Posted by Bill H on August 09, 2009 at 17:24:35:
I agree 100% with Rick.
Excellent advice!
“If that makes sense, drop the rocks.”
I would only add “Before they drop through the bottom of the boat and sink everything.”
I have NEVER found anything embarassing about cutting the losses, clearing the air, re-analyzing the situation and moving forward.
I have stated all of my real estate career, “If you have NEVER lost in real estate…YOU ain’t doing much real estate.”
Good Luck,
Bill H
Credit Situation Unload or Hold - Posted by mike
Posted by mike on August 08, 2009 at 23:47:41:
Just for the record I want to say I love this forum…A appreciate everyones
answers. Here is the situation
Back in 2006 our business got nailed with customers not paying bills and
some withholding issues, stolen equipment, and other things that resulted in
our business accruing 120k in credit card debt to take on the burden.
I have 650k net worth on paper… All primarily vacant land and rental
property. As we all know when it comes time to sell net worth does not
necessarily reflect what your properties will bring at a fire sale.
All Rental Property and Land banking regulations require 70-75 percent LTV.
My DTI ratios are so high, No banks will touch me for refinance, even if the
cash is used toward this existing debt. Credit score is still 700 plus but the
burden of the interest on 120k of credit cards is sinking me slowly.
I have two properties I have under contract to flip or to expand my rental
portfolio with average returns of 30 35k per property profit.
Here is my question:
Do I unload these properties or all properties? I prefer to keep my properties
as this was going to be my retirement plan?
Or should we try to keep the properties and keep buying and build up
enough cash or pull out enough out of each rehab to procure the debt.
If we do 5 rehabs per year, pull 5k out each thats 25k per year. I am out of
debt in 5 years. Plus we have increased our cash flow by 5k and the
appreciation on properties with inflation will have increased.
I just know that with the declining market business is down, and making
these payments is killing me. I am trying to think of a creative strategy to
keep building my portfolio and getting out of debt, but Im not sure if this is
correct thinking.
Just FYI I only qualify barely for Commercial Loans. Secondary Market is out
of the picture for me. I would like to lock in fixed rates because Im scared
when inflation hits it could put me under if I have to refinance all of our
original loans.
Thanks
MIke
Only you can answer that question… - Posted by Rick, the Probate Guy
Posted by Rick, the Probate Guy on August 09, 2009 at 11:41:37:
In my experience with people who seek the broadstroke advice of others on such a complex, personal matter, its that they often don’t want to make a decision themself. I hope that’s not your case at all.
I enjoy hearing John Schaub tell the story of coming home one night and, seeing the dinner table set for a formal feast by his wife, Valerie, he asked the inevitable question: “What are we having for dinner?”
“Equity!” came her reply.
OK. This may not be the best time to joke around about this with you, however there’s a lot of truth in this story.
If you have $650K of paper net worth, what good is it doing you right now? Are your investments throwing off lots of positive cash flow? Are the credit card bills creating stress and dischord in your life and your family’s life?
And the big question: What’s you peace of mind worth?
Only you can (and should) decide what’s best for you. It’s no big deal to jettison those things that are truly not performing in your best interest. You’d more than likely also carve out some creative time and energy to be more selective, shrewed and clever in acquiring replacement investment properties.
I gave away a free and clear land with mobile a couple of weeks ago because the time and energy required for me to make it productive was greater than what I’m make on my regular, much-more-profitable, deals and the opportunity cost of the distraction was too high. So, I divested of a free and clear asset that provided virtually no benefit to me.
Of course, I retained a lienhold interest should someone else be able to extract profits later. Or, if it ever goes to tax sale, it’ll be years down the road and I’ll merely apply for the overbid surplus, if any. Suits me fine.
Anyway, don’t be afraid or embarrased to junk assets that aren’t doing you much good to hold. If that makes sense, drop the rocks.