friends who live on the west coast. The reason it was sent out so early was to notify all their contacts of their new address before our own Christmas cards went out to them.

Instead of the form letter that usually accompanies holiday cards, this one was hand-written. In it, our friends explained the reasoning for their relocation to a smaller rental house a few miles away from their previous residence, which had recently sold. The fact they had moved was quite surprising, considering they had purchased that house only 18 months prior.

The problem: The company that built their house still had 400 lots in the subdivision, and pricing on new homes was dropping monthly. In fact, the same model our friends lived in now sells for about $175,000 less than they paid 18 months ago.

In addition to this disturbing trend, the husband (wife is a stay-at-home mom) had seen his hours get cut back, and there is more than a little anxiety that he may lose his job. All things considered, they simply felt they needed to get out from under the big house with the big mortgage until their financial horizon didn't seem so hazy.

Unlike most people in a similar situation, they still had equity in the new house, since they paid close to 50% of the purchase price as a down payment. They listed the house at the same price the builder was now asking for the same model, and actually sold it in one day after a bidding war. (their house sat on a much more desirable lot than any of the new offerings)

They now live in a small rental house, but have a large cash cushion in the bank. Rather than taking the perspective of 'losing' $175K on the sale of their house, they chose to be positive and said it was just the right time to cut their losses before the market dove even further.

For every situation like the one I describe above, there are five where homeowners (or note holders, even) feel trapped. They feel they simply can't take the loss (aka discount) in order to sell their property or their note. Trouble is, market pricing just keeps going down. This is akin to someone trying to dig their way out of a hole.

If you are needing to cash out your real estate note, but feel like every dollar of discount is a dollar 'lost', it's time to change your thinking. Let us give you a few options to consider. If you anticipate a need for cash in the next couple years, it's probably a good and prudent financial decision to cut your losses and sell your real estate note now. The market doesn't care about potential gains or losses - the market is the market is the market. Considering the slope it has slipped down in the last 2-3 years, can you really afford to 'hope' it comes back strong anytime soon?

Give us a call - we're here to help.

Make it a great week.

Clint


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